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End of Road - Need A Strategy / Advice

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I'm going to try to get to the point and then go more into my larger history in case anyone is interested.


I fear I'm running out of options to prevent myself from literally running out of money due to paying all my debt payments on time. I can't assume my income is going to increase in the short-term and don't really have any significant room for further cutting of my budget. So I'm about to waive the white flag and say goodbye to my credit rating in order to save my sanity.


Bankruptcy I believe is not an option (read below) based on my conversation with a bankruptcy attorney. I realize you need to be careful choosing a credit counseling service (make sure they are highly rates, and don't charge anything more than a very small monthly fee processing fee.) I understand how the debt consolidation differs from a debt settlement service. But frankly I'm having trouble deciding which will give me the best balance between getting out from under the debt ASAP while minimizing my longer term credit hit. I won't be buying a car or a house anytime soon so my credit isn't a big issue in the short-mid term, but I also don't want my phone ringing off the hook.


After many users I finally, accidentally missed a payment on one of my business credit cards a few months ago. My phone started ringing off the hook and they raised the interest rate to 21%. BUT, they offered me a lower rate depending on how large of a balloon payment I would make. The payment was normally about $250. If I paid them $500+, they would take it down to 15% (which I did). If I paid them about $1000 they would take it to around 10%. If I paid them $1500 it went down to around 6% and if I gave them $2K they would take it to 0%!


Now I also had a credit counseling service see what kind of rate reduction I could get. Some cards there was a significant reduction (from like 14% to 6%), others there wasn't much of a reduction. If I stopped paying, I could probably get a settlement for less than I owe but I'm really not the type of person that wants to weasel out (even though the banks have made tons of me in interest.) The other thing about debt consolidation is that I won't be able to use the accounts anymore. I've only been able to stay afloat by continuing to re-use the principal I pay down each month to pay bills (so my balance doesn't go down, but, I never have a late payment and my credit is still good - at least for someone with a lot of debt but obviously I can't continue like this forever.)


So I'm trying to decide what to do.


a) Consolidate a couple of the highest interest accounts to get a lower rate and save a couple hundred bucks a month and try to limp along hoping my income will increase.

B) Purposely stop paying some or all accounts so I can negotiate directly with all my creditors and compare the rates they'll give me to that the consolidator will get. Problem is, my balances still stay high, and now I've wrecked my credit.

c) Stop paying some or all accounts (maybe the ones with the highest balance+interest) and enlist a debt settlement service to get the balance down, the payments down, and get out of debt ASAP and say good bye to my credit for 5-7 years?


The main thing I'm worried about is legal hassles involving the banks putting liens on my house. If all I have left is the $200K equity in my house, as long as I don't sell, can I do debt settlement and wait until everything is paid off to sell my house so they can't touch the equity, or are they smart enough to find out I have that much equity and not negotiate?


My background:


Self employed freelancer running two businesses (one service one product sales related). Variable monthly income. Made good money and like most spent most of what I earned. Starting 5 years ago income started to decline, spending didn't. Was literally banking that income would recover and then late 2008 WHAMO (along with many others.) Smart and resourceful so thought I could weather the storm (guess not that smart for ending up in this situation.)

Got about 5 cards with total $120K debt. One business card with $50K on it. Talked to a few credit counselors a year ago and met with bankruptcy attorney. Can't file for bankruptcy because I have about $200K+ equity in my home $600K home (use to be worth $900K in 2007) (yes one of the few homeowners under 45 years-old that has equity - only silver lining in all this) Selling my home is very very very last resort as there's a least a hundred hours or work and/or $20K+ in maintenance and repairs that needs to be done to get it in what I would consider 'good selling condition'. A distress sale would not be wise.


Got two kids (10 and 12), my own business, a 4,500 sq foot 5-bedroom house ( not my choice to live here) to maintain and I'm so stressed I can understand why some people choose to end their life (not there yet and don't plan to be.) Totally cut back in spending to virtually bare essentials with exception of maybe a conveyor-belt sushi dinner or pair of Nike's for my son for his birthday. Wife is working 0.8 for school district bringing in $45K and I'm bringing in about $65K (about half what I used to) We need to gross about $9-10K+ just to stay afloat break even each month with a large portion of that being credit card payments and morgage. Don't have the income to get any more equity out of the house.

Owned outright both my cars, sold one car for $20K and financed a different used car in order to raise cash two years ago. That has helped make up monthly shortfalls but has run out (and frankly probably just made it easier to downplay the severity of my situation.) Running out of assets to sell. Liquidated what little we had in 401Ks long time ago. Exhausted from the stress of watching my account balance swing lower and lower.


** Have been late only once or twice on a credit card payment (well maybe late on one or two) in probably avg 5 accts X 12 months x 15+ years = 900 payments over 15 years (probably much longer). Never missed or been late on a mortgage payment.


The interest is killing me and there is no light at the end of the tunnel as far as income bouncing back (at least not in the next 2-3 months.) Have done barter service trade with a $160/hr Career/Life Goal/Interview Strategist. Got lots of good skills/strategies for re-igniting my career (whether it be stay freelance or go back to corporate grind.) I'm just too expended trying to use every hour I'm awake to make money to pay the bills, take care of kids, and maintain my house let alone job search. I'm not unemployed! I'm actually slammed for short periods!


The stress is not worth it anymore as I fear my marriage and eventually my physical health is going to pay too high of a price to try to grind through this. I need a strategy to get some relief so I can "reset my life" This is in part why bankruptcy exists but like I said with $200K of inacessible equity in my house and the fact I'd virtually prefer to die than move (well maybe not that bad but there are other details I won't go into causing the house sale to be only a very very very last resort.)


Please spare me on the criticism. Although I've made some bad choices to get here I know what they were and how to avoid them in the future. I just need to move forward. I'll tell you one thing, it sure has made me see/view the consumerism in the country in a new light (which I got caught up in about like everyone else I know in this mid-upper class suberb I live in.)


There's a lot of underlying stuff I haven't gone into and anyone in a similar situation can probably understand some of those things but I've already written a novel here.

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We don't let people beat you up here. Looks to me like maybe your best bet is to go against your instincts and default on some of your cards and wait for a settlement offer you can live with. If you do go for credit counseling, you will have to close all the cards and live on cash. Hard for someone in your situation.


They cannot make you sell your house - if someone sued you and won a judgment, they would put a lien against the house and in the event it was sold later on, the lien would have to be paid. You can make sure that doesn't happen by being proactive, and saving up enough to settle the debts prior to any lawsuit.


As far as not welching on your debts, you can go back later and make good. In the event that's not possible for some reason, what we usually suggest is a donation to a charity you know will help someone else.


I won't comment on the bankruptcy option, since you've consulted a lawyer, and I am not one, but you might want to get another opinion. How are your businesses organized? Sole Prop? LLC? Inc?

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Just want to say I think breeze is right. You can stop paying on some of the cards, save the money you've been spending on them, and wait for settlement offers. Generally, the longer you don't pay, the less they're willing to settle for. They will be calling you, so I would suggest getting an answering machine to screen your calls. (Keep in mind that when you settle these debts, the part you don't pay will be taxed as income.)This will trash your credit, but as you said, that isn't your immediate concern. You will be able to rebuild your credit after you get out from under this debt.


As breeze said, this means going against your instincts. It's hard when you're used to being able to pay your bills on time every month and now you can't, but the situation has changed. You have to do what you have to do, and looking after your family comes first. Good luck.

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