What are my options for $25000 in credit card debts?

I have about 000 in unsecured credit card debt spread out over 9 credit cards (BofA, Citi, Mrk, WFG, Chase, Dell, Macys, Target). Why this much? I was dumb and stupid and have no sense of money management but was also married and made some bad business investments. I am now divorced. Majority are now at penalty interest rate!!!

OK so I have everything on a payment plan (except WFG that is soon to charge off) but here lies the issue. I have zero savings and my FICO score has already dropped to 475. The home bills (mortgage, utilities & vehicle) takes more than half my monthly income. My biggest concern and fear is that I have my first child coming this December and don’t want her to suffer due to Dad’s mistakes. My girlfriend has her own financial issue with the IRS for almost same amount as my debt, so I do not get help from her and I can’t help her own issues. But I need to start paying the hospital bills from the new baby, and the mom needs come break too.

Please advice:
1) Should I cut and run for the next 3-5 years and settle these debts later? Build a savings right now for the baby and her mom too. I am pretty confident I can take care of it later down the line. Maybe save up then start approaching them one by one (in about 12-15 months) and offer lump settlements.
2) Should I file for chapter 13 and get a court’s help on repayment; thereby reducing some of the outrageous fees and interest?
3) Should I go for those special payment plans with companies you see on TV? I have seen more negative comments than positive regarding this option

Any advice is appreciated and feel free to criticize my past actions. I can only learn going forward. Before I didn’t care but now I have this lady and kid, and they both take priority so I feel I should change the situation fast.
FYI, I am no longer using them for new purchases. Its just I ignored them for a while when I was going through the divorce proceedings and changing jobs which resulted in the high penalties I am facing. I have tried in the last 90 days to put everything on a fixed budget through payment plans but other issues and medical bills keep coming up. So far the medical bills have not been paid and are at 00 total; and the baby is still to arrive in December.
To sophieb & Timothy P,

thanks for the advice, I am reviewing the best option going forward.

Sopheid, a little more details: It is my first child and we are not married yet due to the IRS issue. Yes it was poor planning but I am happy I am having a baby finally; after trying for more than 5 years and divorcing for reasons connected to that.

I will explore the option you mentioned. Current salary is K which I just started last 2 months, about k monthly after taxes. Like I mentioned Mortgage (GF house!) and utilities and transportation is consuming about 00. My GF is helping as much as she can, but she makes less than half my income and has 1 kid already.

My issue is that, regardless of all being on a payment plan except for 1, the debts are not reducing. I feel strongly I need to start saving for medical bills and baby’s arrival and do not have the room currently to do so. This is why I am exploring alternative options.

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Wed, Sep 8, 2010

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15 Months, bad business, Bofa, business investments, Changing Jobs, Chapter 13, Credit Card Debt, divorce proceedings, Fico Score, Hospital Bills, Irs, Macys, Money Management, mrk, negative comments, outrageous fees, Penalty Interest Rate, Target, Unsecured Credit Card, wfg

Tags: 15 Months, bad business, Bofa, business investments, Changing Jobs, Chapter 13, Credit Card Debt, divorce proceedings, Fico Score, Hospital Bills, Irs, Macys, Money Management, mrk, negative comments, outrageous fees, Penalty Interest Rate, Target, Unsecured Credit Card, wfg

7 Responses to “What are my options for $25000 in credit card debts?”

Answer Guru Says:
September 8th, 2010 at 9:02 am

What you need is more income and less expenses. You take second or third job if your present job can permit it. Prepare a budget and try to stick to the budget. Goodluck

RUSerious Says:
September 8th, 2010 at 9:02 am

Start paying off the balance on each card. Whatever you can afford and of course, stop using them for new purchases.

Eventually, you will need to pay them off, one way or another. There is no such thing as a free lunch.

timothy p Says:
September 8th, 2010 at 9:02 am

1)"Should I cut and run for the next 3-5 years and settle these debts later?" Those large sums are likely to end up as a series of small claims cases and judgments against you.
"Build a savings right now " Until the creditor finds the accounts and uses the judgments they will get against you to freeze and drain the accounts.

2)"Should I file for chapter 13 " This would probably be best in your situation. The bankruptcy will haunt you for quite a while but it sounds like more credit is the last thing you need right now. If you are serious then offer the creditors the chance to settle before you file.

3)"Should I go for those special payment plans with companies you see on TV? " These are usually scams and could lead to the situation of small claims cases as stated in number 1. They pressure your creditors to settle by not paying your bills. They take their fee up front. You are adding the fee they charge to the top of your debt and making your situation worse.

You have another option. If you are serious about chapter 13 then get all of your ducks in a row. Don’t file yet though. Contact the creditors and let them know you are on the verge of bankruptcy. Use this as leverage to try to work out an arrangement where they lower the interest. Let them know that this is your last ditch effort to pay them off or they can take whatever the court gives them. This may prompt them to go ahead and file in court so be prepared to file for bankruptcy if they decline.

Try to negotiate them lowering the interest, removing the penalties and bringing your account current. Chapter 7 will scare them more than chapter 13.

sophieb Says:
September 8th, 2010 at 9:02 am

ok, let’s start with the mistakes you continue to make (rather than those in the past). You have a gf and are not married but you got her pregnant. So you will need to support your child but not her, and if you don’t support your child then you’ll go to jail (that will probably end a lot of your worried for a time since then you couldn’t do anything about them while sitting there). Your gf will need to be employed to support herself, does she know that?

I don’t know why at a time like this you’d be worrying about a FICO score. You’d either rent or move in with her family or yours for a while. Your gf’s issue with the IRS is her problem and not yours since you are not married to her and therefore her wages will be garnished. Remember that the IRS like anyplace else will charge interest and will increase to a hefty amount if she doesn’t get working quick and that IRS bill never goes away, not even in bankruptcy.

So you divorced one woman (with children?) and got a gf pregnant. See your problem is about irresponsibility and not all about just irresponsible with money. You need someone to counsel you.

You asked if you should build a savings? Now how are you going to do that if you have no money?
No, you should not file for Chapter 13 right now. And no you should not go to the scammers on the payment plans you see on tv…the correct place to go is CredAbility which used to be called Consumer Credit Counseling, however they have requirements you must meet.

I find it hard to comment if I don’t know about your job, your income, your career plans. Since it used to cost about $60,000 plus to raise a child thru age 18 I’d suggest you get a good paying job and then one more or even two more jobs on the side since you can’t charge the kid off to bankruptcy.

Matt Couch Says:
September 8th, 2010 at 9:02 am

New laws passed by the FTC under the Obama administration, have put tighter regulations on debt relief companies mainly targeting debt settlement companies. These laws ban the practice of collecting upfront fees. Debt settlement companies will now have to live up to their promises and negotiate a successful settlement deal or they won’t get paid.

The Credit Card Debt Settlement Act of 2010 will force the debt relief companies to live up to their promises and negotiate successful settlement deals. The days of collecting large upfront fees with no performance guarantee are over. The risk has been taken away from the consumer and placed on the debt settlement companies.

There are other personal debt relief options available such as credit counseling, debt consolidation, and bankruptcy. Debt settlement is considered the best alternative to filing bankruptcy and is only intended for consumers that are experiencing a legitimate financial hardship and have at least $10k in unsecured debt. Bankruptcy should always be the last option for debt relief.

Check out the following link to speak with a certified debt relief specialist that will go over all your options for free:

http://www.freedebtreductionhelp.com

Or Call: 877-853-6466

Financial Guy81 Says:
September 8th, 2010 at 9:02 am

You want to avoid bankruptcy at all costs if you can!!

As far as debt settlement, there are a lot of negatives to debt settlement. Although they reduce your debt, they charge high up-front fees, give no guarantees and can ruin your credit rating for up to 7 years. Most debt settlement programs will try and reduce your debt by 50%. You stated you have about $25,000 in debt so best case scenario would be that they where able to reduce it to $12,500. The other $12,500 is “forgiven” or “cancelled” debt.

What most people don’t know is that forgiven debt is considered taxable income so what happens is your credit card company will send you a 1099-C and you would have to report that “forgiven” debt as income on your taxes. This means you will have to pay taxes on an extra $12,500 when you file your tax return. Most debt settlement companies don’t tell you this.

On top of that, most companies will charge you a 10%-15% fee for their services. 10% of $25,000 would be $2500 in fees and then there is the whole issue of your credit being ruined for up to 7 years. These are all things you should consider before doing debt settlement.

I have been researching this for a while and finally found one service that works and that I trust. An attorney who is a former deputy attorney general of the State of California runs it. Their system uses Debt Resolution rather than negotiated Debt Settlement. It took me a while to understand the difference –but the difference is huge. Debt Resolution protects your credit rating and immediately lowers your unsecured debt by 60%.

This company has been in business for over 10 years so they are trustworthy
There is no tax consequence so you don’t have to worry about any tax issues like you do with debt settlement. And best of all, they give you a guarantee of 60% reduction of unsecured debt!!

I was in a simillar situation as you and they where able to help me pay off my debt in 2 years. They stopped all calls from creditors and reduced my monthly payments to something that I could afford. My credit rating actually went from the mid 500s to a 680. My debt to income ratio was reduced to nearly nothing which was the main reason for the increase in my credit score, but they also assisted in removing negative marks on my credit and unlike debt consolidation, or debt settlement, I don’t have to worry about any negative marks following me around for the next 7 years. Thanks to them, I was able to get a loan for a home (just in time before the $8000 tax credit ended…phew). They also will meet and consult with you for free to see if this is right for you.

Good luck!

admin Says:
September 11th, 2010 at 9:21 pm

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Answer Guru Says:
September 8th, 2010 at 9:02 am
What you need is more income and less expenses. You take second or third job if your present job can permit it. Prepare a budget and try to stick to the budget. Goodluck
RUSerious Says:
September 8th, 2010 at 9:02 am
Start paying off the balance on each card. Whatever you can afford and of course, stop using them for new purchases.

Eventually, you will need to pay them off, one way or another. There is no such thing as a free lunch.
timothy p Says:
September 8th, 2010 at 9:02 am
1)"Should I cut and run for the next 3-5 years and settle these debts later?" Those large sums are likely to end up as a series of small claims cases and judgments against you.
"Build a savings right now " Until the creditor finds the accounts and uses the judgments they will get against you to freeze and drain the accounts.

2)"Should I file for chapter 13 " This would probably be best in your situation. The bankruptcy will haunt you for quite a while but it sounds like more credit is the last thing you need right now. If you are serious then offer the creditors the chance to settle before you file.

3)"Should I go for those special payment plans with companies you see on TV? " These are usually scams and could lead to the situation of small claims cases as stated in number 1. They pressure your creditors to settle by not paying your bills. They take their fee up front. You are adding the fee they charge to the top of your debt and making your situation worse.

You have another option. If you are serious about chapter 13 then get all of your ducks in a row. Don’t file yet though. Contact the creditors and let them know you are on the verge of bankruptcy. Use this as leverage to try to work out an arrangement where they lower the interest. Let them know that this is your last ditch effort to pay them off or they can take whatever the court gives them. This may prompt them to go ahead and file in court so be prepared to file for bankruptcy if they decline.

Try to negotiate them lowering the interest, removing the penalties and bringing your account current. Chapter 7 will scare them more than chapter 13.
sophieb Says:
September 8th, 2010 at 9:02 am
ok, let’s start with the mistakes you continue to make (rather than those in the past). You have a gf and are not married but you got her pregnant. So you will need to support your child but not her, and if you don’t support your child then you’ll go to jail (that will probably end a lot of your worried for a time since then you couldn’t do anything about them while sitting there). Your gf will need to be employed to support herself, does she know that?

I don’t know why at a time like this you’d be worrying about a FICO score. You’d either rent or move in with her family or yours for a while. Your gf’s issue with the IRS is her problem and not yours since you are not married to her and therefore her wages will be garnished. Remember that the IRS like anyplace else will charge interest and will increase to a hefty amount if she doesn’t get working quick and that IRS bill never goes away, not even in bankruptcy.

So you divorced one woman (with children?) and got a gf pregnant. See your problem is about irresponsibility and not all about just irresponsible with money. You need someone to counsel you.

You asked if you should build a savings? Now how are you going to do that if you have no money?
No, you should not file for Chapter 13 right now. And no you should not go to the scammers on the payment plans you see on tv…the correct place to go is CredAbility which used to be called Consumer Credit Counseling, however they have requirements you must meet.

I find it hard to comment if I don’t know about your job, your income, your career plans. Since it used to cost about $60,000 plus to raise a child thru age 18 I’d suggest you get a good paying job and then one more or even two more jobs on the side since you can’t charge the kid off to bankruptcy.
Matt Couch Says:
September 8th, 2010 at 9:02 am
New laws passed by the FTC under the Obama administration, have put tighter regulations on debt relief companies mainly targeting debt settlement companies. These laws ban the practice of collecting upfront fees. Debt settlement companies will now have to live up to their promises and negotiate a successful settlement deal or they won’t get paid.

The Credit Card Debt Settlement Act of 2010 will force the debt relief companies to live up to their promises and negotiate successful settlement deals. The days of collecting large upfront fees with no performance guarantee are over. The risk has been taken away from the consumer and placed on the debt settlement companies.

There are other personal debt relief options available such as credit counseling, debt consolidation, and bankruptcy. Debt settlement is considered the best alternative to filing bankruptcy and is only intended for consumers that are experiencing a legitimate financial hardship and have at least $10k in unsecured debt. Bankruptcy should always be the last option for debt relief.

Check out the following link to speak with a certified debt relief specialist that will go over all your options for free:

http://www.freedebtreductionhelp.com

Or Call: 877-853-6466
Financial Guy81 Says:
September 8th, 2010 at 9:02 am
You want to avoid bankruptcy at all costs if you can!!

As far as debt settlement, there are a lot of negatives to debt settlement. Although they reduce your debt, they charge high up-front fees, give no guarantees and can ruin your credit rating for up to 7 years. Most debt settlement programs will try and reduce your debt by 50%. You stated you have about $25,000 in debt so best case scenario would be that they where able to reduce it to $12,500. The other $12,500 is “forgiven” or “cancelled” debt.

What most people don’t know is that forgiven debt is considered taxable income so what happens is your credit card company will send you a 1099-C and you would have to report that “forgiven” debt as income on your taxes. This means you will have to pay taxes on an extra $12,500 when you file your tax return. Most debt settlement companies don’t tell you this.

On top of that, most companies will charge you a 10%-15% fee for their services. 10% of $25,000 would be $2500 in fees and then there is the whole issue of your credit being ruined for up to 7 years. These are all things you should consider before doing debt settlement.

I have been researching this for a while and finally found one service that works and that I trust. An attorney who is a former deputy attorney general of the State of California runs it. Their system uses Debt Resolution rather than negotiated Debt Settlement. It took me a while to understand the difference –but the difference is huge. Debt Resolution protects your credit rating and immediately lowers your unsecured debt by 60%.

This company has been in business for over 10 years so they are trustworthy
There is no tax consequence so you don’t have to worry about any tax issues like you do with debt settlement. And best of all, they give you a guarantee of 60% reduction of unsecured debt!!

I was in a simillar situation as you and they where able to help me pay off my debt in 2 years. They stopped all calls from creditors and reduced my monthly payments to something that I could afford. My credit rating actually went from the mid 500s to a 680. My debt to income ratio was reduced to nearly nothing which was the main reason for the increase in my credit score, but they also assisted in removing negative marks on my credit and unlike debt consolidation, or debt settlement, I don’t have to worry about any negative marks following me around for the next 7 years. Thanks to them, I was able to get a loan for a home (just in time before the $8000 tax credit ended…phew). They also will meet and consult with you for free to see if this is right for you.

Good luck!
admin Says:
September 11th, 2010 at 9:21 pm
Please help support our sponsors
Click on their ads,
Please visit my other sites
http://www.howtostophairloss.net
http://www.ultimatehairlosstips.com
http://www.high-technology-market.com