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Dealing with Debt

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Thousands in CC debt, oldest starting college, need help

Sept 2012

Hi BPN, my husband and I are not able to organize our finances. We are kind of really stupid when it comes to it... we got ourselves out of credit card debt once, but slowly got back into it. Once in a while we figure out a budget, but we don't stick to it. In a month or two, we stop even looking at it. We owe thousands in CC debt, our oldest is just starting college and we have to take out large loans for that. We have a house with equity, but can't refinance because of the CC debt. I can go on...it's pretty bleak. We both have jobs and make okay money.

I always thought that financial advisor/coach is just for people with a lot of money, helping them investing and saving. But while reading a post here recently, it dawned on me that we could benefit from a financial advisor. So my question to you experienced folks is... can a financial advisor help us look at our spendings, set a budget and make a plan to get out of debt (no investing or savings are happening at any time soon) ...how much would that (about) cost, and did you find it worth it (and how do you pay if you don't have any extra cash) ...can you recommend somebody (Berkeley, Oakland preferably). Thanks so much! financially illiterate


Hi, I was freaking out about our finances and confronting the issue of our son going to college and we had a large debt from previous expenditures. I went on the BPN archives and Yelp and decided to see Julie Asti of Asti Financial. It did cost to see her but after filling out the forms and looking at our expenses and her projections of income, etc., it was VERY helpful. Plus one can constantly check in with her. julie@astifinancial.com good luck! ALso, sign up with Mint.com There's hope!
If you are looking for a financial advisor to help you determine a long term comprehensive plan I highly recommend Mark Zaifman (wwww.spiritusfinancial). Working with an independent financial advisor will cost you several thousand dollars - but you have to put that in the context of what you may end up saving in the long run (e.g., tax decisions, investment advice, as well as peace of mind). If you are looking to get more organized and develop and stick to a budget you can work with a financial coach. Typically this includes an initial strategy session and then ongoing weekly sessions (e.g., 30 minute phone calls) to stay on track. Rates range about $100-$200/hour. So figure about $200-$400/month for a few months. Again, the money spent will bear fruit quickly. Pat
If you have trouble using credit cards responsibly, then get rid of them. Pay cash/check for everything. You'll still need to budget, but at least you won't be going into debt. -Good Luck
We're in the same boat: middle-aged with 2 small children, my husband and I have amassed a fair amount of debt, lots of medical, credit card, not to mention the education debt! My husband works full-time in the trades and I'm part-time so our income is only fair and we STRUGGLE each month to just pay our bills. We have no savings and no savings/college/retirement plan and are often overdrawn.

Recently, I've done two things to help turn our finances around. A year ago I went to a free credit counseling service and consolidated about 6 credit cards. This company (Money Management International) contacts your creditors and works to reduce the interest rate. Then you make one payment to them (along with a minimal service fee - our is about $14/month) that satisfies the minimum monthly payment and that you can afford and they pay your credit cards each month. We have paid one CC off entirely and have 5 to go, which should be done in 2 years. No more late or missed payments and you can always go online and pay your CC directly or pay into MMI directly if you have ''extra'' money.

And yet, we are still overdrawing and have recently started using and accumulating credit cards again! In other words, our habits have not changed. Tired of living this way and wanting to change, I have just enrolled in Money 4 Life financial advising which uses the Mvelopes system. As I'm just ramping up I can't give a good indication of its effectiveness but it clearly has some advantages: First, Mvelopes is an online ''envelopes'' system wherein you direct your cash/income into envelopes (like they did in the depression and like my parents did when i was growing up) and you spend from your envelopes, NOT your bank account. Sounds obvious but, if you're like us, scrambling to make all those first of the month payments, you NEED something that shows you how much money you really have (or really don't have!). Second, you can sign up for Money 4 Life financial advising which is a once a month phone call with a financial expert to TALK about your budget, your allocations, your goals, how you're doing, what you messed up, how to fix it, questions you may have (I have to go to the dentist - where do I get the money??). You can do the mvelopes system for free but the issue is changing your habits! The financial advising costs about $50/month. I sound like a salesperson for them but let me tell you I have High Hopes for this working - they are going to help me accelerate my debt payoff so that we can be debt free (except education debt) within 3 years. We are talking about $20K in debt. I have taken classes in debt reduction but what I need is an advisor to help keep on track and help change my habits! Finally Turning my Finances Around


Some advisors (such as myself) will help you in this area but the fee is based on assets managed. A financial planner will help set up a plan, but they may or may not allow followup consultations, which it sounds like you want. David
two words: dave ramsey . We read his book, Total Money Makeover and its made a huge dramatic difference in our lives. In the first year, we paid off a 16k credit card. Still have lots of debt to pay off but now we are closing in on our car loan. He has 7 steps to financial freedom. Check it out. one baby step at a time

In a horrible financial predicament, not sure what to do

Jan 2012

I am in a horrible predicament and would like to get some advice. Background-divorced mother with full custody of 2 teenagers (one in college...not cheap....) without financial assistance of ex husband. I earn about 100K a year which sounds good but my mortgage including property taxes and insurance is $4200 or so a month. College is 2K a month. Applied for financial aid and got the bare minimum which is already used up...This leaves me with little extra. I have run up my credit card to 20K (I know- no judging please.) I have stopped using credit card but of course I am in a big jam as I cannot make minimum payments on credit card and am currently barely able to make ends meet. I tried to refinance but the bank said I was 'close but not close enough' to qualify for a lower interest rate. Now that I cannot pay my credit card bill I am now losing my credit rating. I am so upset and angry at myself for getting myself in this predicament however I am dying to right the situation and get back on my feet. Does anyone have any advice? Please- no judgement! I have done my best and even take extra jobs to make ends meet. My company pays for financial counselors but I am worried that I might get someone who does not know what they are doing? However-I do not have an extra dime right now so cannot pay anyone who you might recommend. The worst part of this is that I am so humiliated and embarrassed...I have not told anyone. However it is taking a terrible toll on me. I have one good friend that I could possibly borrow money from but that is just a band-aid and I need a real fix. thanks and it feels good to just get this off my chest. thanks bpn'ers very anon


What has said saved us was doing the total money Makeover by Dave Ramsey. He has a website and his books are in the library. If you can read and are disciplined you can run the program on your own like we did. Otherwise there are classes you can take online or in person. We've stuck with his principles and are digging ourselves out of a mess. Good luck! i see the light
First, you will be okay. Next, call a nonprofit credit help service. They are paid by the government to help deal with debt issues. Make sure they charge nothing and are a real nonprofit. They will help you consolidate debts, lower rates, and create a plan to get out of debt. That will relieve the initial stress. Then, call Beatrice Schultz at Westface Financial Planning BEFORE you do your FAFSA for your son this year. She is an expert at getting families the help they need with financial planning for college. Beatrice helps many people that I refer to her from my college preparation program. emily
Your situation sounds frustrating and my heart goes out to you. Financial planners will tell you that, if you have to choose, it is more important to make sure you have the savings you need for retirement before you pay for your kids' college. You can't borrow money to pay your expenses in your old age, but your kid can borrow money to finance their degree (and then pay it back when they have a job). Given your current financial difficulties, you need to stop covering some or all of that $2,000/mo for tuition. It's unfortunate, but your child needs to take out loans to cover more of that cost, get a job to help out, or even consider a lower cost option for school (maybe first two years at a community college, perhaps). It is a tough decision, but you have to make sure your basic needs to last you through old age are covered. Good luck!!! Daughter of a financial planner
I know you won't like it, but the answer is too simple - either cut expenses, or raise income. (Or spend what you have more effectively.) It looks like your mortgage and prop taxes are 50% or more of your gross income - you need to get this ratio down. Can you sell/downsize the house? Credit card debt is the worst - 30% APR. Stop spending, cut up the credit card, pay down the bills, live more simply. There's no other way. It's Too Simple
I used Consumer Credit Counseling Service in Santa Clara a long time ago and was totally impressed with how professional, non-judgmental, and kind the staff were. A nonprofit service such as a CCCS would be a good place to go; if you're really feeling shy, you could perhaps visit one in a different county. I remember calling, making an appointment, and filling out a list of my debts and expenses. The man who helped me had some great ideas about how to get back on track and again, no judgment.

Second, I have used the ''free'' employee services offered through my employer for all kinds of free advice and found it really helpful. I always ask where the person who's helping me is based (to avoid sharing personal information with anyone in my area, specifically because I have a somewhat public profile and wish to keep our financial stuff personal). The advisers, everyone from a financial planner to a real estate attorney to a tax attorney, provide a certain amount of advice (time based) for ''free'' and after speaking with them I felt like I had a better handle on what to do because I knew more about the options. It's kind of like knowing a bunch of smart people who you can consult with for free to get some good ideas with no obligation.

Anyway, just wanted to encourage you to get help. There are SOOOOO many people struggling right now and there is nothing to be ashamed of. also struggling


Regarding your credit card payments, I have used Consumer Credit Services- Money Management in the past. They were incredibly helpful and non- judgemental. They meet with you, figure out all your credit card debt, figure out how much you CAN afford to pay a month and work with the credit card companies to lower your interest rates. While you're on their program, you're not allowed to apply for any new credit cards. I had thousands in debt and payed it all off through them. They're a non-profit company, and only take a very small monthly fee. www.moneymanagement.org ---
Check out Dave Ramsey and his book ''The Total Money Makeover'' (you can get it from the library or go to the website). You'll find a lot of useful answers to the questions that you asked. It seems to me that a $4200 house payment isn't sustainable on your income. Can you consider moving? That would lift a huge burden off you. Anon
What a difficult situation! I have not been in your position so cannot comment on that side, but what automatically stuck out to me is the $2000 a month you are paying for your kids' college. I honestly think you need to have a ''come to Jesus'' meeting with your kids and tell them you will have to reduce the amount you contribute and thwy will have to increase. Three months into my college career my father fell ill and did not work another day until his death. My mom was a sahm scraping by. I begged and pleaded with the financial aid office, who gave me another $500 grant for the year (whoopee) and the rest in additional loans in my own name. I worked 30 hours a week in school full time aNd graduated with loans too. Oh well. My mom would send money here or there, or occasionally buy me a plane ticket home. Why do so many kids today automatically expect their parents are required to pay for college? It's nice if the parents can, but obviously you cannot at his point! Be honest with your kids a Nd let them learn from your mistakes. It is painful but you have to start somewhere. Hope you can get through it! just do it
I don't have specific suggestions. I just wanted to say I'm a single mother of a child still in college. I've been alone with the responsibility since she was 7. It is just HARD in the Bay Area to raise a child alone. I hope this doesn't sound like bad news to you because I don't mean it that way, but I AM the worst case scenario and I'm coming out the other side. Sick kid, credit card debt, foreclosure, high rent, business failed in the 2008 economy, bankruptcy, living with family. I mean, all that.

I don't think I've told any one friend about ALL those things because, well now I'm starting over but I was embarrassed and ashamed. The bankruptcy was the icing on the cake and sitting there with the document preparer felt like just rock bottom, but she told me there are so many people in the situation. There are, it's a nation-wide, world wide thing. Nolo Press even re-wrote the intro to their bankruptcy book to reassure people not to be ashamed. So don't be ashamed. I know you're not that low but still, don't. Be proud of yourself. People who are supported and who may judge have no idea how quickly they would use credit cards to pay for medical help or college or whatever for a kid if they had to.

I do think I'd find a way to get out of that mortgage though, get into a smaller place. Look into the bpn archives about short sales (if you own) and options for getting out from under that, just to get the cash flow going. It's excellent that you have work, be thankful.

Sorry no big suggestions, just a few words of encouragement. I guess I want to say, if I - the lowest of the low - can survive, you can. Don't give up. Do all you can. Listen to other people who post. And if it gets as bad as it can, which it probably won't, you will survive. Everything you're doing for your kids matters. best of luck


I'd suggest calling the Consumer Credit Counseling Service of San Francisco. They will work with you to develop ''debt management plan'' which entails them negotiating a lower interest rate with cc companies on your behalf and coming up with a feasible consolidated payment for all credit card bills. Don't be ashamed of calling or worried about your credit because of doing so; I did this and it did not impact my credit negatively, and most importantly, it helped me get out of debt. Been there too
Hi Very Anon - sorry to hear you're in such a stressful situation. I always say while money doesn't bring happiness, it sure makes things a hell of a lot easier

Here are some recommendations I would make in order of first moves to last resorts assuming you have already trimmed all discretionary expenses that you are able.

First, you need to tackle that credit card issue. The interest and credit rating repercussions are going to continue to hurt. Have you tried calling the credit card company and negotiating a plan with them? Or perhaps a legitimate debt consolidator? I had a friend whose husband got into credit card trouble and this really worked for them.

Second, and I know this is difficult as every mother wants to provide everything for their kids, but can your son take out a small college loan to help with expenses and free up a little monthly cash for you? Nothing major that will put him in debt he can't see out of, but just something to loosen your belt until you can get your financial house in order. Maybe by the time he graduates, you'll be able to help him out with the loan balance.

Lastly, and this isn't a great option, but if things are really so bad, perhaps home ownership isn't where it's at for you right now and selling and moving to something more within your current budget and with fewer monthly expenses might make sense. It's worth thinking about. I wish you the best and hope things improve. Renee


I was in a similar situation, so no judging here. My thoughts are: Call your credit card company IMMEDIATELY. Explain the situation to them. If they ask what happened to you financially and why you can't make the full payments right now, tell them you had unexpected medical expenses; they cannot explore that (even if they wanted to) due to HIPAA. For us, this was true. For you, maybe it is and maybe it isn't. It doesn't matter. They're a CREDIT CARD COMPANY! They have plenty of money! Get on a payment plan agreement with them. Get them to lower your interest rate. If the first person you called says there nothing they can do, call back later and you'll get someone else. It took me a few phone calls to finally find someone who knew what the rules were about this sort of thing. For us, our companies (we had THREE that we did manage to pay off) lowered the rates to about 9.9%. One did it and cancelled the card, which was fine. The other two did it based on us making the payments on time. This will help protect your credit rating.

As for your child in college, I have less information. I would say ask the financial advisor/any CPA friends about if your child can become independent on paper for tax purposes, and therefore apply for financial aid her/himself. The college will also have a financial aid office; they will know all the ins and outs. Call them for advice. Perhaps your child can do work-study to offset tuition in the future? Perhaps your child may need to take some time off from school and work? I am sure that universities allow their students to take a leave and then come back without having to re-apply. You don't want to lose your house, and if you can't pay, you can't pay.

Refinancing. What are the parameters of the bank saying ''close but not close enough''? Find out. There may be something in there you can work with.

Finally, explore things like food banks, keep up with your second job, ask your teens to work and give part of their money to the family, etc. Can you take on a renter for awhile? I have heard that college-aged foreign exchange students are nice for not only the sharing of cultures but you also get paid.

Don't borrow money from your friend. Trust me; I have, and it gets weird. It's just addressing one debt with another. hang in there!


How about sell the house and rent a small apartment for a while? You didn't say that you were underwater so, if not, your house is your biggest financial asset. Use it to get yourself out of this situation, and now (coming up on spring) is the right time to do it. (However, as Suze Orman would say, do not use the house to pay more than your already-committed share of your kids' tuition. And definitely make sure the college is aware of your changed financial situation for next year.) Good Luck
I'm sorry to say this but it is time for you to sell your house. There is no way to keep your head above water with a $4200 mortgage and a $100,000 income. While $100,000 sounds like a lot, it really isn't. You can get a decent condo for $200,000 these days, getting your mortgage down to $1500 per month. Or you could rent if you don't have the down payment. If your house is underwater, walk away from it. You could just stop paying your mortgage and stay there for up to a year. The money that you save can be used for your moving expenses and deposit on your new place.

It's a brutal strategy but it will solve your problem. I really don't understand how you've made it this far with such a high mortgage. Mine is $2300, I make 2X what you do, and I still find finances to be stressful. Sorry about the nuclear option


I'm sorry to hear about the predicament. While you may feel alone, I can say with confidence there are many out there in the same position or worse. Of course this isn't meant to make you feel any better about the future. My guess is the mere fact you are asking this question means you've already taken measures to save what you can. There are other avenues, (could you live with less house, does your oldest work while in school, etc...)

As an advisor I've come across this many times before, feel free to email to discuss further if you wish. (and I understand you aren't looking to hire anyone, conversations don't cost anything!) David


Hey, There is no need to be so hard on yourself. It seems like you are extremely hard working, the funds just don't add up. It could be time to refinance or look into a smaller house. It is a great time to buy. Is there any possibility of renting out a room? The US is one of the few places in the world where you can make a 6 figure salary and feel poor. I was a teacher for adults and when I got pregnant my entire program was defunded due to budget cuts. Our surplus went to k-12. At first it was great because I went on unemployment. Now, I need a job and it is unbelievably difficult. You are lucky you have found such a high paying position. I hope you work out your finances soon. good luck
I'm really sorry to hear about your predicament. I'm a financial advisor and it pains me to see people in your situation. That being said, since you are asking for a FIX, not a band-aid, I'll give you some suggestions that may be harsh, but you are in a place where I don't think small steps will make much difference. Bear in mind, that I don't know enough about your situation to know if these suggestions are possible for you, but with the limited info you provide, I would suggest:

- Sell the house and rent instead (I've got to believe you can find a very small place for a lot less than your total mortgage/tax/insurance expense). Maybe it's a one bedroom in an undesirable neighborhood. Perhaps that means you or your teenager has to sleep on a couch. Many people in this world live in much worse conditions.

- Stop paying for college. Your kid needs to either find work/loans/scholarship money or to Community College. They'll definitely learn the value of money and will probably become more determined than ever to avoid getting into the same financial predicamet that you are in when they get out of college.

- See if you can do a transfer of your credit card debt to a 0% interest card. I know these are teaser rates, but at least it'll reduce your interest expense for 6-12 months. Keep doing that for as long as the CC companies are willing to take you.

- I'm assuming you haven't saved any money and retirement is far from your mind, but it needs to be part of your plan. Your goal should not be to get to breakeven. It should be to get to a point where you can save money every month to a 401k and savings account.

I know the first two suggestions are brutal, but unless there are some assets or income you didn't mention, I'm not sure if you really have a choice. A concerned financial planner


I'm sorry about your troubles and commend you for having two teens on your own. I'll tell you what has helped me. First, I recommended to my mom who was having trouble with mortgage to share and rent one or more rooms. (My mom rented two for $650 each, but she was in Texas. The rates are higher here). This will save you a lot of time and help you make your mortgage. If one child is in college, then maybe you have a spare room... but these can go, depending on amenities, a second bathroom that can be dedicated to the renter, etc. anywhere from 650-800... If you are close to UC or BART, that's a boon. Does your home have a good walkscore? If so, this is a factor too. You may offer it furnished or unfurnished.

2) Another helpful thing is Debtors Anonymous. It helped me personally very much. Specifically they have tools to help reduce your credit card debt and pressure relief groups where you sit for two hours with one man and one woman and talk about your money issues and they give ideas and solutions. You bring records and any documentation and tally your debt and come up with a viable repayment plan to keep your sanity, home and quality of life. The meetings are also a big help in terms of sanity and practical ideas from people who are in the boat with you, or have been in the past.

3) There is a woman from D.A. who goes to Alta Bates cafeteria on a Friday night, I believe from 6:30 to 8:30 and sits there writing up expenses. Anyone can join her. This is a great exercise and can help you come out of denial about where your money goes. Even if you have a pretty good handle on this, there is always fine tuning to be understood and dealt with. It can be helpful to put these ideas on paper and consult the pressure relief group. If it's hard to make time to actually sit down and do it? Well, there are others to do it with you, check your math, answer questions.

4) There is a good book, How to Get out of Debt, Stay out of Debt and Live Prosperously by Gerrold Mundis, a good book. He took some of the 12-step ideas and went to press with them. Still, it's helpful. 5) Look for relief from others. Is your college child working 10 hours a week to contribute to the cost of schooling or cost of living? Are you sure that dad cannot be held accountable? Have you consulted with anyone about that? These are my off the cuff ideas. Also, willing to chat. Hang in there!


I can completely relate to your situation, as mine is almost identical. I was so looking forward to reading the advice given to you, but it didn't address retirement funds. I realized that my situation was getting bad when I had to withdraw funds from my IRA every year for the past few. The money is vested, but there are still tax implications and I realize this isn't a smart way to live. So I have been trying to sell my house and downsize for over a year. During this time, I have had to run up credit card debt to fix the house up to sell. Now I have credit card debt similar to yours, and the selling price of my house has decreased so much that I will have to pay a few thousand to sell it. That being said, getting rid of my mortgage will be a huge relief.

However, I am still going to be stuck with Credit Card debt and I am afraid that my excellent credit rating will be damaged. So I am planning to withdraw more money from the IRA to pay off the CC debt. I would love to hear what the Financial Planners on the list have to say about using retirement funds to pay off Credit Card debt. I have another 401K plan from my current job that has some money in it, but I imagine that I will never actually retire as I am single with 4 kids, and only the first in college.

I hope that you consider selling your house, even though it has been a big hassle for me. It will really take away a lot of the stress. I know how it feels to spend 1/2 your income paying for your home. Anon


Drowning in debt; consolidation?

Sept 2008

Hi all, I can't afford a financial advisor. Basically, we bought a house in the east bay before our house in SF (bought 4 y ago, 100% financing) sold. Then the market took a down turn and it didn't sell. It's being rented, but we recently had to stop making payments on our mortgage, as we simply didn't have the money. It's still on the market and we hope to get an offer for a short sale.

Meanwhile, we also have managed, somehow, to rack up close to $100,000 in credit card debt, much of it at high interest rates (some of it was used to cover closing costs for our new house). We own our own business and it's incorporated, but not enough money is coming in lately as the economy has slowed.

My question is: has anyone used one of those debt consolidation services before? I know it lowers your credit score, but at this rate we'll never be buying another house again, so that may not matter too much. We only have one car, paid for, so we won't be buying another one for awhile, either.

Thanks for any and all experience and advice. And please, we are humbled enough as it is; no 'I told you so's''. Thanks. Super Stressed Mama


Time to start over. Bankruptcy is the answer. Debt consolidation will only prolong the inevitable. Plus, you'll have to delay filing since it would probably be a presumption of abuse if you filed right after. And you risk losing your primary home in foreclosure if you're not protected by bankruptcy and can't make the payments. Since you have an income and own homes probably chapter 13. We don't own one and had low income so we qualified for chapter 7. Attorney made us wait months to file since we had taken out an unsecured loan and he didn't want us to be accused of abuse. The wait really hurt us. You probably don't want that to happen which is why you shouldn't consolidate. Start interviewing bankruptcy attorneys now would be my best advice. There is light at the end of the tunnel. It feels great not to have to pay any more credit cards. Good luck. Anon
Since there are a lot of charlatans in the debt consolidation business, you may want to read the FTC's page on what questions to ask and what to be aware of when you're looking for a service provider in this area. The link to the FTC site is here: http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre26.shtm Good luck! anonymous

Is it better to save or pay off credit card debt?

Sept 2008

Due to some financial irresponsibility, a sudden job loss and a couple of other factors, we've built up some CC debt. We cashed in a 401k to pay off a big chunk of it, but we still have some left. We used up most of our savings during my job loss just to support the family. Now that we're up and running again in the employment arena, we need to start figuring out how to get our finances under control. We have to *quickly* save in order to pay the lovely property taxes due in Dec, as well as pay down our remaining debt. How do we do it? We can definitely save enough in time to pay for the tax bill, which is good, but that is putting all of our extra money every month into savings and not paying down any of the debt. I've gotten a 0% interest for 12 months card, so at least I won't be accruing interest during this time. Then what happens after we pay the bill? Do we split our monthly residual into two? Half to the cards and half towards savings? How have others done it? My goal is to have all the cards paid off by the end of next year, but I really don't know how realstic this is. Just as a point of reference, we're talking about $11.0k in credit card debt. How have others gone about organizing their finances in order to 'kill two birds with one stone'? fiscally responsible in '09!


I just wanted to recommend the book The Total Money Makeover by Dave Ramsey which outlines the best way to take care of your debt and finances. He has these 7 steps to follow, but the first couple pertain to your situation now. Setup an emergency fund of $1000 (or at least $500) before paying any credit cards. This will help eliminate the need to fall back on credit cards in the future. Then start paying off your credit cards starting with the smallest balance first, not the lowest interest rate. That means all extra income possible goes toward that balance while the rest get paid at minimum balance. The website is www.daveramsey.com but I suggest just finding/borrowing the book and not worry about all the extras they try to sell. It's a sensible plan to get you back on track. Needing to be debt free too!!
Well, firstly, building up the money you will need to pay your property taxes is not ''savings.'' That's a housing expense. For the future, divide the total amount of your annual tax bills by 12 and make sure you put aside that amount every month. (You may need some surplus to account for the fact that the installments are due 4 months apart or whatever it is, rather than evenly spaced in the year.) The fact that you keep it in a ''savings account'' until you have to pay the installment doesn't make it ''savings.''

Second, if you have to choose, it's almost always better to pay off debt than to build up savings -- because typically you pay more interest on debt than you can earn on savings. But you do need to have a bit of a savings cushion for emergency use, which most financial planners say should equal three to six months' living expenses. So if you don't have that, you may want to take the 50/50 approach or something for a while until you do.

Third, get rid of your credit card debt faster by reducing the interest rate on it. Do you have a home equity line? Do you have any equity in your house? You'll qualify more easily for a HELOC now that you're employed; the interest rates are generally low and you can usually deduct the interest you pay from your taxes as mortgage interest. And it gives you some emergency borrowing power too, which reduces some of the urgency for rebuilding your savings. Even if you can't get an equity line, perhaps it makes sense to get a personal line of credit or a consolidation loan, or at least to shop around for a credit card with a low rate and a free balance transfer, so you can get the best possible deal while you pay down your outstanding debt. Good luck! Glad we had the equity line when we needed it


Save your money. Eleven thousand dollars is not a lot of credit card debt. But I'd advise not to charge any more. After you have saved enough to pay your property taxes and cover future periods of unemployment, then start paying the debt down. Otherwise, if you pay off the debt right now and lose your jobs, you'll have no money to live on. Anon
Treat the credit card debt as a FIXED EXPENSE like gas or insurance. We had at one time a $22,000. balance on a high interest card account. I found some alternatives that involved balance transfers to either no interest or very low interest cards (even tho there were balance transfer fees) & paid off a fixed sum every month on those accounts. It took 1 1/2 yrs. but it got paid off. Since that time we have never run a balance on a credit card unless we got an offer of one year of no interest if the balance was paid off completely (like a major appliance purchase). We have a terrific credit score now, one of the highest one credit card person said he had ever seen. Paying off the credit card accounts in a steady, timely manner will not only save your money; it will increase your score so that if money ever becomes available again, you can have some choice in borrowing. But make a real effort to cut expenses; going out to dinner or getting take-out food (try planning having leftovers for really busy evenings); get a good commuter cup instead of $3. lattes. These things really add up at end of each & every month. Been there; done it
My understanding is that it is almost always better to pay off credit card debt before applying the money to savings, since the interest on the cc amount is so high. If you have a 15% interest rate on your credit card, for example, think of paying off your credit card debt as earning 15% on that money -- that's a better return than you'll get in any savings account or CD. See points 1-3 in this article from the Motley Fool for more detail: http://www.fool.com/personal-finance/credit/9-ways-to- pay-off-debt.aspx Penny-wise

Being sued by credit card companies

Dec 2007

Help! Has anyone been sued by a credit card company? What should we do? Our house is being foreclosed on and we have sooo much debt. A few months ago, we had credit scores in the 700s. This is so crazy. We have a baby due any day now. Any recommendations for lawyers? Is that what we need? Please help!


I'm so sorry that your financial situation is so stressful. A friend was in a similar situation and I'll share how she eventually handled it, but, first, are you sure that credit card companies are suing you, or are they pursuing you aggressively, turning your debts over to a collection agency etc.? If you're being sued, I'm not sure if what I'm writing will be helpful...

Our friend had debts up the wazoo to many credit cards, loan sharks, you name it, and each of these companies used collection agencies. I went with her to discuss bankruptcy with Patrick Forte http://www.patforte.com/ in Oakland, and he seemed to be a very competent lawyer, but she didn't use him in the end, because she negotiated reductions of her debts as low as 20% with some of the agencies, and then she was able to handle the payment plans. Mr. Forte described bankruptcy settlements at 10%, but then the settlement folds in his fee ($3500 at the time) and some court costs, so my friend came out more or less even.

It sounds as if you're in a much more serious situation so I'd recommend a consultation with Forte since there's no fee for that. I don't know if Forte handles lawsuits, but I'm sure he can refer you to someone. If you're able to and decide to work with collection agencies, be very polite but assertive in your negotiations. I held my friend's hand through many of these stressful phone negotiations, and they all went the same way: The agent was almost always business-like but quite nice, actually; he/she would begin with a high figure (50%-80%), and, each time, my friend would reply with honesty that there was no way she could handle the payments, and the bartering continued until they'd reached that company's bottom line. Best of luck to you. You can get through this! Anon


If you are in the East Bay, run, do not walk, to http://www.cccsebay.org/. (If you live somewhere else, you can find the affiliate closest to you at www.nfcc.org. These folks are legitimate, not charlatans who will take your money and leave you stranded. They can work with your creditors on payment plans, etc., and their services are free or low- cost. Good luck! Lisa
I just saw a documentary by errol morris where he interviews an agressive lawyer who has made it his mission to take on the credit card companies who try to sue consumers. the name of the 3 disc series is Errol MOrris: The first person. Sorry I don't have the name of the lawyer, but you can find it online somehow. I think you should watch the documentary and see if you think you can benefit from a lawyer. Good luck. kim
Call one of the big law firms they will give you plenty of free advice. But in my experience the CC companies all threatened me but none ever followed through. It costs them something like $15,000 to take you to court. Survivor

In over our heads with debt!

October 2007

We bought a house in the bay area that we could not afford and now a year and a half later, after using credit cards to make up the gap every month, we're drowning. With baby #2 on the way, we just don't know what to do. We are not extravagant in any way and after taking on extra jobs we're still in the hole every month. We tried bankruptcy but the amount that we were asked to pay every month would have still left us in the red every month considering child care for a second child. The lawyer suggested we just don't pay the credit card bills (and pay him $600 a month to basically take the phone calls). Has anyone heard of this? Please help. don't know what to do.


My advice to you would be to find another attorney since this one sounds like he is trying to take advantage of your situation. I have never heard of an attorney answering phone calls from creditors for a fee. A good attorney will work out your bankruptcy and the amount you pay back each month to your creditors. I risk sounding like a broken record but if bankruptcy won't work maybe credit counseling? All in all my deepest sympathies. Hope you find a good attorney
I feel for you. The bay area is a tough housing market. Have you thought about maybe renting out the house you own and can't afford and getting an apartment for your family instead somewhere less expensive? You might find a way to get some traction there. Now may not be a very good time to sell your home, but you can maybe get by with someone else better-positioned to pay the majority of the costs. Dump the disreputable lawyer. You need to pay off your credit card bills asap. Try going to the bank that holds your mortgage and ask for a fixed-rate term loan for the purpose of paying off the credit card debt using your home as collateral over, say, a nice long 10-yr payback period that will make it doable. Then pay off the credit card companies and get them out of your life. Hopefully you haven't defaulted on the cards yet and still have the credit capital to get the loan you need b/c it will be very hard to pay them off once the default pricing (um, otherwise known as ''predatory lending'') kicks in. Unfortunately it is no longer online, or I would send you a cartoon that epitomizes the banking industry to cheer you up a bit. You are not alone in your dilemma. If you have any family members who could help you out with a place to stay while you're renting out your house or could co-sign to get the loan you need, now would be the time to call on them. Good luck! -anon
Hi, Where did you find this Laywer? Unless there is more information than what you wrote, what he is suggesting sounds highly suspect. Here are some other ideas:

I know this is a really horrible time to sell your house but if you are facing bankruptcy this seems like it would be better alternative. Depending on what your mortgage and property taxes are you could save a bundle by renting. Plus, you could pay off your debt.

Is there anyway you can cut back the cost of child care? Many times people want to have an in-house nanny for their new baby when it's much less expensive and just as fine to use an in-home daycare.

Can you re-finance to help lower your cost? Living in the Bay area is hard. We own a home and have two kids in preshool and it seems like every month I hold my breath. I Feel your pain. anon


Yeah, it seems what you've gotten yourself into is a common phenomena...house rich but money poor. Why you chose to buy a house that was beyond your means just doesn't seem to make much sense but I guess life is all about the decisions we choose to make and life is unpredictable. I'd fire the atty you've hired who is charging you $600 for phone calls. I'd suggest my bankruptcy attorney, Richard LaCava. He is in San Francisco. If you speak to him, I'm sure the chances of him giving you sage advice will prove helpful. Good luck to you. I hope you find a solution and learn your lesson: Trying to live a ''certain image'' is expensive... Been there
Sounds like you need to sell your house. As unattractive a prospect as it may be to go back to renting (or ''trade down'' for a cheaper house in a less outrageously expensive area), it's probably the best way to get your heads back above water, assuming you have enough equity at this point to cover the costs of sale and pay off those credit cards. The monthly cost of renting is almost certain to be less than your current housing costs -- and selling now is going to be much easier than winding up in foreclosure later.

If you had any prospect of an increase in income soon, or if you're now meeting your monthly expenses EXCEPT for the accumulated credit card debt, an alternate possibility might be taking out an equity line of credit. Use that to pay off the credit cards, consolidating your debt at a lower interest rate. Make interest-only payments without penalty until you're able to increase your income and pay it off. This is, of course, a riskier choice since it doesn't actually get you out of debt. anon


Before paying ANYONE besides debtors please consider talking with a representative about your situation. You would be surprised how some companies would we willing to work with you. How is talking on your phone calls going to assist you in getting out of debt. You would still owe the money you originally owed and plus you would be out the money you paid the lawyer. Sounds like a double whamm! If that fails consider consolidation, maybe it would be cheaper than current expenditures. Why pay the lawyer?
I'm really sorry to hear that. I bet it's more common than people let on, especially here in the bay area. I think the first thing you should try to do is sell your house and either buy one or rent one that is more within your budget. If that is the biggest capital outlay you have, then that's where you need to start. After that, you can go through your budget and see how much you can pay toward childcare and credit card debt and work with your income to see how much can go to what. We looked at all of our credit cards and their balances and the one with the highest balance we started to pay off more than what was due while the other cards got paid the minimum. When the first card is paid off, then switch that money plus the minimum you were paying on the next highest card and pay that one down. We're currently doing this and it's slow but working. I don't think paying a lawyer a monthly amount will help you in any way when that money can go directly to your bills. But I really think you need to get from under the house payments you can't afford first. Good luck! Pam

Financial problems since buying house

Feb 2007

My husband and I bought a house 1.5 years ago, when I was 8 months pregnant. We thought it'd be a financial stretch, but that we would make it work. My husband works in construction and has had several slow periods. Then we've had unexpected major expenses. I'm already working 2 jobs. We are extremely frugal, but still we've been using credit cards to make ends meet. We often talk about selling, but we'd probably lose $. We are a family of 5 in a 2 bedroom, so renting a room is not really workable. Building a studio is so costly. I feel trapped and I can't seem to figure out what to do. Who do I turn to for advice? I need some creative solutions. Or maybe we need to sell and just cut our losses now? Any suggestions, would be greatly appreciated. Thank you. Anon


Could your husband get a flexible job that pays less and would allow him to go back or that he could combine if the construction jobs kicked in? anon
I am so sorry to hear you and your family are crammed into such a small space. Life in the Bay Area is harsh forcing many of us to live in spaces smaller than we ever thought we would have to settle for. Add work instability, rising mortgages as interest rates fluctuate, and unforseen costs and life can sometimes become unmanageable.

Please don't sell your home unless you are in at least one or more of the following situations:

1) Selling your home will keep you from declaring bankruptcy 2) Rent for a 3 bedroom is less than your mortgage and there are plenty of 3 bedroom rentals to choose from 2) Moving to another area in the state or country will increase your income and lower costs

Otherwise, you may worsen your situation by selling. My only other suggestion is that your husband take a part time job during down periods or consider changing careers. Make sure you pat yourself on the back for working so hard to make ends meet and enduring numerous sacrifices by holding down two jobs. Best of luck. Anon


Stress and Debt Wearing Me Down

Jan 2007

I need help getting my head above the ongoing, crushing stress that is choking me and making me further depressed by the day. I have student loan debt that is equivalent to a mortgage but without the house. I have a job that is sucking the life out of me with the level of stress and deadlines and negative conflict, but allows two work at home days per week and pays me well enough to just stay afloat of my debt, monthly bills, and child care as a single mom. I definitely can't get ahead in this area. My aging mom and some siblings live in the Bay area- which is the main reason I stay-especially as a single mom. The immense joy in my life is my toddler whom I adore and look forward to being with- most of the time; though, I have no time for myself at all and I'm becoming a bitter and angry person. It's hard to be here surrounded by so many beautiful, unaffordable homes and realize unless I sell my soul and compromise my relationship with my child (which I won't do) I will never really make a dent into my debtload to afford a home here. It feels that life is so damn hard and I resent those with wealth and who have it easy. I think I need a career change as well as an attitude change and maybe some anti-depressants, but I'm so swamped and overwhelmed, I can't figure a way out of it all or even what step to take first since I have almost zero time. Losing hope and no longer the upbeat, happy, joyful person I once was....it's becoming scary and I need to snap out of it for my chid's sake and mine. All comments and suggestions welcomed. overwhelmed


Consider Debtors Anonymous. It's an AA based program with people for whom debt and money are overwhelming, consuming issues. My friend is an active member, and praises DA for keeping her out of debt and helping her focus on future achievments. http://www.debtorsanonymous.org/ anon mom
First of all, you have to know you are a great mom willing to do what's in the best interest of your child. You sound like a great person but so overwhelmed you can't make a clear decision how to even start. In my past I had the debt situation, including loans, acquired debt, and I felt like the only thing I was paying off was interest, but the bills never seemed to be going down. I also had anxiety attacks which make the problems worse and make you feel more depressed. Here are my recommendations which worked for me. 1). Get immediate help for your state of mind (i.e. counseling to discuss problems/medication if you feel depressed 2). Consolidate whatever your debts are into one loan so you have some control over the bills 3). Look into other areas where the cost of living is lower and you can start fresh-if I wasn't married with children, I would not live here. It's too expensive and to tell you the truth, I would like a slower pace life for my children to grow up (There is a Price for Privilege). Just know also, just because you think these wealthy moms have an easy life, they too have their set of issues they have to deal with which may include the husband's not being home for long hours they have to work so the wealthy moms are essential single moms most of the day, etc. You also want to give your child the best you can offer her so how can you possibly give her a better life if you are constantly stressed. By saving in another area, you can save for her college, get a new, very nice home for a great price, clear your mind. You mentioned your mom is getting older. My parent in laws are up in years and it is harder for them to take care of my kids when they visit so they may not be the ones you can always depend on and I am sure there would be other resources available in other towns (ie. daycare, preschools). I hope this helps. You deserve to be the happy, loving person you still are. I am sure your family and friends want the best for your wellness as well. I hope I helped! Sympathetic to your stress
I know how it is. Check out The Total Money Makeover by Dave Ramsey, for some how to's of getting out of debt. It has given me a solid plan and some hope. j
I'm sad to hear you're having such a rough time. Please do make an appointment with a psychiatrist as soon as possible. Anti-depressants really DO help. They blunt the edges of your stress, anger & sadness so you can take a deep breath, see things more clearly, & start taking steps to make your life more manageable. A good, compassionate mental health practitioner can also help you sort out your feelings & develop coping strategies.

All-in-all, you sound like you're an excellent mom; a high-performer at work; well-educated; etc. You seem to be handling the demands of your life quite successfully -- except for the part about being kind to yourself & getting your own needs met. I've learned that part of being a good mom (or person) is finding ways to mother yourself. A brisk walk during your lunch hour; paying a neighborhood kid $5.00 when you get home from work to play with your toddler for an hour while you decompress a couple days a week; a warm bubble bath & a glass of wine after your child goes to bed; etc. are all ways that you can cut yourself a little slack. You also may need to find ways to cut corners at work (i.e. figuring out which tasks can be skipped or not done absolutely perfectly -- I call it the ''good enough'' theory)

Don't worry about not being able to afford to buy a house. Things have a way of working out. You wouldn't believe some of the stuff that goes on inside of some of these perfect-looking houses. I grew up in New York, where real estate has always been un-affordable & many successful people rent all their lives (& sometimes even buy a nice vacation cabin in some pretty, laid-back area). Things do have a way of working out. Good luck! -- Home-owner paying property taxes with credit cards


I wish I had some ''solution'' for you but unfortunately all I can offer is the consolation that many of us are feeling the same way (to some extent) and little thoughts/suggestions that may help. Although I am married, we suffer the same financial trap. Student loans etc, etc. It was so bad we had to leave the Bay Area. Unfortunately, the Bay has become a place for the wealthy. Unless you bought years ago, the chances of buying home in a decent area for the average American are about ''zero''. So, my first thought is to perhaps consider relocating. It is really tough but the quality of life you can gain is priceless. The one thing we have always refused to do is allow our children to suffer because of the cost of living in the Bay. Sure, there are other qualities that we miss but we either had no time to take advantage of them or could not afford them. As far as being frustrated with the wealthy..there are a ton of them there and that won't change. Perhaps taking your focus off of being a homeowner for a while?? Mostly, it sounds like the first thing you should do is seek out some help to get a handle on the stress/depression. Nothing in the world is worth your or your child's mental well-being. Then, slowly try to organize your life around your priorities. Perhaps a move? Different job? Tiny bit of time for you to have fun? It is all possible. Life is tough no doubt but you love your baby and are blessed there- On the toughest days we try to begin with the blessings (our children) and then things seem to always work out :) Money is an awful reason to be miserable and something that has become all too common in the Bay-you are in no way alone in your feelings. Baby steps.... anon
My wife and I are both stressed and worn out by the high cost of living. We also wish we could own a house. Sometimes it looks to us like everyone else owns a house, has lots of money, etc. The truth is, however, most people are struggling and don't say anything, thereby perpetuating the illusion that all is well when it's really not! I can understand how you feel! In your post, it's clear that a lack of time and money are causing most of your grief. Could your family help you out financially? I know it's a long shot, but sometimes it's worth trying. While ours hasn't been able to help, we know some people whose families are helping. If not, you have to ask yourself if it's worth staying here. This is something that we ask ourselves all the time. If you can do similar work someplace else where the cost of living is reasonable, it might be worth moving to get breathing room. Yes, you would be giving up the Bay Area, but you would be getting back your life in return. Otherwise, there's more drastic options like consumer credit counseling and bankrupcty with all the negative consequences they entail. You'd have breathing room, but afterward it would be difficult to move, get credit, perhaps even a new job. Something else that might work, though it's not for everyone, is to look for a coop situation with another single mother who wants to share expenses. That might free up some money, even time, if the two of you can work out childcare costs, etc. However, it does come with a loss of privacy and boundaries, so like I said, it's not for everyone. Finally, if there are jobs in your profession that pay more than the one you're currently at, it might time to look for one. Anon

Single mom in financial trouble

Nov 2006

There's a single mom in my neighborhood who has run into some financial trouble and is at risk of losing both her car and her rental home. She works full time, plus weekends when her children are with her ex-husband (aged 5 and 9), but is unable to make ends meet. Her ex-husband had another baby with his new wife, and her already-inadequate child support has been reduced. She's extremely hard-working, but still falling behind. Are there any resources out there to help someone in her situation - and to stop the downward economic slide that would likely occur if her car is repossessed? (i.e., trouble getting to work, job loss, etc). Are there agencies that can provide her with emergency grants, money for groceries, etc? She earns approx. $1,800 per month; is that too much to qualify for TANF or other public services? Any advice or leads you can provide to help her would be greatly appreciated. Worried friend


My husband teaches for a non-profit that trains economically disadvantages adults computer skills so they can get jobs that pay a living wage. It's called OPTIC - actually they just changed the name to Opportunnity Junction since it has nothing to do with eyes. Its in Antioch. They have a 3 month training session which teaches computer skills, resume writing, how to dress and behave in a professional evironment. This is followed by another 3 or 4 months of paid internship in which they work on projects for the organization and job search. most of them find jobs by the end of the internship. Some even stay employed. There is a childcare center across the street (non-affiliated). If Antioch is too far away for your friend I can't believe Berkeley and Oakland don't have something similar ilona
She should check out Consumer Credit Counseling Svc - see http://www.cccssf.org/ or 800.777.7526 if she has no web access. (She could use web at a library if that's the case...) Please be aware that there are many entities with similar sounding names. Back in the day when I worked as a bill colector (don't ask!), these folks would often come to the rescue of people with financial problems. They help you deal with creditors, etc michael

Serious financial difficulties - relocate?

Sept 2006

We are having serious financial difficulties, mostly due to a humongous mortgage. I cannot get our budget anywhere near being balanced, so even saving a dime is not going to happen. We have accrued too much debt. SOOO...we are wondering, why live in one of the most expensive places on earth? By moving, we could save on a mortgage and therefore all the expenses that come with owning a home. However, we are aware that income may not be as high. I'm seeking advice from anyone who has been in this position and made the decision to move. Are you better off financially? Are you happy about your decision? Do you regret your decision? Basically, the only thing that keeps us where we are is a job. Everything else, we can do elsewhere (yes, the Bay Area is great...but so are many other places) Bay Area BROKE


Just wanted to say, be careful what you wish for. We kept complaining about not being able to get ahead in the bay area, and so when my husband unexpectedly got laid off from his job last year, we decided it was time for us to move.

We now live in a house 2.5x our CA house with every amenity we ever wanted or dreamed of, we have $ in the bank, unlike in the bay area where we lived mortgage to mortgage, and we live in a climate that is gorgeous 8 months out of the year.

BUT, my husband is making 20% less than he was in CA, the political climate is extremely conservative, our neighbors are non entities as they sometimes don't even wave when they are taking out the trash, the lack of culture and diversity in everything from dining to shopping is ridiculous, chain stores and strip malls are abundant.

We sit and look at each other sometimes and wonder why we did this. Maybe we chose the wrong place, I don't know, but I do know that money doesn't equal happiness, and there ain't NO place like the bay area.

Sign us, Lefties trapped in Pleasantville


How to get out of debt?

Nov 2005

I am trying to help someone figure out how to get out of credit card debt. Does anyone know of a good organization to work with on this in the East Bay or SF? Thank you, Anon


Are you a member or eligible to be a member of a credit union? My experience is that using the resources of a credit union is no doubt the best way to manage debt. Don't waste your time with debt services or trying to figure it out on your own. Credit unions are the best! --been there and now I have savings

Collection agancy calling about a 9-year-old debt

June 2005

Yikes! I just received a letter from a collection agency for a debt that I defaulted on over 9 years ago (unfortunately due to a car accident and inability to work and no disability insurance, otherwise perfect credit before this... ) According to a credit report from Equifax in 1997 it was ''charged off account''. Last year I received a personal credit report from Experian and it was not even listed. I assumed it was written off. Now I receive this letter from a collection agency and I am not sure how to proceed. They don't threaten legal action but it sure is scary. The original debt was 12k and now it is 22k and I made under 22k last year and have serious grad school debt so I am just surviving right now. Any suggestions or where I can get advice on how to respond? Thank you. Anon please


First of all: under the Fair Credit Reporting Act, credit information bureaus (such as Experian, Trans Union, and Equifax) cannot report information such as yours after 7 years from the date of last activity. If it was charged off in 1997, it cannot be legally reported to the bureaus nor affect your credit score. I would suggest pointing this fact out to the collection agency. Sometimes, just knowing your rights is an amazingly effective tool. :) Kathleen
I would ignore it. There is a statute of limitations for invoices/accounts and after 9 years, it is unreasonable to expect you to have any records to corroborate the amount due, etc. (Imagine if you had paid it, you wouldn't keep the record of payment for that long, would you? That's the reason for a time limit)

It's a large amount and very tempting to the collection agencies and they know all the right words to say that will trigger your guilt, fear, anxiety, etc. Above all, don't give them any money as a good faith gesture. This is a common trick that results in starting the clock all over again on your account. Check with the Fair Debt Collection Act (google it) to find out your rights and obligations.

Of course, don't ignore any summons served on you. It's not likely to happen given what I've mentioned about the statute of limitations, but you never know. And don't confuse a real summons & complaint with those legal-looking collection agency form letters.

It's not about not paying your bills, it's about something this old being uncollectable because records aren't available. anon


If there has been no collection activity of any kind for over 4 years, then the contract statute of limitations has expired. Contact a legal person for more details - the laws may have changed since I was in this biz... michael
In California, nothing can happen to you if the statute of limitations on the underlying debt has expired. In CA, a suit for breach of a written contract has a statute of 4 years. You need to look at what the basis is for the underlying debt but I am fairly sure that most will have expired after 9 years. The time limits are in California Code of Civil Procedure beginning with section 312. You do need to send the collection agency a letter advising that as the underlying debt is not collectible due to the statute of limitations expiring, any attempt by the Agency to collect the debt is in violation of the Fair Credit Reporting Act (beginning with 15 United States Code Section 1692) and that you trust this matter is closed. Don't let them bully you. This happened to me recently with a $500 bill from college 14 years ago! They will try to collect but cannot - just make sure you write the collection agency. anon atty

Threat of lawsuit over old debt

May 2005

I received a letter from an attorney's office in Stanton, CA about an old Capitol One Bank credit card bill, from 2001, which I was unable to pay off due to unemployment, financial desititution, and homelessness. I usually just throw away these letters, knowing after 7 years (I think) these debts are null and void, and must be removed from credit reports. But this I read this one, which threatens a lawsuit to collect over $1100 (more than twice what I originally owe them), under 1033(b)(2) of the California State Code of Civil Procedures.

My first instinct is, this is another threat, but I wonder if others have experience with this. I initially presumed this was another threatening letter to intimidate me into coughing up the money. I know the credit industry is strengthened by the recent federal bankruptcy law; I wonder if they really might try to take me to court.

I've been saving my money in event of future financial disasters and homelessness, don't want to further feed the coffers of capitalist multibillion corporations. I don't even have a credit card, and pay cash for everything.

Does anyone have any experience with this? Thoughts? Suggestions? (No lectures, please.) Thanks.


I'm no expert, but I think it is three years (not seven). I think seven years is how long an actual bankruptcy stays on your report. In any case, the three years doesn't start until the collector writes it off as bad debt - so if the company is still trying to collect from you, or if a collection agency is still trying to collect, it will still show up on your credit report. I have received all sorts of threatening letters as well, but usually the amount they are trying to collect is not worth the money it would cost them to file the lawsuit, and they eventually give up. Good luck to you
What has happened is that the credit card company has handed the job of collecting from you to a collection agency (the lawyer). Adding in interest and fees from 2001 is why it is now more than twice what the original bill was. The lawyer will get a cut of whatever he collects from you, so he will keep after you because that's how he makes his living.

Sometimes you can contest these things. I had one where a collection agency came after me for $100. I showed them a letter that said I had paid it. End of discussion. In your case, however, it sounds like you don't dispute the fact that you did not pay the money.

I believe the lawyer can take you to court. Instead of paying the full $1100, you could offer a deal to pay something less. Call the credit card company an ask if they'd settle for the original amount (although I think once they hand off the collecting duties to an agency, they have basically washed their hands of the issue and won't discuss anything with you). In which case you can call the lawyer and negotiate a settlement.


I was in the same situation after a failed business. Only one of my creditors actually sued me and I went to legal aid where I was able to negotiate a reasonable payment arrangement which the judge accepted. If you are actually sued and you can read the below about why that may not happen, then I strongly suggest you get free help so that you don't agree to something that you cannot pay or have a lien put on your property.

I think you're right in believing that your old debt will ''disappear'' after 7 years and it helps to explain why, now, you are getting a letter from a collection agency/attorney. It's their last chance to get the money back and your original creditor probably already wrote off most of the debt.

Letters threatening suit are very common, but please note that according to the Fair Debt Collection Act, no agency can threaten to sue. You'll notice the letter says ''we may consider legal action'' instead of ''we will sue you''. If they threaten, they must go forward with it. If you have assets like a house, there is a better chance you will be sued as the creditor could put a lien on your house if they win and you don't pay.

The attorney may sue you but chances are they won't because lawsuits costs money, you may not have assets and the original creditor may not be willing to pay for the fees associated with suit. The lawyer (if in fact it is a law firm) may decide to go for it. Remember also that there is a statute of limitations on collection on past due bills. Imagine if you did not owe the money, how could you prove it 7 years later?

You have rights and options. Hope you get all the information you need. almost debt free


Call the attorney's office and offer to settle for the amount you originally owed. I understand that you don't want to ''further feed the coffers of capitalist multibillion corporations,'' and I know what it's like to be in deeper than you can get out of. But, when you default on debts, the rest of us pay--not the corporation (see recent posts on high interest rates). Been there too
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