Drowning in debt; consolidation?

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

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

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!

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

Being sued by credit card companies

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!

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

In over our heads with debt!

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.

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

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

Financial problems since buying house

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

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

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

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

Single mom in financial trouble

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

Serious financial difficulties - relocate?

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

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

Collection agancy calling about a 9-year-old debt

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

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

Threat of lawsuit over old debt

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.

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 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