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Amy Asks...

Q: I am losing my job in June. My husband and I have $40,000 in credit card debt, a car payment, and a 1st and 2nd mortgage on our house.

Is it possible to get out of debt without filing for bankruptcy or turning to a debt management company?

A: Amy, it is possible but it may not be possible. Be sure to review my get out of debt guide right now and start implementing the steps as quick as possible.

Your situation has a greater chance of not ending pretty if you can't replace the income. Studies show that 6 out of 10 people file bankruptcy because of collection pressure and unless you can replace the lost income you will wind up in collections.

If you are unable to replace the income, I think you need to prioritize your debts. The mortgages should come first while you decide what to do. Next is the car payment and then credit card debt.

That is not a solution however, it is a stop-gap treading water program. The short answer is that without replacing the income you will have to adjust your lifestyle to fit inside the remaining income. That may mean selling the house, getting rid of the second car, etc.

The best basic solutions on this are to let someone manage your creditors for you during this time of turmoil or get coaching on how to put yourself first and see if you can find a peaceful place to balance the reality of the creditors with your life. Paula Langguth Ryan is a friend and a great coach to help you transform your debt panic into a more spiritual point of view. You might also have to consider bankruptcy.

Betty Asks...

Q: My husband and I are currently saving for our 3 children's college education but we are uncertain if this is prudent knowing how expensive college will be in 14 years. We are not sure if this is the best for our money. What do you tell other families that are in our situation?

A: My daughter is heading off to college in the fall. Paying for college for three kids is almost overwhelming.

There are two basic schools of thought on this. One is that children pay for their own education through loans. The other is that the parents pay for college. It really is a polar opposite position, each with valid points.

My only objection to leaving the school debt on the child's back is that they emerge from school saddled with debt. This debt may not allow your child to be able to get the job they need to start in their field of study. Their first priority will be to get any job to begin to feed the debt monkey on their back. It is just my point of view that the educational process is not completed until the student is trained and in their field.

The secret to saving for college is to start as soon as possible, even before they are born. If you save affordable amounts regularly it will add up. Trying to project tuition costs 14 years from now is tough but we can be assured that it will be significantly more expensive than today.

So the best solution is to save as much as you can but if it turns out to not be enough then consider this approach. One valid but missed solution is for the parent to get a PLUS loan or, better yet, for the student to get the loan in their name and the parent make the payments on it. If the student gets the loan in their name it will cost about half of the parents costs. Student loans are currently at a bit over 2% while parents Plus loans are over 4%. For more on student loan options visit my student loan resource page.

There are a lot of good books on the subject and reading up on options is a good idea. I would suggest that you get your hands on a couple of these books to help educate yourself about all of the college investment opportunities available.

By the way. Over the years my wife and I were able to accumulate enough spare change by participating in the Upromise program that we are able to purchase a top-notch laptop for our daughter to take to school. Participating in Upromise costs nothing and creditors give you money for participating. Upromise also has a really good student loan and scholorship section on their site for registered members.

Patty Asks...

Q: I am with a debt settlement program, I wonder if I should continue due to the fact the last credit report I received stated that the debt had been charged off. The debt is a credit card debt that has not been over 5 yrs.

A: Patty, sounds like things are right where I would expect them to be. Anytime you do not pay your debt back as originally agreed it will impact your credit report. That is just a fact of life. This is the downside of settlement programs. The upside is that you should be able to close the door on that old debt for about 50% of the balance.

A Couple of Companies That Do Debt Settlements

Springboard - Nonprofit Credit Counseling

Leonard Asks...

Q: we currently have approximately a total $30K of outstanding on credit card debt on seven cards. We have not made payments and all these and they are in collections currently. This has occurred as a result of a career change that was unforeseen three years ago. We currently could afford in our budget approximately $400.00 per month although this does not near what the collection agencies desire. Are we ready for bankruptcy? Is there a means of getting the attention of these individuals without filling? It is my desire to pay although at this time in my life path, honestly I do not have it. Help, thank you for review and suggestions you may have.

A:Leonard, let me be perfectly detached and frank, your creditors don't care about you or your life. All they care about is that agreement that you signed that said you would pay X dollars per month on the money they lent you. Your creditors could care less if you file or not. Threatening them with bankruptcy does nothing. You are only a number on their screen.

All creditors have a process in place to deal with non-payers. It starts with gentle collections, harder collections, possibly outside collections, threats of legal action, possible lawsuit and then once the debt charges off it will most likely be sold and the collection process may begin again.

There is nothing that says you have to file. You can absolutely attempt to repay them what you can with what you've got. If you do this just realize that you are doing this to honor your original promise, not to protect your credit report.

If you want some help putting together a fair pro-rata repayment plan and have someone else manage your creditors for you then I would suggest that you contact the folks at ManageMyBills.com. If you want to find peace with the path you are on if you decide not to file bankruptcy, then make an appointment with either myself or Paula Langguth Ryan and we can help you put together a plan of action to follow.

Charlene Asks...

Q: Hi Steve,

I am being hounded by a law firm representing one of my creditors. This is for a delinquent credit card account with a balance of $6,500 and an interest rate of believe it or not 24.99%.

They're threatening to sue me and will only stop proceedings for $1,000 down payment and $250 a month. I tried to get an unsecured loan from my bank to settle this debt but was denied. I also offered to pay $150 a month, but they refuse to stop legal action for the amount I offered.

I am at my wits end. I don't want to be sued as I work in the financial industry and I believe a judgment would adversely affect me. I cannot afford to pay one creditor $250 a month; even $150 is a stretch for me. I have managed over the past year to pay down several of my credit cards and my credit rating is improving.

What would you advise when dealing with a law firm in my situation? Is there some recourse that I am not aware of that would work to my advantage.

Thanks for having this forum available. The stress of this is unbearable.

A: Charlene you have two basic choices. You can either stand your ground and offer a reasonable monthly repayment amount that you can afford, you can break under the collection pressure and pay what they demand, you can file bankruptcy, or have an outside company represent you to attempt to settle this debt.

Anything outside the original payment will impact your credit report and score. That damaged score can cause your other creditors to raise their interest rates under the Universal Default terms of the credit card agreements.

Make sure you get a copy of your consolidated credit report to see what is being reported about your current situation on all three credit bureaus.

Russ Asks...

Q: We've already filed for bankruptcy 2-3 years ago because of my wife's ongoing battle with cancer and the related drop in household income and rise in expenses. Now the debt is mounting again, bit by bit. Is there any sense to debt consolidation after bankruptcy or would we be turned down as two-time losers? As it is now, we're barely scraping through each month and can't make progress on the debt. Part of the mix is a large student loan repayment that wouldn't be affected anyway. Any advice would be helpful.

Q: Russ you should first start with the Department of Education and try to get on their income contingent repayment plan that will adjust your payment based on available income.

The situation kind of is what it is. If you don't have money to pay your creditors each month, then you don't. With a bit of money left over you can either enter into a managed pro-rata repayment program or file bankruptcy, probably a chapter 13.

Jo Asks...

Q: Dear Steve, I am about 50K in debt after a divorce. I am currently on disability leave from my job, after a back surgery. I moved in with my mom from CA to OH after my dad passed away at the beginning of 2005. I am not eligible for Social Security, and my pain is not allowing me to go back to work yet. I have about 1400.00 left in my benefits. I am scared and not sure what to do next. I have a FICO score of about 750, and have never been late on any payments. I know this is a difficult situation, and I trust in God, but am wondering what, if any, advise you might have for me. Getting desperate in OH.

A: Jo you are in a dangerous situation. It sounds like you have been spending down your assets to keep your payments and credit score up to date. That is quite possible the biggest mistake you can make.

Without any expectation that this path will lead to a total solution to your situation you are simply throwing good money down the drain. Soon you will be completely tapped out and the inevitable collection efforts will begin.

If you don't think you will be able to work in the near future you should consider bankruptcy. Bankruptcy is a legal solution that will help to close this chapter of your life and move forward.

If you feel like you will be able to work soon then you might want to stop making payments now so you are not completely broke and start again when your paychecks start rolling in. This will negatively impact your credit report but it is what it is.

Purifoy Asks...

Q: I am approximately $75,000 in debt $60,000 of it being credit card debt. I am the authorized user on these credit card so I cannot use debt consolidators, etc. I am looking for a plan to help me apply any extra money I have to paying off this debt. Can you help?

A: Get a Debt Eliminator report. It will show you exactly how to pay off these debts in the shortest period of time without increasing your monthly payments. The report can save you lots of money and years of payments.

Ralph Asks...

Q: (I learned about you by reading an article in the American Legion magazine, I believe.)

Due to multiple hardships over the past six years, mostly medical, I am filing for a bankruptcy.

I have searched for 11 months for a web site that rates or recommends legitimate home-based businesses. I get feedback from scam artists poising as to assist me but they want $500-$3,000 to help. A week or two later, after hearing their conference calls I am invited to listen in on...I dial their toll-free number and it is no longer in service.

Do you know of a company I can be proud to work for/with out of my apartment?

Thanks,

Ralph

A: Ralph, I covered this in detail on today's radio show. Listen for extended answer. You may also want to read my guide on how to start an online business.

Ron, here is something I like and you might want to think of selling from home. It is a brand new service aimed at renters, it is a beneficial product and you already know everyone in your building is a potential customer. You have a captive target audience and you could start with no money invested and with hard work the chances of earning a respectable second income are pretty good. Last I checked they will give you $10 just for becoming an affiliate for free.

Ron Asks...

Q: Hi there.

I have a question. My wife and I filed Chapter 13 in 2003. We have been plugging along and have always made timely payments in our attempt to "stay off the radar" of the trustee. However, we have a problem. We make more money than we did when we filed. We are afraid to go through a re-evaluation by the trustee because we don't want to pay more. (The amount we pay has us very tight.) So, we are being careful not to do anything that would red flag us to the trustee.

Here lies the problem: My wife has a leased vehicle (with a purchase option) that is due to be turned in, in the fall. She needs her own vehicle (we have a baby and she works.) So, how do we finance a new vehicle without alerting the trustee that we are incurring more debt. We have the option and I would like to keep the vehicle and pay it off (and lose the payment). However, this scenario is not good for this particular vehicle as it is almost out of warranty and has had a lot of mechanical issues - in short, I don't want to get stuck with a lemon. Secondly, if we keep it and continue to pay on it, it may show up on our credit as "new debt" (the balloon payment that we would finance) and still alert the trustee just as a new purchase would.

So, what should we do. We have learned from our mistakes and we are so looking forward to making our last payment in 2008!

Thank you, in advance, for your assistance.

Ron

A: Get some specific advice. Talk to a bankruptcy attorney licensed in your state.

John Asks...

Q: Let me start by saying that I'm not opposed to making a donation for your time and expertise. However I would like to establish communication with you on some level first, to see if you can indeed provide any counsel that will help.

Here is my situation. Recently I filed for chapter 7 bankruptcy protection. The bankruptcy has been discharged. I was unable to convert my chapter 7 into a chapter 13 because the file was still open and had I done so it would have caused all the discharged debts to come back in the chapter 13. Consequently I was unable to save my home from foreclosure. Needless to say my credit is very bad shape right now. I am now researching how I might get myself in a position (credit wise), where I can purchase a home.

A: John, the answer is, you can. However I have withheld the details until I decide if you are worthy enough for the information. How's that feel?

John the answers you are looking for are already on my site. You can get the answers for free by looking around in places like the left hand navigation column.

Your Money Coach For Comfortable Success,^sm