Any thoughts or advice would give me for Debt Management?

Edwards Finance > Debt Management

Q. I've been in debt for awhile now due to a combination of poor money management and some family expenses that were beyond my control. I'm in Arizona and have appx. $16,000 worth of unsecured debt...mostly credit card + appx. $11,000 owed on my car (presently worth $9500-10,000). Altogether around $27,000 total debt. I pay roughly $340 a month on my car and have kept up on payments for the 2 years or so that I've owned it. On the remaining debt I entered a credit counseling program and pay a lump amount of $450 a month to pay it down. I've kept that up for the past year that I've participated. I'm not presently behind on any payments, but have been living paycheck to paycheck for quite awhile now with no clear end in sight. My credit score could be worse, but it's not good due to my high debt to income ratio and a bankruptcy filed 9 years ago. I would like to avoid another bankruptcy, especially since my understanding is that my previous one will drop off my record next year sometime (10 year mark)? On the flip side though next year I'm going to need to help a family member with some house payments and at that point I'm concerned I may not keep up at all. Plus of course living paycheck to paycheck is carrying it's own risks. Even if I were to declare another bankruptcy I would need to keep my car and I assume I cannot do so unless I re-affirm that debt? If that's the case I'd only be discharging around $16K in debt and would be leaving myself with my car payment and another big ding in my credit rating. Ideally I'd like to discharge it all and keep the car, but I assume that's not possible. And if I do let the car go I'd probably have to turn around and get something used from a used dealership that I'm guessing would tack on an extremely high interest rate...and then I risk starting this cycle again. Sorry if this is pretty confusing, but it's a pretty confusing situation. Any thoughts or advice would be greatly appreciated.

A. -You really are not that deep in debt, it just seems that way due to poor money management. The biggest issue is that you have a car that you cannot afford. If you sell the car, and buy something in the $1500 range, you will eliminate 40% of your debt in one swoop. That will free up another $340 a month to pay off credit cards. If you take the $340 from the car and the $450 that you are paying to the credit agency, that gives your $790 a month to pay off debts. That $16K will be paid off in under 2 years at that rate. -Actually, bankruptcy stays with your forever. It is a court judgement. It might drop off of some credit reports after 10 years, but credit granting agencies still can ask you (and do ask) if you have EVER filed for bankruptcy, and they can use that information in the credit decision. You also cannot afford to do this. If your family member cannot keep up with their house payments, that is a big red flag that says that they have too much house. It would be far better to help them get their house ready to sell, and help them move into a more affordable house. That might be a harder message to deliver, but it is far easier than you both destroying your future yet again. Again, the car is your key problem. Fix that, and you don't need to do a 2nd bankruptcy. Bankruptcy is a tool that you use to solve a problem. In your case, your problem is that you spend too much for your level of income. Bankruptcy is not going to solve that. All it will do is put off the cashflow problem until the next time your excessive spending gets you into debt problem. You need to solve the spending problem. If you do that, everything else will fall into place.

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