Debt From Sick Daughter Left Us Buried
Posted March 27, 2013
My wife and I have about $65,000 in credit card debt.
It started when our daughter was born 12 years ago with a severe rare medical condition. In order to stay up on medical bills, mortgage, utilities we resorted to credit cards to offset our income.
Over the years this added up on us. We are not late on any bills but we can only make the minimum on them ( some approx $600 each) and I have a credit score of about 700. Our combined income is approx $140,000.
I have tried for a debit consolidation loan but keep on getting declined because my debit to income ratio is to high.
I have recently been contacted by a consumer credit counseling company about doing a debt management plan but I am skeptical.
I want to pay these bills down but don't want to be ripped off either. My other issue is I am a government employee with a security clearance.
This leaves me with some worries on how to proceed. Please help me with any guidance and advice you can give.
Thank you for contacting me.
Medical debt is a leading cause of overwhelming debt. It is certainly understandable how the expenses required to care for your daughter were a priority and everything else landed on the credit cards.
The problem with the credit counseling debt management plan approach in your situation is if you are still only able to pay the minimums after trimming your household expenses it can simply leave you limping along month-to-month and not able to save.
Without any savings account or emergency fund to fall back on, that would leave you in an unsafe financial position for the next five years and still not address the security clearance issue quickly.
The irony is the current state of being maxed out on the cards leaves you more exposed to a security clearance issue than say a consumer bankruptcy.
To learn more about how the military views bankruptcy with those that have a security clearance, click here.
The general feeling is people with financial problems are easier to bribe and manipulate. So don't make any assumptions about how to best deal with this.
You could adjust your expenses and try to find extra money in your pocket each month to use to accelerate your debt reduction. There is a free service from ReadyForZero.com that can develop the best way to pay off this debt in the fastest period of time and pay the least amount of money. Basically they develop a plan to prioritize the repayment of your debt.
If you've already tried peer-to-peer debt consolidation outfits like LendingClub.com and Prosper.com and they turned you down then there is little expectation you will be able to find a legitimate lender that would make the loan.
These peer-to-peer lending outfits allow people like you and me to participate on loans to others. The average person pools their risk on the loan and earns a good rate of return while at the same time helping out someone in need. The majority of loans those companies make are for debt consolidation.
An unsecured debt consolidation loan can make sense if you have a credit score about 700 or higher, you want to improve your credit, you understand you should not incur additional debt while you are repaying the loan, and your debt is $30,000 or so since that is the typical limit for those loans.
Since your debt exceeds the amount you can borrow for a debt consolidation loan and you are limping along with minimum payments the next most logical form of intervention would be to consider bankruptcy.
You can click here to find a local bankruptcy attorney and talk to them for free about your specific situation. Get the facts and then you can make an informed and educated decision if bankruptcy is right for you.
A bankruptcy would discharge the debt rapidly if you can qualify for a chapter 7 bankruptcy. While your income is high I have seen people able to qualify for a chapter 7 bankruptcy with even higher income. The bankruptcy attorney would need to evaluate your overall situation and then do some calculations to make sure you would be able to apply your other financial obligations towards reducing your income.
The key with the bankruptcy approach is it must eliminate your debt and allow you to live within your income with the other obligations on you. If it can do that and allow you to begin building your emergency fund at the same time, then it's a real option to investigate.
I'd suggest you first read How to Get Out of Debt. The Honest and Unvarnished Truth. That will give you a great overview of what we need to deal with to get you moving in the right direction.
Then use the free How to Get Out of Debt Calculator to review your options.
Please post your responses and follow-up messages to me on this in the comments section below.
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