$350,000 Credit Card Debt

BILL'S ANSWER

As a general rule I do not contradict a reader's attorney. The reader's attorney has interviewed the reader, reviewed documents, asked probing questions, and because he or she is licensed to practice law in the reader's state (which I am probably not), the reader's attorney will have a better understanding of relevant local laws.

You did not disclose your household income or more to the point, your ability to save any amount each month to pay down your debt. Knowing this is crucial to understanding whether you have an alternative to bankruptcy. I will discuss these alternatives briefly below.

Consumer Credit Counseling Service

CCCS companies offer financial counseling and budget planning, as well as Debt Management Plans (DMPs). In a DMP, the CCCS would arrange a new payment amount with each of your creditors, usually based on a reduced interest rate. You would then make a single monthly payment to the CCCS, which would distribute the funds to your creditors, based on the new payment amounts. There are several drawbacks to a DMP, but to major one is that DMPs back consumers into five-year plans where the monthly payments are essentially 1/60th of the total balance due. As a consequence, the monthly payment is high and the DMP success rate varies from 10 to 15% overall.

Here, you have a $350,000 in credit card debt. The minimum monthly cost for a five-year DMP would be approximately $5,840. If you can afford this monthly payment, the upside to a DMP is that your credit score will survive relatively intact.

Debt Settlement

Rather than making monthly payments to your creditors, debt settlement programs negotiate lump sum settlements with creditors. Debt balances are often cut by 50%, and typical programs usually take three years to complete. Debt settlement is a good option for many people to rid themselves of debt in a relatively speedy manner that avoids bankruptcy. Like bankruptcy, debt settlement will significantly damage the consumer's credit score while in the program and for at least a year or two after.

Here, the monthly cost of debt settlement would be less than a DMP, and would vary according to the banks that issued your cards.

Default

Default is an option for consumers with no income or non-exempt assets. However, you mentioned a $1.3 million home, and it is reasonable to assume you have other non-exempt assets. It is not reasonable to expect your creditors to overlook your $350,000 credit card balance, or the IRS to forget a $60,000 tax bill. Default is not a viable option for you.

Home Equity Loan

For consumers with significant equity in their homes, a second mortgage or home refinance is an option to trade-down interest rates and make the interest paid on the debt deductible. However, in a case where the homeowner has no equity in the property, a home equity loan is a moot point. Incidentally, debt consolidation loans are typically home equity loans.

Recommendation

You risk nothing by consulting with a debt settlement company to understand the cost of this approach. Visit the Bills.com debt relief savings center to get a no-cost, no obligation quote from a service provider.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com