I have gotten myself in really bad debt situation. I have $7,000 dollars in credit card bills, a car note for the next 3 years of $436.00 and a mortgage of $1200.00 a month. I bring home pay for a month is $1600.00 dollars. My mortgage was $746.00 a month but with an adjustable rate mortgage it increased in July. I have about $40,000.00 worth of equity in my home but my credit score is 480 due to all the debt I can't keep up with. Is their a solution for me?
Thank you for your question about your bad debt situation. First, I want to assure you that you are not alone in this predicament; many consumers find themselves buried in debt before they even know what happened. Thankfully, I can think of several possible solutions to your problem, but which option is the best for you will depend on several factors and what your priorities are. I think the ideal situation will be to refi your home and pay off all of the debts, however, with your low credit score and high debt to income it may be very challenging to find a lender that will lend you money. Therefore, I would prioritize your debts and first pay your mortgage and then your auto and lastly your credit cards.
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Now on to your options for dealing with your Bad Debt Situation:
Since you own a home, a secured debt consolidation loan may be right for you. This type of loan is essentially a home equity loan which is used to pay off your other creditors. Secured consolidation loans help many consumers by consolidating all of their debts into a single monthly payment with a lower interest rate and payment amount. However, since your credit score is so low, a consolidation loan secured by your home may not be a practical solution. Also, be careful before you borrow money against your home to pay off credit cards and other unsecured loans; you will be converting what was previously unsecured debt into secured debt. This could cause you problems down the road if for some reason you are unable to make your payments, or if life circumstances force you to file bankruptcy, as you may not be able to discharge the secured debt as you would unsecured debt. However, secured debt consolidation loans work for many people, so this is an option to consider carefully -- the Bills.com Savings Center is a great resource to help you find a lender for this type of loan.
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Another option to consider dealing with your credit card debts, which would lower your monthly payment and free up cash, is a Consumer Credit Counseling Service, or CCCS. CCCS companies offer numerous services, such as 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 CCCS, though. First, depending on your creditors, it may not be able to reduce your monthly payments enough to improve your financial situation. Second, it may have a negative impact on your ability to obtain a loan, so you may not wish to enter into a DMP if you anticipate any large purchases, such as home or an auto, in the near future. Third, the average DMP takes around five years to pay off your debts, so you must be willing and able to commit to a long-term repayment plan.
You may also want to consider the services offered by debt settlement firms. Rather than making monthly payments to your creditors, these programs negotiate lump sum settlements with your creditors, frequently reducing your debts by 50% to 60% of your principal balances. These programs usually take only 2-3 years to complete, so this is a good option for many people to rid themselves of debt in a relatively speedy manner. In many cases they can also reduce your monthly payment toward your debt. There is one major drawback to debt settlement programs, though -- they will significantly damage your credit while in the program and for at least a year or two afterwards. However, if you are currently unable to afford to pay your creditors, the hit to your credit may be worth the benefit of ridding yourself of credit card debt. Because of your financial difficulties, you may want to stop focusing on the importance of your credit score. Although you may have a good credit score, because of your low income and large debt amount, most lenders will likely see you as a high risk borrower, and may not be willing to extend you credit, so your actual credit rating may not good as you believe. A debt settlement program is probably the fastest way to resolve you debts, and once you repay your debts, you should be able to rebuild your credit score through careful management of your credit accounts.
Hopefully, one of the several options I have described above may be able to help you. I encourage you to explore the Bills.com website, /debthelp/ to read more about these and other options available to you.
I hope this information helps you Find. Learn. Save.