Finally committed to getting debt free...

**murph** · 04-20-2009, 01:02 PM

this is my first post here, so I wanted to give all of you an idea as to what my wife and I are up against in regard to getting out of debt. Here is the run down (numbers are approximate because I don't have the bills in front of me):

39,000 in a Bank of America personal loan
22,000 on an American Express card
6,500 on a Capital One Card.

17,000 on a Pontiac Torrent (we're upside down on this and feel that selling isn't an option).
We're currently renting the house we live in.
We have two small kids with child care expenses.
Other than that, groceries, utilities, etc. round out our expenses.

The debt we're going to focus on immediately is the unsecured debt.

On the bad advice of a friend, we were working with a debt settlement company since December, but I quickly realized they weren't doing anything for us other than taking our money. After canceling their services and filing a complaint with the BBB, I got my money back and started dealing with my creditors. We think we have a pretty good plan, but there is one small hitch.

Since we worked with the debt settlement company for few months, there are some pretty significant fees that have been added on. Bank of America seems like they're the most likely one to work with us, already offering a settlement of 9,798, which my wife and I want to take advantage of. The problem is, we can't come up with the whole amount in the allotted four months they're giving us to pay it. The first minimum payment for the B of A settlement is due on April 30. I told them that I don't want to promise what I'm not sure I can deliver, and they said that if the 30th comes and goes, they can offer me another settlement, but it'll probably go up.

American Express is asking for close to $4,000 up front to get rid of the fees (then we can resume paying our minimum monthly balance). I think this is crazy. I'm not actually looking for a settlement from them (although I'd take one if offered). But I don't have the $4,000 up front. As an aside, this seems to be the only one that has been turned over to a collection agency, but we did just get a bill from American Express last week with the $4,000 amount on it.

We started applying our budget this month and really feel we can get this paid off relatively quick, but we're not sure how we're going to come up with the B of A settlement money or the up front money AmerEx is asking for. I feel like getting rid of the B of A settlement is priority number one, then we can apply the debt snowball to the rest of our debt.

I know every situation is different, but has anyone else been in similar scenario?

**murph** · 04-20-2009, 01:15 PM

oh...one more thing.

We looked into the possibility of getting a loan to pay off the B of A settlement, but I think our credit has been dinged enough that we won't get approved.

I know that replacing one debt with another one is somewhat tabboo, but we figured replacing one with a much smaller one would put us in a better situation.

**Greebo** · 04-20-2009, 01:37 PM

You can't borrow your way out of debt. Borrowing money to pay off debt is dangerously close to recycling food, if you get my meaning...

If you're unable to make all of your payments, then make sure you pay the highest priorities first and let the others pound sand for a while. (You'll pay them off in time, but first things first!) Top priorities are what you need to survive: Food, roof, lights, transportation, clothes (essential clothing only). After that, each month, you make a list of what you have to pay out. Walk down the list with the money you have and when the money runs out, draw a line. NObody below the line gets paid that month.

If you can make the payments, then in order to free up some breathing room fast, many people prefer to pay off the smallest debts first.

I strongly, STRONGLY recommend "The Total Money Makeover" by Dave Ramsey as a roadmap to a plan that WILL help you get out of debt as fast as possible.

Also, consider an additional job to help you clean up the mess as fast as possible.

DO NOT borrow to pay off debt - WORK MORE to pay off debt. It took a while to make the mess, it'll take a while to get it cleaned up - but make sure you do it right.

Maybe - MAYBE later - when you have better habits established, you can think about reorging the debt for better interest, etc...but interest rates arent the main problem you have. The debt itself is the problem, and more of the same right now would be too close to giving a drunk a drink.

**murph** · 04-20-2009, 01:45 PM

Greebo - thanks for the response.

I definitely get what you're saying about not replacing one debt with another. The thing we were thinking of doing was getting a loan for the amount of the settlement on the B of A debt ($9,798). We felt that paying that settlement and getting rid of the entire $39,000 would put us in a better situation. We weren't thinking about interest rates.

It's probably a moot point any way as I don't think a bank would approve us for a loan at this point.

**kmonokwe** · 04-20-2009, 06:44 PM

Hey Murph - glad to have you on board! I was going to mention the same thing Greebo said - let AMEX suck it for awhile. Don't pay them, don't talk to them, don't do anything. They're trying to stick you with fees that are unfair. You're in the hole and need to focus on priorities first, as you said. If BofA is your first priority, let AMEX sit and get worried for awhile. Don't put it off longer than you have to in order to get a better settlement - but when the time comes to pay AMEX, call them up and tell them your situation, and offer THEM a settlement. Don't wait for an offer from them. By that time, they'll probably think they aren't getting paid, and hopefully will work with you.

As Dave always says, be sure and get written notice that your agreed-upon settlement will clear the debt fully before you send off a settlement payment. A written confirmation will protect you against bad communication within the company.

Keep us posted, we're all glad you're here!

**mauimagic** · 04-20-2009, 06:50 PM

great advice already given. Glad that you are here and commited to doing this for yourself and your family. By bringing this post to our attention, you are probably helping more people than you know. We can always use reminders!!

**DJ1972** · 04-20-2009, 09:53 PM

Welcome to FV. I agree with the others. We have used the The Total Money Makeover by Dave Ramsey and will be debt free in less than 2 months. It is a simple plan, and that's what I like about it.

**Cricketlegs** · 04-21-2009, 04:41 PM

Another thing is don't bang your head on the wall trying to hold onto a credit rating that is probably already shot to smithereens.

All you can do is set a budget, get a plan, FOLLOW that plan to the penny every month and just muddle through every month no matter how long it takes and get it done and then refuse to ever go back to the "bad" place.

Straighten your life out, pay off your debts, leave stupid on the curb.

Welcome to the Village!

**onencgirl** · 04-21-2009, 08:13 PM

Hi and welcome from NC. You'll learn alot of ways to save and have a better life here.

**lovestolaugh** · 04-21-2009, 09:26 PM

Welcome to the Village! We're glad to have you. As you will notice by my signature, I'm in an awful lot of debt too. What it doesn't show in my signature is that I have already paid over $50 of my debt off. I prioritized my debt and paid off back taxes and cars first. We now have just the credit card debt. We have been working Dave's plan for over a year now and it is a good way to go. We have had to slow the snowball recently because of job instability. We have been throwing extra money in our savings.

My advice to you would be to work up a budget that you can stick too. Set small goals for yourself and celebrate every small victory. Come to the village for all kinds of great tips and advice or just for a shoulder/shoulders to cry on. We all need each others support. Also, making frugality a game makes it easier to get through too. You will be amazed at how much fun saving $1 here and $.50 there can actually be. You will also realize how most people throw their hard earned money away. You will feel much better about your situation now that you are taking control. Remember, you didn't get into debt overnight and it will take you quite awhile to get out of it. Slow and steady wins the race!!!

Have a great day and stop worrying. You have taken the hardest and most important step. Ownership of the debt and Resolve in getting rid of it!!! Congrat's!

**murph** · 04-22-2009, 10:33 AM

thanks for all the responses!

My wife and I are definitely moving forward with this. We're going to get out of debt!

We definitely see this as a long process, and I'm glad to know that I can check in here when/if things seem to be dragging.

We're really going to focus on this B of A personal loan first. We feel like we have a good settlement (9,798 of 39,000 to be paid), so we're going to buckle down and get that out of the way. We're a little worried about where the money is going to come from, but I'm looking into a part time job on nights and weekends and we've amazed ourselves by finding how much "extra" money we have each month simply by doing the budget from Dave Ramsey's website.

We've pretty much scrapped the idea of a personal loan to pay the settlement (only partly due to the fact that we probably wouldn't get approved

) We're going to do this and we're going to do it without anymore debt.

**kmonokwe** · 04-22-2009, 10:57 AM

Yeah! I can feel your energy, and your spirit of determination. Good for you!! Isn't a budget an amazing thing? Everyone's so afraid of it, but when you really do it, most times it feels like you got a raise! When you realize how much you (I'm just supposing) throw away on Sonic drinks during happy hour and say to yourself, I can quit doing that, suddenly you've got $50 or $100 extra each month. That was my big wake up call last fall. No budget during the summer turned into a lot of extra money during the fall!

Anyway, great job. I can't wait to hear about your progress. We'll all be hoping and praying that you can come up with the settlement for BofA - what a great deal!!

**Cricketlegs** · 04-22-2009, 02:20 PM

Originally Posted by kmonokwe

Yeah! I can feel your energy, and your spirit of determination. Good for you!! Isn't a budget an amazing thing? Everyone's so afraid of it, but when you really do it, most times it feels like you got a raise! When you realize how much you (I'm just supposing) throw away on Sonic drinks during happy hour and say to yourself, I can quit doing that, suddenly you've got $50 or $100 extra each month. That was my big wake up call last fall. No budget during the summer turned into a lot of extra money during the fall!

Anyway, great job. I can't wait to hear about your progress. We'll all be hoping and praying that you can come up with the settlement for BofA - what a great deal!!

You got that right!

If you try and do it without a budget you WILL fail.

If you don't follow the budget, you will fail.

Sure, you have to have a little moving around room but the budget really should be set and followed so don't make it so tight that you set yourself up fail.

The budget should be your best friend, your peace of mind, your plan of attack!

**Judi Dial** · 04-22-2009, 03:18 PM

All the advice you've gotten here is good. One thing that might help a little. When DH got laid off we found we could live on 25% of his old take home pay. That became our absolute baseline HAVE to have. After that, if need be, we can devote everything against the debt.

As a part of Dave Ramsey, I think he tells you the same thing. Figure out what you need to survive, as mentioned above, food, water, shelter, transportation to job, that's it. That money is spent, period. Everything else can be used to buy down the debt. Try and allocate a little something for entertainment (a movie rental every now and again, etc.) or you'll feel deprived (at least we did) and run the cards back up when you get some breathing room.

But DO read Dave Ramsey and see what you think. He's remarkably down to earth. Your library probably has a copy or if not, can do an inter-ibrary loan for you.

On that note, USE your local library, one of the best cheap resources at your command. Some states have free financial planning help and/or programs, ask your librarian. (The ag. co-ops frequently have such things.)

IHTH

Good luck!

Judi

**cec311** · 05-13-2009, 09:40 AM

First post for me but I want to reiterate what others have said. Without a budget, and one you can stick too getting out of debt is extremely impossible. With the help of Dave I'm down to a mortgage only. It was painful to sell the truck, camper, jet ski etc.., but knowing you have six months wages in the bank, can pay cash for stuff vs. whipping out the card makes life much easier in this economy. Good luck!!