Consumers get into the same predicament that this couple is in all of the time. They get into debt and need help in figuring out what to do with their debt, how to repay it and how to reduce the interest rates on their debt.. They often ask, what do I do when my debt gets out of control?
In this case they have a mortgage, two car loans and 5 credit cards that alone total $75000 in debt. They are barely able to meet the monthly payments as well as paying high interest on the credit card debt. While the numbers vary, this situation is actually pretty common. This couple is fortunate that they have equity in their home.
We suggest that they refinance their mortgage at a low interest rate and use the money to repay all of their credit card debt. Once their credit card debt is fully paid, we suggest that they close two credit card accounts and reduce the limits on the remaining cards from $15,000 to $5,000 each. If they find themselves in the same situation in the future with the credit limits max’d out on their cards at least they will not owe so much. They will save themselves a great deal of interest which can be used to repay their mortgage.
The above lays out the broad plan for this couple. Details may vary depending on their credit rating, the actual appraised value of their home and their total monthly payments for all of their debt and regular maintenance and tax monthly payments. A lender will help them work out the details to determine exactly how much they can borrow and whether this solution will work for them.
Often individuals and couples do not have equity in a home to use as collateral while still finding themselves in an extreme debt situation. There are many solutions to these situations, some good and some not so good.
One solution is to take out a personal loan at a lower interest rate, pay off the credit card debt and then focus on repaying the loan. Whatever you do, avoid missing any payments to maintain and or improve your credit rating.
Some consumers will not be able to find lenders that will approve them for a loan of any kind due to their credit rating and past payment history. For these folks it can be very difficult. They must either get serious, work several jobs and focus on repaying their debt or take other more drastic action.
Bankruptcy is another solution and negotiated payments are another. Both require the services of an investment or financial adviser who can review their situation and suggest the best course of action. Note that each solution has some issues with respect to credit ratings, how much you need to repay and future borrowing ability. They are not always the best approach to take. If you can repay the loan, credit card debt etc, that is always the best approach to take.
DEFAULT LOAN APPLICATION FOR BORROWER’S INFORMATION
Home/Mortgage Loan Amount : $75,000
Home Loan Application and Processing Speed (when do you need the funds): I really need help now, my credit card debt is more than I can handle on my income
Do you currently have a mortgage? : yes, it is only about 50% of the value of my home
Bank Name and Branch : River City Bank, Howe Street
What City/Town, State and County do you live in? : Sacramento, California
Zip : 95825
What is your employment field? : City Employee
Employment Position : Middle level manager
When are you paid? (monthly/weekly/biweekly): Bi weekly, direct to my bank account
Your credit rating to be – excellent, fair, or bad? : Fair
How did you find us? : Looking online for help about what to do when my debt gets out of control
How are you paid? (direct deposit/paper check): Direct deposit
Gross Amount Per Paycheck : $2307
Do you agree to have this information published online, without your PRIVATE information of course? : Just do not publish my name or any personal details about my debt, income or job
Extra information here please (some detail): Between my wife and I, we have 5 credit cards and they are all charged up to the maximum of $15,000. As a result we owe $75,000 on credit cards and of course they make it easy by asking us to pay just a small minimum payment. Of course they are charging high interest at 19% or more on the remaining balance.
We are paying a fortune in interest payments to these credit card companies and we want to talk to someone who can help us deal with this situation to get our debt back in control. We already realized that anyone with 5 credit cards all max’d out to the limit has lost control of our finances. But we really want some help on fixing this problem and some help to avoid this situation in the future.
How did we lose control of our debt? It was actually pretty easy. We went on a couple of trips, we did some renovations, we had emergency repairs on the house and the cars. Together with our regular expenses, suddenly we are up to the limit on all of our cards.
We charge everything to our cards because we want to collect points to use for trips and to get some of the benefits that they advertise. This has worked out, but now we cannot meet all of the monthly payments and we are paying way too much interest.
We both have good jobs and make pretty decent money. There is no excuse for being in this situation, but here we are. We have a mortgage on our home which is about 50% of the value of the home. We have two car loans, which will be paid off in a year or two.
Can you help us get control of our debt and can you help us avoid this situation in the future? we need some discipline and we need advice on what to do.
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