I got myself into a similar fix 3 years ago. I had 46K in unsecured debt and was near the maximum on my cards before I realized it was time to hit the brakes. I had more or less been avoiding reality, and when I finally did, the prospects looked grim and daunting. I made myself sit down and finally do a real budget - one that would be a concrete guide on where and when I spend money and not just a bunch of wild guesses like so many "budgets" before it. It took hours and many attempts but I slowly whittled away things down to the core essentials. That's hard to do and takes time, especially if you've been used to a long period of free spending, but it can be done. My first few attempts were left me in the red and I thought bankruptcy was a forgone conclusion but I did finally come up with a plan that left me in the black and could work.
Non-fixed expenses were the hard part. I had to limit myself to $195 a week for food, gas and other essentials. This then became a fixed expense of $780 dollars a month, to which I added the minimums on all my cards, house payment, insurance and other utilities. For the utilities which are also not fixed, I estimated 90% of my highest bill for each one. Collectively, they were always below what I budgeted because of seasonal variations, close enough to act like a fixed expense. The total after eliminating a great deal of non-essentials left me enough to begin making larger payments on one card until I got it paid off, the so-called snowball method.
I used a spreadsheet to track my budget, with a new worksheet for each month that was essentially a duplicate of the previous month with a complete list of bills including my weekly budget amount, the required dates to pay each one, my budget estimate for each one, an actual amount column for once I got the bill, and a column to mark as paid. To handle the $195 weekly budget, I opened another checking account separate from my main account and set up a weekly transfer of that amount from the main account. On the main account, every month I deducted a $780 phantom withdrawal to account for the upcoming period at the same time I did the rest of my bills. On each worksheet once all bills were paid, I was then able to see exactly how much I had extra to pay down my debt.
Once I had the plan, it was not really that hard to follow. Yes, I had to change my habits and spend less but at least at that point I knew for sure I was headed in the right direction. Each month, yielded more and more money to put toward debt or handle unforeseen events. I put every extra dime I got toward debt as well - tax returns, insurance refunds, bonuses - whatever I could find. I also sold off some of the items I had acquired during my debt gathering phase that I never used and would help get me closer to my goal of being debt free. It's hard to look down the road to that point when you get started and it helps instead to focus on how much extra you will have each month. Even if it's only to pay off more debt, there's security in watching the "extra" grow.
With all that said, if you get to the point in your budget where there really is no money left, a DMP may be the only way to go - either that or a BK. But neither may be needed if you can make yourself live a budget on your own. As far as your collection, were it me, I would consider the damage done. If I had 6K to start, I would probably look to pay off/down at least one other card or debt. Not that I suggest you ignore the collection. I would create a budget first, then call them and negotiate a payment structure that you can live with. Once you have a budget in hand, it will be much easier to do that. If they are unwilling to work with you, you can decide at that point if it's better to pay the debt off to avoid future collections and the possibility of a lawsuit. Note that with having kids, keeping the 6K for emergencies is probably what most people would recommend and I would too, but only if you know for sure you can actually save it and won't be tempted to use it when living the budget becomes to much.
Just as an FYI, I did finally paid off all my debt and it did not take nearly as long as I thought. It's surprising how much money I used to throw away. Now that I am done, I still honor my budget and watch my savings grow. Yes, I do spend more now than then but before I do, I make sure I pay all the new "bills" first - 401K, Roth IRA, Savings and another Investment account. When I do actually splurge, I’ve already saved the money required to cover whatever I buy first. Don't be disheartened at first. Once you actually have a budget and start to follow it, the money worries disappear and you can begin to enjoy life again. You will not dread bill time anymore because you will already know they are all covered.
EX: 785 EQ: 759 TU: 760 (9/14 via MyFico)
Starting Score: EQ: 665 - TU: 687
