Getting out Debt (Bad Situation)

[STChi]

This year has been extremely difficult for our family due to a major health crisis involving an elderly parent (almost 80) who has no retirement resources. We’ve been supporting them financially for several years, and the situation escalated after a serious fall this summer. In the immediate crisis, we relied heavily on credit cards to manage medical-related expenses, a secondary, out-of-state household (for the elderly parent), childcare, and day-to-day costs.

We are now trying to get ahead of the debt that’s accumulated and are looking for guidance on how to create a realistic pay-off plan without damaging our credit and maintain certain parts of our lifestyle (e.g., schooling for kids, etc.) (although we will certainly be tightening our belts).

Household/Financial Background

• High-income household with two children. Combined salaries: ~$650k/year, plus an expected bonus of ~$100–175k in April (netting ~$60k-100k).
• Both of us work extremely demanding jobs (big law associate + small-firm partner), so we rely on paid support: nanny, house cleaner, and private school. We are actively reducing some of these expenses where possible.
• Total consumer debt: ~$200k (credit cards, personal loans, and 401k loans). Mortgage ($400k) and student loans are low-interest and manageable ($400k). We had taken on some debt years ago that we were in the midst of paying off before this nightmare started. 
• Amex balance is currently ~$50k. Because our spending often exceeds the limit monthly, we end up carrying and re-charging about $20k each month, and we cannot seem to break this cycle.
• We contribute $1-2k/month to support the elderly parent in addition to covering unexpected crisis expenses this year ($30k). We have no insight into their finances and it's a total financial drain. 

Cost-Reduction Efforts Underway

• Tightening budgets for groceries, transportation, household services, etc.
• Evaluating the possibility of selling our current home due to rapidly increasing HOA fees (up $700/month since we purchased 5 years ago (to $2,500k!, with another increase expected).

We need suggestions for how to:

1. Create a practical, long-term debt repayment strategy that avoids harming our credit.
2. Break the revolving balance cycle on Amex. Should we get a personal loan and just wipe it out entirely? Debt consolidation to wipe out the Amex and other personal loans. 
3. Decide whether debt consolidation, a line of credit, or restructuring certain payments is advisable given our income and goals.
4. Identify anything we might be overlooking now that the crisis has passed. 

We’ve been trying to prevent things from spiraling, but we’re reaching a point where the stress is overwhelming. Any guidance from people who have navigated something similar—or professionals who have insight into high-income/high-expense debt recovery—would be greatly appreciated.

[FicoMike0]

Wow, that's a lot to deal with. Here's my non professional advice, if you're paying credit card interest, get a personal loan, 2nd mortgage or a loan shark to eliminate that drain. If you have the equity, a heloc might be the best rate. 

[JoeRockhead]

While it sounds like a great idea to get a loan to eliminate high interest debt.  The premise of taking on more debt to pay for other debt is often only successful in prolonging  an inevitable head on crash into a brick wall. 

The reason is due to people failing to make changes in their spending habits. 

You have to rein in the spending.  This always involves making sacrifices.  At the very least until you can claw your way out of this hole.  

Without 100% dedication to changing your spending habits I'd strongly recommend against a HELOC or possibly risking your home if this continues to go south to the point of no return. 

The HOA fees are absurd.  I'm sure you already realize you're likely paying out for twice the house you have.  A move to a home (without HOA fees) where you're pocketing that HOA fee every month might be worth strong consideration. 

[Realist]

Your debt, is your debt.  Their debt, is their debt.  You don't want to acquire or assume someone else's debt, and make it part of your debt.  You don't have the advantage of discharge, but they do.  Your advantage, is to use the system against itself - legally.

[ptatohed]

I'm confused.  What is the debt?  Someone else's medical debt or your credit card debt?  I'll come right out and say it, if it is someone else's (heck, even your own) medical debt, stop paying it.  Period.  

[STChi]

All, for clarity, it is NOT medical debt, and no one is paying medical debt (which we assume is discharged at debt or an issue to deal with later). This parent lives alone, out of state (4 hour flight) in one of our hometowns. We supplement their monthly social security (eg rent, groceries, utilities, transportation). This parent fell and was not found until 4 days later and almost dead. There is more to the parent's situation (eg hoarding, disability) obviously, and we have had make adjustments.

There was a substantial outlay to get them back on their feet and back home. We are focusing on on how to get our finances in order after his very difficult 6 months. 

[FicoMike0]

I'll agree with @JoeRockhead , with one exception.

There is a concern with turning unsecured into secured, via a heloc.

As lawyers, you should be able to evaluate this issue. Let me offer a single data point on the subject.

I have a close friend who's situation was, disabled/retired, owned his house and little else. Income not attachable. Several years after a divorce he found out his ex had not made the payments on her car, financed during marriage. His name was on the loan. The debt pirates came after him for the balance, plus interest, a lot. He didn't pay. They filed a lien on his house for the debt.  They sued. He ended up in bk7, to prevent loss of the house. 

From this, I've determined that your house is in jeopardy anyway. This likely varies from state to state, this was ohio.

[Patient957]

@STChi 

With your high income, you should be able to get out of this situation.  You need a budget and the discipline to stick to it, with full buy in and participation of your spouse.  You're already making lifestyle modifications, but you have to put pen to paper to see if it's enough.  You may need to cut more than you want, but without a realistic budget, you're just guessing, hoping it all works out.  Time to fire up the excel spreadsheet and get to work.  The budgetary tradeoffs you'll need to make will become apparent once you're staring at the reality on the page in black and white.  Good luck.

[LIGHTNIN]

Is there any other family members,that  could help this parent?

Check into resources to help with rent and/or utilities. Meals on wheels is a great program, at least ,the parent would be checked on a daily basis.  Quality of food, seems to be better in the bigger cities.

Before contributing 1-2k per month, find out exactly how much ,this parent needs financially. It's wonderful y'all helped this parent financially,  but if going to put you in financial trouble, it makes everyone be unhappy.

I would suggest you, your spouse and the parent, sit down discuss finances ( income & expenses) and make a plan 

My 87 year old mother lives on,  just her social security alone. She makes it work and lives below her means.

What senior citizens want the most, is having connections with family/friends.  See them in person ,talk with them on the phone often. 

Good luck, hope this helps.💞

[Realist]

This is always the issue in life.

How do you help someone, to become that lifeboat, that vessel to get them back on track, and yet, not capsize from the entire situation?

If your lifeboat capsizes and theirs does as well, who have you helped?

We are very much open to helping others, but if they can't pull the weight after this certain metric, there's nothing left to be done.  It makes zero sense to bring down two families, two households, in the pursuit of charity.  This isn't a lack of ethics or morality.  It's a realist point of view.  If you doom two families while trying to help one, you've done nothing positive for either party.

Dont let this sink your boat.