Overextended Need Advice

[Anonymous]

My situation:  I'm a single mom of a freshman college student, and a small business owner, 57. Her father does not help with college. I have the following balances on credit cards: Capital One (also in my business name)  $9900, American Express $6500, Barclays $4000, Discover $7500.  I've been on a repayment program with Capial One and American Express, both with lower interest rates and accounts closed, for over a year. I have had all of these cards for many years.  I did a quick analysis and over the terms of the cards, comparing what I have charged, interest and fee charges and what I have paid.  For example, since opening the Capital One Card in 2010, I have paid $9500 over and above my total charges, or about 24% (I realize credit card interest is compunded differently). This is true for the others as well. My point being that I've paid significant interest on my charges.  I am getting nowhere with paying down the debt and have nothing left over each  month.

All cards are current.  I'm making the payments, but its getting harder and harder and really impacting quality of life.  I basically have no room for anything outside of making these payments.  My mortgage is current and will always pay it first.  I do have a small inheritance but don't want to use it, as it's my only cushion.

I'm considering debt settlement which I understands requiring me to stop making payments for 6 months or so.  Would I be better off to contact the companies first and let them know my situation and ask for some type of forgiveness?  I'm really not concerned with my credit score becasue I have everything I need and don't intend to apply for credit any time soon.  I am concerned it may make my insurance rates go up.

Any advice is greatly appreciated.

[CreditInspired]

Hi OP and welcome to MyFICO

Oh my, that is a lot of interest you have paid.

I understand you don’t want to touch your inheritance, but have you thought of getting a loan using the inheritance as collateral, which loan will be at a much lower interest rate than the interest you’re paying now. This way, your inheritance stays intact, you are lowering your interest rate, and you are paying off the CCs sooner with less money.

GL2U

[Turbobuick]

You don't mention your income, but it may be time to spend your cushion, reach settlements, or declare bankruptcy. You are probably averaging 20% interest on the debt and I can bet your inheritance isn't earning 20%. The longer you put off paying this ~$30K and cut/toss the cards, the more debt you are likely to accumulate.

The daughter may have to find a part time job and dad should do what he can. Living within ones means takes willpower. Good luck.

[mdd0214]

There are a lot of loan products online, from Upstart or SoFi, etc. You can also look into a local credit union. Maybe open a business & regular checking account, park your inheritance in savings, and then apply for a consolidation loan at a far lower interest rate with fixed payments. Get the debt out of revolving cards and begin making a dent pretty quickly. 

[SBR249]

If you've got equity in your house, could you take some out via a refi or HELOC and pay down this debt? I'm sure that even that interest rate will likely be much lower than the CC APRs. 

[Revelate]

Plenty of good advice up above.

To add two more things:

1) Do a hard look at your budget: even me with my frugal ways was able to optimize some expenses out when I looked at it objectively.

2) Do the budgetary worksheet for a Chapter 13 Bankruptcy and see where you stand: basically if you can't negotiate deals with your lenders and you can't afford the payments, then you can use the CH13 to enforce a payment plan on the lenders.  I don't think you'll qualify based on the fact you do have an inheritance... though TBH I'd airstrike the debt if I could if I were you, the S&P is way up this year and some people have done better than that (hi Nasdaq!) but odds are you aren't making more than your CC APR to justify leaving it sitting around.

[Anonymous]

With a decent credit score and no recent lates you may be able to get a debt consolidation loan with a lower rate and maybe a lower monthly payment than what you have been applying to the cards now. there are a lot of companies out there where you can apply online, get a decent rate at a reasonable term. Just research online. While this is pretty much just moving the debt around, with a lower single monthly payment you may be able to have some breathing room in your budget and find some creative ways to tackle down the consolidation loan as fast as possible and hopefully be debt free in a not so distant future.

[sjt]

STAY AWAY FROM DEBT SETTLEMENT COMPANIES. They charge a huge fee and you can settle on your own.

Think about getting a secured loan against your inheritance. 

[Anonymous]

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@SBR249 wrote:

If you've got equity in your house, could you take some out via a refi or HELOC and pay down this debt? I'm sure that even that interest rate will likely be much lower than the CC APRs. 

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That isn't good advice if she doesn't pay her mortgage or HELOC she would lose her house.  

[kilroy8]

Outside of bankruptcy, there is no way today to simply walk away from debt. They will sue you and take whatever you have that isn't protected. Put that inheritance money into some protected retirement instrument and file bankruptcy.