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Terri Wants to Know “Is There a Way to Get Out of Debt Without Ruining Our Credit?”
Terri wrote and asked her question through the GetOutOfDebt.org site. If you have a credit or debt question you’d like to ask, just visit this page and ask. My help is totally free.
“Dear Steve,
We have appox $50,000 in revolving debt, 2 vehicle payments, 1st and second mtg, we pay everything on time and have a small amount left over each month, but feel everything closing in and have fear starting to come over me about all of the debt.
Is there any way to get some help even if we are paying on time ….without ruining our credit?
Terri”
Dear Terri,
Yes, there is a way to get out of debt and improve your credit at the same time. The only problem is, it’s hard to do and requires perseverance.
The issue you are facing right now is that it feels like the walls are closing in. At times like that people often leap to solutions like credit counseling or debt settlement that they think will be quick and painless fixes, they are not.
You do have a lot of debt and now is the time to start to dig your way out. By making at least the minimum payments on your debts and then using whatever money you may be able to find as an extra monthly payment you can start your journey to eliminating your debt.
By paying down your debt with at least monthly minimum payments while focusing on eliminating one debt at a time your payment history on your credit report will show that you met your contractual obligations, were on time and not delinquent at all. All those factors will continue to increase your credit score and you reduce your debt.
It sounds to me like your debt to income ratio is pretty high, meaning that most of your income is pledged to debt repayments. That makes it harder to do a balance transfer of your highest interest rate debt to pay that one off interest free. That approach is wonderful as long as you can completely pay off the transferred balance before the introductory rate expires. I just wrote about my own recent experience in doing a balance transfer.
You can also easily adopt the debt snowball approach for effective emotional and financial debt reduction. It is an approach that works, and works well.
The key here is that you need to trust your instincts. Your subconscious is telling you, through fear and worry, that your financial life is out of balance. You should listen to to those warnings but there is no need to panic, just make a choice on which path you will follow to get out of debt and execute that plan.
If you feel like you just can’t do it on your own then look at a credit counseling program, it will screw up your credit but by sending one payment to them every month they will then take care of distributing your payment to your creditors.
But you really don’t need a credit counseling program at the moment since you can do this yourself and by doing so it will achieve your goal of getting out of debt and not harming your credit report or reducing your credit score.
There is hope.
Big hug.
Steve
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Terri Wants to Know “Is There a Way to Get Out of Debt Without Ruining Our Credit?”
Linda Writes In And Asks “Should We Sell Our House Now Or Hold Out For More?”
Linda wrote to me through the GetOutOfDebt.org site and asked me her question below. If you have a question that you would like for me to answer for free, just use the online form and ask me your question.
“Dear Steve,
Last year we put our house which is paid for on the market expecting it to sell quickly, and purchase another house with a mortgage. Our realtors say to lower the price $75k to sell it, but we feel that won’t give enough to invest for our retirement. Would we be better off to rent our house to cover the expenses and wait out the market, or lower the price and see if it will sell?
Linda”
Dear Linda,
It seems like you are at a crossroad or cross purposes. You can hold out for a higher sales price but if your house has been on the market that long you probably are not going to get it. But you might, stranger things have happened.
At the same time $75,000 of perceived value that can be turned into real money isn’t really investable money for your retirement fund if nobody wants to pay that price. Right now you’ve got $75,000 of nothing.
The true value of something is that value at which the buyer and seller agree and based on what your realtor is saying, that’s a lower number. There are a number of factors that come into play to determine value. Many of those factors are beyond your control.
The things that are hurting the sale of your home now are the slowdown of mortgage lenders and the poor economy. This leaves more unsold houses sitting on the market and that just depresses the value of all the homes trying to sell, including yours.
If you sell your current home for less now, you will probably be able to purchase your new home for less as well. If home values rise again in the future, which they always do over time, you’ll potentially recover your $75,000 when you sell the next house.
If the decision you make is that you’d rather sell the house now that let it continue to linger on the market waiting for a buyer that may never appear, lowering the price and good marketing by your realtor is probably the best bet.
Besides, no realtor is going to aggressively market a home that is overpriced and not going to sell. Why waste their time.
Thanks for the question.
Big hug.
Steve
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Linda Writes In And Asks “Should We Sell Our House Now Or Hold Out For More?”
Judy Is Worried “Should I Save or Pay Off Credit Card?”
Judy wrote to me through the GetOutOfDebt.org site with her question below. If you have a question that you would like for me to answer for free, just submit it online here.
“Dear Steve,
Should I save the amount after paying off a credit card debt or pay down another.
Help please.
Judy”
Dear Judy,
You asked a great question and one that seems easy but has different valid and possible answers.
If you are digging yourself out of a debt hole the initial knee jerk reaction is to devote all your extra money to paying down the next card but I don’t think that is the smartest thing to do.
You see life is unpredictable and we never know what the next financial surprise will be. Unless you have access to some liquid cash to get in a hurry those unexpected expenses could wind right back up on the plastic, eroding any debt reduction progress you previously made.
I think the better approach is to buildup your savings account at the same time that you are trying to reduce the debt. I’m assuming that we are starting from a position that you have little to no savings to begin with.
I would suggest that after you pay off your first credit card debt that you either put the extra into a savings account for a few months to build some cushion or put half of the amount into your savings account each and every month from that point forward and use the remainder for additional debt reduction.
This approach of rolling your payments forward is know as the debt snowball approach. There are two basic theories to accelerating debt repayment. Those that are diligently organized find that extra money applied to the card with the highest interest rate makes the most mathematical sense. The the rest and majority of the population finds that it is more emotionally rewarding to focus on paying off and sending your extra payment to the card with the lowest balance. By knocking off accounts quickly you get a greater emotional boost to keep going. That’s the debt snowball approach, simplified.
Thanks for writing in.
Big hug.
Steve
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Judy Is Worried “Should I Save or Pay Off Credit Card?”
In a World of Hurt Writes and Wants to Know “Should We Tell My Parents?”
I got the question below through the GetOutOfDebt.org site from someone that identified themselves as In a World of Hurt. Feel free to visit GetOutOfDebt.org and ask me your question, you can use an anonymous name, it’s okay.
“Dear Steve,
We owe $103,000 on our first mortgage, $16,000 on our home equity loan, and $17,000 in loans and credit cards. Monthly out go currently $3,500.00 including utilities and necessities.
I was approved for a complete refinance which would pay all of the above off, and make out monthly out go 1220.00 + utilities and necessaties. We would have 1500 each month left over and by sending an extra 1000 a month payment to the principle blance we would have regained our equity in approx. 3 years.
The only problem is our equity was a gift to us from my parents, and I really do not want to tell them, where as my husband thinks we should tell them or we just won’t refi. So for now I have put the refi on hold. What would you or your readers do?
Do the refi and not say anything because this was a gift of money and by that they knew this was potentially an option?
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