What’s best next step?

My family and I have come to a point with our bills where we are not going to be able to make all our monthly bills. Right now our bills exceed our monthly income just slightly and that is not including food, gas and monthly little expenses; school stuff, any clothing, household essentials etc. It has been this way for a few years and we have slowly but surely increased our credit card debt along the way. We currently have fourteen credit cards amounting to $37,343.51 or $1,290.00 a month in payments. Our income is $4870.00 in take home pay a month and our bills (all basic, card and mortgages, 1st and 2nd) come to 4947.96 a month.

If we could eliminate our credit card debt we would be able to get by with the monthly bills. I know from watching tv shows and articles online that the most common advice for us would be to sell the house and pay down our cc debt. I have looked at bankruptcy and debt consolidation and debt management and I am confused as to which is the best way to handle our cc debt and stay in our current house. Our mortgage payments are $2178.87 and $419.19 a month. We want to stay in our current house, we do not care about our credit rating at this time as we do not want to pursue any further credit (ever if possible) but need to know the best way to handle our cc debt.

There seems to be a lot of websites out there that promise help but only help in taking more of your money. Any suggestions would be greatly appreciated. As of now everything is current in payments and not behind. That changes this month. We have no more credit to stick a band-aid on (temp fix). How? and Where?

I am in a situation similar to yours only further along and my debt is higher. My advice is to stop paying on the unsecured debt(e.g. credit cards) but continue paying on your secured debt. The only thing the credit card people can do is ruin your credit rating and sue you. You can keep your home if your equity in the home is below your state’s homestead exemption which I would look up on the internet. If you are sued you can file BK to stop the lawsuits. If your income is below the median for your state I would definitely consider Chapter 7.If you have too much equity in your home you might consider Chapter 13. Nolo press has some very good books on this subject that you could either buy or get at your local library and also review at www.nolo.com.

If you were to ask yourself what would Dave Ramsey say? The answer is, “You simply cannot afford the house; it is consuming over 53% of your income and that does not include the utilities and maintenance on the thing.” Even if you filed bk, you still cannot afford it. Not unless you can significantly increase your income.

Dave, along with many others prioritize all bills as follows:

  • First pay for shelter
  • Second pay for food
  • Third pay for basic utilities (gas, light, water)
  • Fourth pay for transportation (sell any autos with a loan and buy ones without a loan)
  • Fifth pay for necessary clothes for work and school
  • THEN prioritize everything else.

Pay the cc that will work with you before the ones which will not. Before you ask, I am trying to sell my SUV and have been since February. However, I cannot sell it and leave a debt that prevents me from buying a car outright and no one seems interested in a 17MPG 4runner these days.

We are also fixing up the house to sell, not because we cannot afford it, for it is less than 20% of our income, but because we do not wish to stay in it any longer. When we sell, we will rent until we have all debt paid off, 6 months expenses in the bank and at least a 20% down.

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