Dear Debt Adviser,
We have $46,000 in credit card debt. We do not use the cards anymore unless it is for something important like our daughter's glasses. We have three cards with a 3.99 percent interest rate for life. One has a balance of $20,000 with a major national bank. I asked the bank to help us make a payment plan, but it refused. They said that they can't, as we have a "promotional rate" and are not behind in our payments.
My job is at a school, so come June I will not have a paycheck for more than six weeks, and my husband's job depends on a monthly bonus. We will have negative cash flow. I have calculated these bills, including $10,000 for taxes. The credit card debt will take five and a half years to pay off.
We hardly ever spend money on entertainment. We have a lot of medicine that is needed monthly. We are only in this mess because my husband's pay has gone down by about $40,000 in the last few years. Please help. I would like to keep my credit rating, but we are drowning. Thank you.
I can understand your frustrations and concerns. The last few years have seen your household income drop while your expenses have either stayed the same or risen. Yours is a classic example of why carrying a large amount of credit card debt for an extended period of time is so dangerous. Plus, you were relying on bonus income, which is unreliable by its very nature. In good times, what you were doing worked fine. In a tight credit and employment market, it can be the recipe for disaster. But don't despair; I have some suggestions for you. They may not be easy, but you sound like you aren't afraid of rolling up your sleeves to make matters work for you and your family.
Can you look for summer employment as a teacher or as a tutor? If you teach for the summer you may have child care expenses, but as a tutor, you may not have this issue. Working at a second job through the summer would help your financial situation tremendously. First, you would avoid the negative cash flow you mentioned. And second, any earnings over and above what you need for expenses could be used to pay down your debt faster. Your husband might consider looking for new or additional employment. Even though we are currently in a horrible job market, he may be in a field that is hiring or he may be able to get an unrelated, second job such as a Census taker or a clerk at a local store.
Once you have done everything you can to increase the income side of the equation, look at your expenses next. The good news is you have cut down on the use of your credit cards to only essential items like your daughter's glasses that are not covered in your monthly expenses. I suggest a family conference to discuss how you can all cut back. This can be a very valuable lesson for your daughter as well as be a family strengthening exercise. You'll be facing adversity together and learning that you can rely on each other in tough times. Don't let your pride or the perceived need to shelter your children get in your way. This is real life and an opportunity to demonstrate how the world works and how a family overcomes adversity. I have always found strength and inspiration from sharing problems with loved ones.
To start your expenses conversation off, some discretionary monthly expenses that add up quickly are cable, cell phones and eating out. Cutting back or eliminating in these areas is a good place to start. In addition, consider cheaper places to fill your medical prescriptions. Some large, in-store pharmacies offer a three-month supply of generic prescriptions for $10 or less. Remember, the sacrifices that you make now are only temporary and will be well worth the effort once you reach your goal.
If you've already done everything you can to reduce expenses, don't give up. Instead, consider consulting with an accredited, nonprofit credit counselor. Your counselor will walk you through a free review of your finances and make recommendations to help you make a budget that works for you. You can find a trusted counselor at Aiccca.org or Nfcc.org.
As for your credit, don't be distracted by trying to look perfect on paper when your life is less than perfect. Solve your income and expense problem and your credit will take care of itself.
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