Credit Card Consolidation Concern

[platinum]

I'm not in a good place with credit and I'm looking for a solution to a current dilemma I'm facing.

I own two properties (primary and a rental), but I've fallen behind on the mortgage payments for both -- the last payments I made were in January. I did this on purpose in order to try to do a loan modification with my lenders.

Although it might seem a bit strange, I'm more concerned about the rental property mortgage than my primary home. The way things are looking, my primary home will go through either a short sale or end up being foreclosed upon. I do have a place to live, so this is of little concern to me.

I'm explaining all of this because it leaves me in an interesting situation with the amount of CC debt that I'm carrying. My wife and I currently have 13 credit cards with a total combined balance of about $75k. The minimum payment is approximately $2k per month. This is not terrible, but we ended up emptying our savings trying to keep up with the mortgages and the credit cards.

Monthly payments are extremely tight and something has got to give. Obviously, our FICO score is in the garbage at this point so going late on some credit cards and having them lower my FICO more is the least of my concerns. I've decided that it definitely time to consolidate the credit card debt and get it reduced as much as possible. I do have a major concern though.

I currently have two vehicles that are financed and I'm not sure how to approach those when trying to consolidate my credit card debt. Both my wife and I have long commutes in excess of 60 miles each way so for both of us, having a good, reliable car is a must. There's absolutely no way that I'm willing to be delinquent with those lenders since we both absolutely need our vehicles to get around to keep our current incomes.

The question I have us that since we plan on staying current on the vehicles, will our CC companies even consider dealing with us with a credit card consolidation or will they see that we can keep up payments on some loans and refuse to write off some of the debt?

[disneysteve]

How much do you owe on each car and how much is each worth? What you should probably do is sell them both and replace them with good quality used cars. We all need reliable cars but that doesn't mean you need to go into debt in the process. I've got a 12-year-old car with 117,000 miles on it and I consider it totally reliable. You could buy one just like it for about $3,000 today, maybe less.

[Runaway Finances]

Do you realize what got you into the problem in the first place? Too much debt. I know I'm sounding like a broken record every time I post, but you must first come up with a spending plan to get yourself living with in your income AND to determine what you can afford to spend on debt reduction. Once you know what you can afford to spend on debt reduction, you then need to come up with a plan on which debts you are going to pay and how much. You then take that plan to your creditors. They won't be talking to each other, so you just go to them and tell them what you can afford and even show them the plan. The car lenders will be tickled to death if they are the ones you are going to pay, but don't expect them to quickly negotiate with you. I don't believe in bankruptcy, but it sounds like you are a candidate for that. I agree with disneysteve in that you need to downside everything including cars. I too drive a 2003 truck that has 111,000 miles on it. It is a top of the line truck and I'm one who has never driven a car more than 4 years, but I decided it was ridiculous to spend the money on a new car. I intend to drive it another 3 years. It is cheaper to maintain then to buy a new one. We all WANT things we don't NEED. Figure out what you NEED and then downsize. What about public transportation? That is another option.

[platinum]

Thank you for the advice on the cars, but I like the ones we have and I can continue to make payments on them. There is no concern there. What I'm worried about is that if my credit history shows that I can make those payments and not get behind on them, will that make consolidating my credit card debt harder? I want to go into the negotiations with the strongest hand possible so that they will forgive most of the debt.

[wincrasher]

Good luck on getting the card companies to negotiate down your debt.

They will look at your total monthly payments and income. If you are current on a particular card, they are less likely to negotiate - if you are seriously delinquent (haven't been paying), then they may be willing to discount. Problem is that you rack up alot of penalties, fees and higher interest while you're deliquent, so the amount they'll negotiate away, may just bring you back to where you were.

Another option would be to stop paying altogether and let it go to collections, and then negotiate with them.

All bad choices with severe damage to your FICO.

What you didn't say was why you are in trouble. Sounds like the amount of debt has just swamped your income, not that you've had a loss of income. Job loss or illness may get you some sympathy, mismanagement of your finances probably won't.

[disneysteve]

platinum, my point with the cars was this. If you can't afford your mortgage and can't afford your credit card payments, you likely can't afford your car payments either. You need to be doing everything possible to reduce the total amount of debt you are carrying. Selling the cars may well be part of that process.

Originally Posted by wincrasher

What you didn't say was why you are in trouble. Sounds like the amount of debt has just swamped your income, not that you've had a loss of income. Job loss or illness may get you some sympathy, mismanagement of your finances probably won't.

I agree. It would be very helpful if you could share the big picture. List the income and debts and any details about how you ended up with all this debt that you can't afford to repay.

[arthurb999]

How did you get into so much CC debt? I am assuming you were living a lifestyle you couldn't afford.

Didn't you realize you couldn't afford all the houses and cars.

I mean 2 financed cars, 75K in cc debt, 2 upside down houses.... seriously... that is redicilious. This is a prime example of how America got into the mess it is in... irresposible consumer behavior.

Before we begin, read the total money makover by dave ramsey...
1. Sell both cars, buy 3000 used cars cash
2. Short sell both houses and rent
3. Get a second job
4. Sell everything you can and put towards cc's

Get completely out of debt then start over...

[poundwise]

To recap:

• Behind on primary home mortgage; facing short-sale or foreclosure
• Behind on a rental home
• Two vehicles financed
• Thirteen credit cards, balance $75k; minimum payments $2k/month
• Things are "extremely tight and something has got to give"

Originally Posted by disneysteve

What you should probably do is sell them [vehicles] both and replace them with good quality used cars.

Originally Posted by platinum

Thank you for the advice on the cars, but I like the ones we have and I can continue to make payments on them.

I think I see the problem.

[boosami]

Originally Posted by platinum

The question I have us that since we plan on staying current on the vehicles, will our CC companies even consider dealing with us with a credit card consolidation or will they see that we can keep up payments on some loans and refuse to write off some of the debt?

If you can't afford your mortgage and minimum payments with your income, no bank is going to loan you $75k unsecured to consolidate your credit card debt. Your debt-to-income ratio is simply way too high. So you can forget about consolidation.

Typically, credit card debt is only negotiable after it gone to a collection agency. If you really want to write it off or minimize what you pay back, stop paying on the CCs entirely until the banks or collectors start calling you. Then try and negotiate with the collectors for 40-50% of the owed amounts.

However, there is a further problem. Banks and collectors will be able to see you are current on your vehicle loans, so they will not want to cut you a deal in paying back the CC debt. If you want to negotiate, you will have more wiggle room if you look like you are behind on everything. Sell the cars and buy used ones with cash so you don't have payments.

I'd suggest you post your budget on this board. I have a feeling you could be making your payments each month if you cut out some luxuries. I know you "need" your cars, but I wouldn't be surprised if you "needed" your gym memberships and "needed" Tivo and "needed" your leased boat.

[disneysteve]

Originally Posted by boosami

I have a feeling you could be making your payments each month if you cut out some luxuries. I know you "need" your cars, but I wouldn't be surprised if you "needed" your gym memberships and "needed" Tivo and "needed" your leased boat.

Originally Posted by platinum

I like the ones we have and I can continue to make payments on them. There is no concern there.

I'm generally of the opinion that people DO need their cars. OP, however, you have two cars that you simply can't afford. You may like them but despite what you may think, there is definitely cause for concern there.

[platinum]

The cars really aren't an issue - I can afford to pay the loans once I get rid of the credit card debt and the mortgages. Like I said before, we have a place to live so I'm not worried about the houses going into foreclosure. The credit card debt is mostly from a business that I tried to start that never made it. Just over extended myself a bit. My bad. Will be a bit more careful next time.

My main worry is the credit card debt and my ability to negotiate it down. Since I will not be late on the car payments, I'm afraid that this will make it harder to negotiate the credit card debt down with the card companies.

[disneysteve]

platinum, you are missing the point that we are all trying to make. I'm not sure how to make it more clearly. ALL of your debt is a problem. Sure, you can make the car payments if you get rid of the CC and mortgages. Or you could make some of the CC payments if you got rid of the cars. Or you could make the mortgage payment if you got rid of the cars and the CCs.

You need to deal with ALL of your debt in order to get your finances back on track. With two homes at risk of foreclosure and 13 credit cards that you can't afford to pay, you CAN NOT AFFORD to also be carrying 2 car loans.

You said, "Monthly payments are extremely tight and something has got to give." What we are all trying to point out is that if you didn't have 2 car payments, things wouldn't be so tight. There is no way around that fact. Whether you choose to accept it or not is certainly up to you, but that doesn't change the facts. Good luck.

[wincrasher]

Everyone is quick to suggest selling cars.

9 times out of 10 you owe more on the cars than they are worth. If you've got no savings, then how are you supposed to sell the cars and pay off the loan? Also, if you've got no money, how are you supposed to then go out and buy a $3000 car?

I keep seeing this advice with no regard for the circumstances.

[Runaway Finances]

Wincrasher, IF he can afford the payments on the cars (that I'm guessing are fairly high payments), then he could go to one of those "we finance" lots and buy a much cheaper car with much lower payments in spite of a most likely higher rate. Just because you are upside down on a car loan doesn't mean you keep making payments you can't afford.

This guys problem is debt. We all agree with that I'll bet. All he wants is someone to write down his debt (by the way, look up the tax rules on forgiveness of debt), and he seems to not want to really address the problem of how he got into this mess. In other words, I don't sense he is trying to fix his problem really. He just wants a way out of his current troubles. I'm making a lot of assumptions but they are based on experience.

[wincrasher]

I agree. But if he is upside down on both cars then he is stuck - can't sell them, but could let them go to repo.

[disneysteve]

Originally Posted by wincrasher

But if he is upside down on both cars then he is stuck - can't sell them

People get rid of cars all the time when they are upside down. They roll the loan balance into the new loan. Let's say a car is worth 12K and you owe 16K. Buy a replacement for 5K and take a loan for 9K. You reduce your total debt by 7K. Even if the rate is higher, the payments will be lower. If you have any savings to put toward the purchase, even better.

[platinum]

I'm not sure why you all want to focus on the cars. There is no problem in making those payments since I will no longer have the house mortgage payments and the credit cards will be reduced.

The only reason I can see to default on the cars is so I can be in a better position to negotiate a deal with the credit card companies, but as I said, they are essential to both my wife's and my work so that isn't an option.

I have been making financial decisions. I don't want the houses to go into foreclosure or short sales, but it's the only way to make things work. I don't want to not pay the credit cards, but I just can't afford the current payments so I have to negotiate them down. I can afford the cars and they are essential to keeping our income and jobs.

[boosami]

Originally Posted by platinum

The only reason I can see to default on the cars is so I can be in a better position to negotiate a deal with the credit card companies, but as I said, they are essential to both my wife's and my work so that isn't an option.

The CC debt is not going to be negotiable if you are paying current on two auto loans. If you default on the car loans to get in a better position to negotiate with the CC debt collectors, the cars will be repossessed. Then you'll have no cars at all. Can you afford to pay the auto loans + credit cards in full if you lose both the mortgages?

[wincrasher]

Steve, it's hard to get your head around the idea that it's better to be still upside down, but for a lesser amount - but I do get it.

The trick would be what kind of rate would you get on a replacement auto loan that is on a used car with the balance far exceeding the value. I'd suspect that, if they could even get such a loan, the rate would be astronomical.

I think the issue here, in the end, is cash flow and not total indebtedness. So still, working on the credit cards is the best solution for that. With 2 homes in foreclosure, or at least seriously delinquent, he has a good bit of leverage with the CC banks.

[disneysteve]

Originally Posted by platinum

I can afford the cars and they are essential to keeping our income and jobs.

Having a car is essential to your job. Having the cars you currently have is not. That's an important distinction.

I need a car for my job, too. I'm driving a 1998 Camry that I bought used in August 1998 when it was 1 year old, so it will soon be 12 years old. I paid it off many years ago. My wife's car is also essential. We paid that off the day we bought it 9 years ago.

Of course you could afford the payments if you didn't have a mortgage. The point is that you need to stop using debt to finance your lifestyle.

How much is each car worth and how much do you owe on each? Maybe the advice to sell the cars doesn't apply to you, but without numbers it is impossible to say.