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Torn between debt consolidation and chapter 7

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    Torn between debt consolidation and chapter 7

    Hoping for some advice.

    I'm relatively young, in my mid-20s, but after being disowned in my teens and being very sick, I racked up quite a bit of credit card debt. It took me a long time to get my life on track after the unhappy youth I endured and I'm struggling to dig myself out of the financial ditch I'm in now. I feel hopeless because I am unable to save any money and every expense sinks me further into debt.

    I make 30k a year living in New York City and count myself lucky to be employed at all. I have roughly 12k in credit card debt on five cards, about 1k remaining in medical bills (if Medicaid would get its act together the last of my medical debt would be wiped out, but I've been battling with them for months), as well at 120k in federal student loans.

    After taxes, insurance, etc, I take home $1600 a month and it all disappears instantly into bills. After my rent, utilities, transportation, and credit card bills, I am left with nothing at the end of the month. And I haven't even started making payments on my student loans which I am continuously deferring. I don't even have enough to pay for groceries or toothpaste, let alone the little life problems that come up like your phone charger breaking for example. I wind up charging my day-to-day expenses to my cards anyway and the cycle continues. Every time I come upon a windfall of money, say my tax return, and use it to pay off a chunk of my debt, it all comes back the next time my computer breaks or my cats gets sick or anything else you can imagine.

    I'm torn between trying to consolidate my debt or just applying for bankruptcy. My credit score right now is in the high 600s. It's not bad but it's dropping steadily. I have no real assets to speak of; the most valuable thing I own is my 3 year-old laptop. I feel that even debt consolidation will barely help because lowering my payments may help me have enough cash to get by every month, but still won't leave my any extra to make higher payments on my cards, leaving me in credit-card-repayment-hell for the next decade or longer. My only real concern about bankruptcy is that it may be hard for me to find someone who will rent to me, especially as I have no family who will stand guarantor for me.

    I'm also going back to graduate school for my PhD in a few months-- fully funded, no more student loans for me-- and I will have a pretty meager, fixed income (around 25k I'd estimate). I don't see an opportunity for me to have anything to spare to keep paying these credit cards. They're ruining my life, affecting my relationship, making me stressed, unhappy, bitter and resentful. I understand that my student debt would remain unaffected, but I can handle paying that and as I am going the academia-route I expect my student loans to be wiped out after 10 years of non-profit employment as per federal student loan policy.

    What would any of you advise I do?
    Last edited by llullusu; 01-29-2015, 06:08 AM.

    #2
    Welcome!

    As you noted, bankruptcy won't eliminate 90% of your debt (120K out of 133K total). I think you'd be wasting your time filing. Wiping out your CC debt would be a very short-term fix since you are depending on credit cards to pay your living expenses so you'd be right back in debt in no time.

    When you do have to start repaying your student loans, get on income-based repayment so that the payments don't bury you.

    The biggest problem is your income. Trying to survive on 30K is tough anywhere but virtually impossible in NYC. How much do you think you'll be able to earn once you have your doctorate?

    Bottom line is that you need to get your income up and, possibly, consider moving to a lower cost of living area.
    Steve

    * Despite the high cost of living, it remains very popular.
    * Why should I pay for my daughter's education when she already knows everything?
    * There are no shortcuts to anywhere worth going.

    Comment


      #3
      Thank you!

      I actually can live on 30k without too much trouble without the additional expenses, it's that I make about $350 in credit card payments a month. $400 a month is plenty for me to pay for groceries and even the occasional movie ticket. (What riches that seems like!) It feels like the student loans are certainly a looming problem, but not a problem that is affecting my day-to-day life the day the CCs are. And I can easily negotiate a fairly low repayment plan with my student loans and not even worry about every paying them back fully since they'll be forgiven with my career path.

      I could certainly start looking for different employment, but it seems like waste of time given that I'll be moving out of nyc this August if grad school goes according to plan. That's probably how long it would take me to find a new job anyway. I have what is technically a very "prestigious" job in academic publishing, but sadly publishing just doesn't pay!

      Once I'm out of grad school I expect I'll be making at least 40-50k; the programs that are interested in me have a very high rate of tenure-track placement. Not to mention I'll almost certainly wind up in the boonies somewhere where the cost of living will be much lower. It's really the interim 5-6 years that I have no idea how I'm going to get through without some serious changes.

      Comment


        #4
        Originally posted by llullusu View Post
        Thank you!

        I actually can live on 30k without too much trouble without the additional expenses, it's that I make about $350 in credit card payments a month. $400 a month is plenty for me to pay for groceries and even the occasional movie ticket.

        Are you really paying $400 a month for groceries? That would be the easiest place to cut back, in my opinion. I realize that the COL in NYC is more than where I am in Virginia, but I feed my family of 4 on $400 a month and that is with a hungry husband and 2 growing boys Cut coupons, only buy store brand, cook from scratch and meal plan ahead of time. We used to be spending $700+ a month on groceries and cut it nearly in half. That would give you some extra money to establish an emergency fund or pay down that credit card debt.

        Comment


          #5
          I live quite frugally. I certainly do not spend $400 on groceries, I'm using it as shorthand for day-to-day needs. I can break it down more if that will make the number easier to swallow.

          I pay around $200 for groceries. Groceries in new york city are incredibly expensive, it's impossible to chose which store you shop at because you must carry your groceries home so you usually only have one store to chose from, and I already cook everything from scratch as I have some medical problems that require a strict diet-- however this also means I also can't just make ramen or beans and rice.

          I drop $100 on therapy (trust me, very needed). Insurance reimburses me, but it takes them month to process and I've yet to see a single check.

          The rest just adds up: Personal care items like shampoo, pads, toothpaste, cat food & litter, laundry detergent. Plus the random frustrations of life, there's never a month when something doesn't break or need replacing or you suddenly find you can't go another month without rain boots in the middle of winter.

          Which is all to say, living adds up and you can see how suddenly $100 in the bank disappears in minutes. I truly don't think the problem lies with how I'm spending my money. I don't even go to the doctor right now because I can't stomach the copay. I appreciate the thought and the advice, but in my situation I'd have already done it if I could! I don't think there are very many more ways I could be saving money short of moving to a different apartment and, at this point, the few hundred dollars a month I'd save short-term while I remain in NYC wouldn't equal to having to pay for moving, first and last months rent, and security deposit (all standard in nyc)-- none of which I can afford anyway.

          This will look different 8 months from now as I'll be somewhere new, but I don't know where I'll be yet and I'll have less income to work with even if my living expenses will be lower.

          Comment


            #6
            Have you signed up for Mint.com yet? I highly recommend it to anyone who is struggling to make ends meet because it tracks everything for you and at the end of the month you can easily see where your money went. Sometimes it can be a bit shocking to see where it actually goes vs where you think it goes.

            Comment


              #7
              Originally posted by llullusu View Post
              I have roughly 12k in credit card debt

              I wind up charging my day-to-day expenses to my cards
              Here is my concern. If you file bankruptcy on the 12k in CC debt, how will that stop your from continuing to charge your day to day expenses on those cards? What is going to change that will keep you from getting right back into credit card debt?
              Steve

              * Despite the high cost of living, it remains very popular.
              * Why should I pay for my daughter's education when she already knows everything?
              * There are no shortcuts to anywhere worth going.

              Comment


                #8
                Originally posted by disneysteve View Post
                Here is my concern. If you file bankruptcy on the 12k in CC debt, how will that stop your from continuing to charge your day to day expenses on those cards? What is going to change that will keep you from getting right back into credit card debt?
                The idea is that right now, all of the income I would be able to use to pay for living expenses goes toward credit card payments. Getting that income back would mean I wouldn't need to keep charging everything to the cards. The reason why I can't pay them down is because making minimum payments leaves me with nothing to actually live on, so I get caught in a recursive circle.

                Comment


                  #9
                  You could just stop paying the credit cards. That will wreck your credit but so will declaring bankruptcy and the banks won't get paid either way.

                  I'm a firm believer in paying your debts but if you truly don't have the money, you can't pay them.

                  That said, surely there must be a second job you could find in NYC to bring in an extra couple hundred dollars a month.
                  Steve

                  * Despite the high cost of living, it remains very popular.
                  * Why should I pay for my daughter's education when she already knows everything?
                  * There are no shortcuts to anywhere worth going.

                  Comment


                    #10
                    Rather than seeking opinions online, I would just make an appointment for a free consultation with one or two bankruptcy attorneys. They will be able to give you advice that is specific to your situation, and explain all of the upsides and downsides to filing. FWIW, I filed a chapter 7 on about the same amount of debt, even though I also had student loans that could not be discharged, and I was much better off post bankruptcy. I had more trouble renting an apartment before it than after, but I also had crap credit before I filed. I am 100% pro bankruptcy if the advantages outweigh the disadvantages.

                    Comment


                      #11
                      Originally posted by hamchan View Post
                      Rather than seeking opinions online, I would just make an appointment for a free consultation with one or two bankruptcy attorneys. They will be able to give you advice that is specific to your situation, and explain all of the upsides and downsides to filing.
                      I'm curious about something. When you go for a free consultation, obviously the lawyer is looking for clients. How do you know he won't steer you toward filing even if that isn't really your best option? He doesn't make any money turning people away, especially after giving them an hour of his time for free.
                      Steve

                      * Despite the high cost of living, it remains very popular.
                      * Why should I pay for my daughter's education when she already knows everything?
                      * There are no shortcuts to anywhere worth going.

                      Comment


                        #12
                        Originally posted by disneysteve View Post
                        I'm curious about something. When you go for a free consultation, obviously the lawyer is looking for clients. How do you know he won't steer you toward filing even if that isn't really your best option? He doesn't make any money turning people away, especially after giving them an hour of his t ime for free.
                        I've seen bankruptcy attorneys at various times in my life, and when it wasn't in my best interest to file at that time, they did not advise it, and they gave me other advice. When I have asked what other options I have they have given me a run down of what else I could do and the pros and cons of each scenario. Maybe I've just been lucky, but the lawyers I have talked to have all seemed to have the client's best interests in mind.

                        Most bankruptcy attorneys will also handle negotiating with creditors and other similar jobs, and they just bill you for the hours.

                        Comment


                          #13
                          Originally posted by hamchan View Post
                          I've seen bankruptcy attorneys at various times in my life, and when it wasn't in my best interest to file at that time, they did not advise it, and they gave me other advice. When I have asked what other options I have they have given me a run down of what else I could do and the pros and cons of each scenario. Maybe I've just been lucky, but the lawyers I have talked to have all seemed to have the client's best interests in mind.

                          Most bankruptcy attorneys will also handle negotiating with creditors and other similar jobs, and they just bill you for the hours.
                          Thanks for the reply. It's good to know that the lawyers are acting in good faith and trying to do what is best for clients (and potential clients). I guess I always worry that bankruptcy attorneys are dealing with the most vulnerable folks and it would be far too easy for an unscrupulous person to take advantage of them. Nice to know that hasn't been your experience.
                          Steve

                          * Despite the high cost of living, it remains very popular.
                          * Why should I pay for my daughter's education when she already knows everything?
                          * There are no shortcuts to anywhere worth going.

                          Comment


                            #14
                            Originally posted by disneysteve View Post
                            Thanks for the reply. It's good to know that the lawyers are acting in good faith and trying to do what is best for clients (and potential clients). I guess I always worry that bankruptcy attorneys are dealing with the most vulnerable folks and it would be far too easy for an unscrupulous person to take advantage of them. Nice to know that hasn't been your experience.
                            I have found bankruptcy attorneys to be a pretty good resource for advice in dealing with debt collectors and such. The reason I advise people considering bankruptcy to always talk to an attorney is because every person's situation is going to vary depending on where they live, what assets they have, and other factors. And also because often people who really would benefit from a bankruptcy wait too long, and just wind up using up protected assets trying to stay afloat, then wind up having to file anyway.

                            Comment

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