Six Figure Credit Card Debt

[corns]

I have racked up almost 250k in credit card debt. The debt is spread out across 11 credit cards. My monthly take home salary is 6k. I have used up all my savings. I have no more savings. Is there any hope for me?

I'm about to receive 90k of cash from a refinance of my property. I will use this to pay down my credit card debt.

I have a rental property. My tenant moved out 2 months ago, and I am still servicing mortgage. The monthly mortgage payment is painful.

I have already sold any mutual fund that I can sell.

What would you do if you're in my situation?

[pflyers85]

Which would likely sell first your home or rental property? With that much debt I'd probably sell my home and move into my rental property assuming that was the cheaper property. With the sale of your home you should hopefully be able to pay a bulk of that credit card debt. That is probably the quickest way to get out of debt. Before you go significantly paying down debt you need to get an emergency savings fund in place. It's pointless to start using a bulk of your income to pay down debt and then face an emergency and then you are back using the cards again.

[disneysteve]

I have racked up almost 250k in credit card debt.

My monthly take home salary is 6k. I have used up all my savings.

I'm about to receive 90k of cash from a refinance of my property. I will use this to pay down my credit card debt.

I have a rental property.

First question is how did you get 250K in debt? What was that money spent on? It's important to know how you got here to help answer the question of what to do now. If the debt came from something beyond your control, like medical bills, that's one thing. If, however, it came from reckless spending, that's entirely different.

Borrowing against your home to pay off credit cards is generally a bad idea. It converts unsecured debt to secured debt. Now if you don't pay, they can take your house. Bad idea.

Without any more info, I would sell the rental property. I would also sell everything and anything that you possibly can to generate cash. At the same time, I'd be looking to boost income. You already make decent money but you need to make even more. If working more hours or extra shifts at your current job is an option, do that. If not, find a second job.

pflyers85 is correct that you need to establish an emergency savings. I'd aim for at least $1,000 to start. If you haven't already, you need to cut up the credit cards and never use them again.

As for how to attack the debts, the standard advice around here is to pay them from highest interest rate to lowest rate, but this is one of those situations where I think the Dave Ramsey method is preferred. Pay the smallest balance first regardless of interest rate. That knocks it out and eliminates one monthly payment and gives you a little more breathing room. Then the next smallest, then the next, etc. Each time you pay one off, roll that payment toward the next card in line.

What would really help us help you is if you could post your entire budget so we can see where your money is going.

[Singuy]

With 250k worth of CC debt at high interest rates, it will quickly snowball into something that will be impossible to manage. Before forking over 90k over to pay off a portion of this debt, I strongly advise you to negotiate with the CC company for a lower interest rate and some sort of settlement before defaulting/declaring bankruptcy.

Honestly at 20% interest rate, your interest/year is 50k..which is almost your entire yearly income just to pay interest. Even if you dump 90k toward your debt, you are still be left with 32k worth of interest per year= 2660/month. Any type of payment method will not work unless it exceeds the amount of interest you accumulate/year, which is a huge number.

[disneysteve]

Singuy is correct that this might be a bankruptcy situation. We really can't say without knowing all of the numbers. And fixing it might be as simple as working extra hours to boost your income, selling the rental home, and going to a bare bones budget for a couple of years. We need a lot more info to make any worthwhile suggestions.

[Joan.of.the.Arch]

Corns has linked his blog, which tells us that the home for which he is cashing out equity is co-owned as an investment with others and they are splitting the cashout. He lives in Malaysia (or at least his debts are there), so the laws/rules for bankruptcy and collection of debt might be very different than the majority of our forum participants are accustomed to.

Still, Corns, I suspect that if your country allows for bankruptcy, you probably should seek out legal advice toward doing that. I know that in many respects Malaysia is very western, but in other respects, including law and legal consequences it can be very different. I mean, if you can go to prison for unpayed debt, for example, I might not say go for bankruptcy.

[tripods68]

Cut all credit cards.Never use it EVER!

1. Biggest priority-Sell your home and rent for cheap

2. Priority-Food/Shelter/Clothing

3. Get a 2nd job to add towards debt repayment.

4. Start selling what you can. You kids might think they're next.

4. Cut cable tv, vacation, eating out until you clean this mess.

You make 72K a year minus deduction, take home around 50K. I'd say you can live on 20k, and apply 30K towards debt and any additional income from the 2nd job. Let's say you make 30K a year debt payment at 250K balance about 8.3 years years it will take to pay principal balance but not interest.

Morally you are obligated to pay your debt. But I've heard Dave Ramsey advised many to negotiate with debt collector 10 cents on every dollar. That's another option.

How the heck you rack up so much debt away? Are these from serious gambling problem? If so, you need more than financial advice.

[disneysteve]

You make 72K a year minus deduction, take home around 50K.

No, OP said he takes home 6K so the 72K is net, not gross.

As Joan pointed out, though, OP is in Malaysia. I have no clue what the cost of living is there so I don't know how 72K there measures up to here in the US.

[Singuy]

Good news is that 250k is not as much as you think in U.S dollars!(about 62k in US). Bad news, his interest rates are around 18%. Given the op's income, there's no way for him to pay it off unless he packs everything up..moves in with the parents, and tackle this debt for the next 25 years.

[disneysteve]

Okay, I finally took a look at OP's blog. There are details there that make this story much more clear.

He earns 6,000/month.
The minimum payment on his credit cards is 12,500/month.
He also has an 1,100/month mortgage.

He's bankrupt, plain and simple.

Unless he can more than double his income, there is no possible way he can ever repay this debt. The only possibility is that he mentions having equity in several properties but doesn't say how much. If there is enough equity to really knock down the credit cards, that might work but we don't know as he hasn't posted that info.

[Weird Tolkienish Figure]

Is bankruptcy even an option in Malaysia? The US actually has some of the most generous bankruptcy laws in the world.

[Joan.of.the.Arch]

An American relative living in Malaysia many years ago was picked up by police on an extremely small matter and the consequences were huge, compared to what might be expected here in the USA. Now, this was long enough ago that much could have changed, but it tells me that harsh, even extra-judicial, punishment is at least within cultural memory in Malaysia.

Corns, I imagine you have already been looking at the legal consequences of bankruptcy, so you know it is a serious matter. I looked just the tiniest bit on the internet and found a document that document http://www.agc.gov.my/Akta/Vol.%208/Act%20360.pdf that spells out the things bankruptcy in Malaysia will address. It included,

9.Court may detain or order arrest of debtor and commit him to prison
unless he gives security not to leave Malaysia.

and

28. Arrest of debtor under certain circumstance

and

30. Re-direction of letters and telegrams (which I read as total loss of privacy in communications)

If you follow the numbers through that document there are further descriptions. I really think you need to talk with a lawyer and also begin negotiating payments, interest, and total debt with your credit card companies.

You might also find supportive ideas with groups such as Debtors Anonymous (can be found online) and Gamblers Anonymous. As far as I know, those groups are centered in America, but perhaps the psychological mutual help and step-wise actions will be of use to you.

[Weird Tolkienish Figure]

An American relative living in Malaysia many years ago was picked up by police on an extremely small matter and the consequences were huge, compared to what might be expected here in the USA. Now, this was long enough ago that much could have changed, but it tells me that harsh, even extra-judicial, punishment is at least within cultural memory in Malaysia.

Corns, I imagine you have already been looking at the legal consequences of bankruptcy, so you know it is a serious matter. I looked just the tiniest bit on the internet and found a document that document http://www.agc.gov.my/Akta/Vol.%208/Act%20360.pdf that spells out the things bankruptcy in Malaysia will address. It included,

9.Court may detain or order arrest of debtor and commit him to prison
unless he gives security not to leave Malaysia.

and

28. Arrest of debtor under certain circumstance

and

30. Re-direction of letters and telegrams (which I read as total loss of privacy in communications)

If you follow the numbers through that document there are further descriptions. I really think you need to talk with a lawyer and also begin negotiating payments, interest, and total debt with your credit card companies.

You might also find supportive ideas with groups such as Debtors Anonymous (can be found online) and Gamblers Anonymous. As far as I know, those groups are centered in America, but perhaps the psychological mutual help and step-wise actions will be of use to you.

Wow, we haven't seen actual debtor's prisons in the US since the 18th century.

Although occasionally people who cannot afford to pay court fees, child support etc. are jailed, usually for contempt of court, unfortunately.

Were I in poster's shoes my advice would be to... leave if you can? Above my paygrade unfortunately.

[tripods68]

You know what, sending people to prison for not paying your bills, racking up huge debt in hundred of thousands of dollars is a great idea. Not a bad idea at all.

[corn18]

Who's going to pay for the prison?