Humbly need advice

[kerrpapa]

I wanted to humbly ask for advice. I will get straight to it. My wife and I have about $100k in credit card debt. We built our house five years ago in the middle of her family farm and without going into details, selling our house is not an option because it would break up the farm for her family. In the process of building our house we encountered higher costs due to different variables such as labor, materials and delays. We used our credit cards to offset a lot of these costs and for daily living expenses. We also took a loan out from our 401K which we are paying back until 2018 (this is a big chunk from our monthly expenses). We already before hand had about $30k in credit card debt. Added to this, my wife had been diagnosed with Breast Cancer not long after. Thankfully, it's treatable and curable. However, treatment is expensive. We have good insurance, but still had sizable out of pocket amounts. All which were put on cards. Fast forward to now. Our cards are maxed, our interest rates have risen and we are barely getting by paying all of our bills. We can only pay minimum payments on the credit cards. Compound to this, we had a construction loan that we rolled over to a mortgage loan. The only loan we could get was a fixed rate that would turn into an ARM after three years. Next year is when it becomes an ARM. Here is our issue and what I would appreciate your advice on. If our mortgage loan rolls to an ARM and the rate is higher than what we have now, we will not be able to cover all of monthly-required payments. We have reduced our monthly expenses to "needs" only. I have taken a second job. Our children have gotten jobs (much to my shame that they "have to" as opposed to "want to." I am not against my children working. I'm just ashamed that they have to because of our financial failures). So we have tightened our belts as tight as we can. So here are my questions:We are considering contacting our credit card companies about reducing our payments, interest rates and debts. However, if we do this, will this affect our chances of getting a fixed rate mortgage when our current one rolls over to an ARM next year. Even though our income to debt ratio would be better, our credit score will be lower. So this is our dilemma. Get credit card relief and be able to pay bills, but not be able to get a fixed rate mortgage...which when the current one rolls into an ARM and we have a higher mortgage payment...be back to barely or not able to pay bills. I would humbly ask and appreciate any and all advice that anyone would have on our situation.

[bjl584]

You need to get out of that house so you can focus full force on the credit cards. I know you said that her family's farm would be broken up, but you need to do what is best for your family, not what is best for hers. If her family is against you selling the house, then offer it to one of her family members for sale. If they say no, then put it on the open market. Sounds like you are allowing the self destruction of your finances so you can keep her family happy.

[greenskeeper]

If it is absolutely impossible to consider selling the house, the next best thing is to get out of the ARM and into a fixed rate mortgage.

Is there any equity in the property?

Can you lease any part of the property for additional income?

[disneysteve]

We built our house five years ago in the middle of her family farm and without going into details, selling our house is not an option because it would break up the farm for her family.

Welcome to the site.

I hope all is well with your wife and she comes through treatment stronger than ever.

I'm wondering about the house. What was your and her expectation when you decided to build on the family property? Did you realize then that you'd be stuck with that house forever? Was the plan to live there indefinitely?

[kerrpapa]

Thank you for your kind words about my wife. Her outlook is very good. Yes we intended and intend on living here the rest of our lives. There is a lot more involved about us staying here than I care to go into. Selling and moving is not an option. I am just trying to figure out how to get us through until we pay back our 401k loan in 2018 and converting the ARM mortgage into a fixed.

[disneysteve]

It certainly can't hurt to call each credit card company and ask if they can lower your rate. The worst that can happen is they say no.

Have you looked into refinancing yet? I would do that now. Don't wait until the ARM kicks in. Rates have already ticked up a bit and will probably continue to trend upward.

Obviously, the main things are to cut costs to the bare minimum and increase income as much as possible. Sell anything that can be sold. Take on odd jobs. Rent out space. Do anything you can to make a buck.

I know you said you've cut the budget to just the "needs" but even needs can be trimmed. Have you gotten fresh quotes for all insurance policies (auto, home, life)? What about phone service? If you're willing to post your budget, we may be able to make more specific suggestions about places you could trim a little more here or there.

[AJ444]

That is quite a hole, you may want to contact an attorney to discuss bankruptcy options.

Without knowing income/expenses it is tough to tell though it that could be the best option.

[Milly]

It is a hole, but not necessarily a sinking ship. Just a very long voyage.

Is there any way to shift the load? Ask her family to give you a loan at a lower rate? My in-laws have issues mixing $ and relationships, so be careful if that will cause problems. Rob any fund you can to pay down those credit cards and their high interest rates.

I think it is time to look for help from someone who you can show your ENTIRE position to, someone who knows what living in your area is like and such.

I agree that you should be calling your various loan owners and trying to work through your position with them.

[kerrpapa]

Yes, we have cut back on phone services, insurance, no tv service except for free channels. We do not eat out, go to movies, take trips, drive anywhere except to where absolutely needed, buy only staple foods, sold many items...etc. We have absolutely tightened our belts as much as we can. I am just really worried about the ARM mortgage issue at this point.

[msomnipotent]

Happy to hear that your wife has a great prognosis. I would talk to a mortgage broker to see what your options are. Do you have any equity and are your credit scores ok? From what I am reading, you have a year until your ARM kicks in. Will you be finished repaying your 401k by then or soon after? And do you know how much the ARM will adjust? Mine is contracted to rise .25%, I forgot if it was annually or every two years. If yours is similar, it may be better to just pay the ARM for a year or two with the money you had been paying towards the 401k loan while you work on reducing debt and improving your credit scores (if needed).

Forgot to add, you can get your credit score and play around with different scenarios on creditkarma.com if your credit card companies don't already offer that to you.

[GoodSteward]

I've seen ARM loans force people into a foreclosure. You do want that gone, but with that much credit card debt and oweing, I'm not sure your options.

What is your credit score, your debt to limit ratio, your payments to income ratio, and the equity of the house vs what you owe? All of that will determine if a loan company will even consider you. With that much credit card debt, your options are severely limited unless you make plenty of money (doesn't sound like it).

Another question is what is the time frame for when all of this will actually come back around? Meaning how long will it take to actually pull out of this based on the best case scenario? If you did refinance and made a plan, what is the debt payoff timetable? If you are looking at 8-10+ years, you should probably consider bankruptcy. Paying off your debt in full is noble, but if you are too deep in to fix this in a reasonable time you will only create more problems of not being able to take care of things as they come up, continuing to get into debt for emergencies like medical, and at the end never really able to have any retirement. I say that because I'm watching my own parents live that out right now. $120k in credit card debt with a $60k a year income. He is making it work, but it has been going for around 10 years, still has a ton left, refinanced a paid for house(grandparents house they are living in now) for a 30 year mortgage at age 50, not in the best health, and very little in retirement (less than $30k) with no hope of building it up anytime soon. He has also had to put medical on credit card since he doesn't have any other way to handle it. It's a terrible situation that should have been handled differently.

You have to look at this long term. I don't normally recommend considering bankruptcy, but in this case you might need to. Unless you have a major change in income, this could be a ticking time bomb.

[Fishindude77]

Assume her parents own the majority of the farm and you took out a chunk of it to build a house on? It's probably time to have that difficult, embarrassing talk with her parents explaining your dilemma. If you're lucky, maybe they can help out with something?

ARM vs fixed rate and your credit score is probably something you shouldn't worry about too much at the present. Your ship is sinking, and a couple percent difference in your mortgage rate won't keep it afloat. If you can't get help from the parents, credit card company or bank, you need to make some immediate lifestyle changes to get your cost of living way cheaper so you can address all of this debt. Selling the house might be painful, but may be your best option.

[jeremym51]

I think you need to file bankruptcy. Bankruptcy has many chapters - chapter 7, 11, 12, 13 and each chapter has different rules and conditions. You can choose bankruptcy a chapter according to your situation. But before filing you need to talk to a bankruptcy lawyer because with the help of a bankruptcy lawyer you can easily know about bankruptcy and he will fulfill your paperwork.

[hamchan]

Like several others have said, talk to a bankruptcy attorney. Consults are usually free, and they can advise you on whether that's going to be a path worth taking and how it will impact you. Even if bankruptcy isn't the best option right now, many attornies will help you negotiate with debt collectors as well.

[Gailete]

This is a very bad situation and it started way back when you decided to build a house when already in way too much debt and it has just grown. The others have some good advice. Just wondering if you have thought of some creative angles for raising more money. Can you rent out a room of your house, or better yet rent the whole house to someone where the rent would cover the mortgage plus while you move into the cheapest and safe housing you can find. Do you have access to the farm land to grow items for sale? Have you or your wife thought of trying to do some things on line to earn money? Just some things to think about.

I trust your wife will continue in good health. The medical facilities need to be aware of your finances so that you can have charity care. I don't know what happens in a bankruptcy to medical bills, but you will want to have complete records of them for both taxes as well as potential bankruptcy clearing them away.

Definitely try to get your creditors to decrease your interest rates on all cards.