Getting Out Of Debt Homepage

Question: How can we settle our debt?

(Posted by: Lemar Farrington on 2010-03-08 09:04:02)

My wife has a few credit cards in which she has about 6k in debt. then she took out her 401k in order to pay some off(which brought it down to 6k) and so we both got nothing back from our taxes and now we owe the irs 4k. then we got a car payment we are paying for which is another 6k. now we are trying to pay it off but its a lot and i need some ideas on how to pay this debt without bankruptcy or using a debt settlement company? i have debt too but its like 2k so i'm worried about hers first. i'm at my whits end and need some help please! the car loan we have in not exactly a lein. i was sold a car on a bogus payment plan and we took out a loan to pay off mine while she used her car as colateral. so we are still paying this loan.

Posted by: stanleygallor on 2010-03-08, 21:43:38

Hi Lemar Farrington, I understand it is very stressful for you to pay the amount mentioned. But, unfortunately, if you have borrowed the money you've got to pay it too. Now, I am assuming you don't want to go to a debt settlement company thinking about the fees that they may charge you. In this case, if you want to keep the car, you may want to negotiate a settlement yourself rather than getting help from a company. If you can negotiate to settle for less, well and good. Till that time save as much money as you can. You may also sell the car off and use the money to pay off the loan. In case you cannot negotiate a settlement, you may resort to debt management. Draw a monthly budget for yourself and keeping aside only the bare necessities each month, use the maximum of your money to pay off your debts. I know this is going to be really difficult but you may have no other choice. Another option could be a separate loan. You may look for a loan that covers the entire amount your have in debt. Seek for a loan with a low interest so that you can afford to pay on it. Pay off the IRS and your car loan with that money and then gradually pay off this new loan. You may also seek help from your family and friends.

Posted by: Credit Trauma on 2010-03-08, 09:11:06

A good non-profit debt management company such as Consumer Credit Counseling will negotiate with your creditors to stop the interest that is being charged, and negotiate with them a payment plan to have all your debts paid off within a certain period of time, such as 3 years. This is probably your best bet in getting your unsecured creditors paid off quickly. As far as your auto loan goes, if it's worth more or at least the same as the $6K that you owe, sell it and buy yourself a used vehicle or use public transportation until you're back on your feet. Sounds like it's time for a 2nd job as well or sell stuff that you have on CraigsList to make some extra money to pay down your debt. Good job for working on this issue. More people should be as concerned about being in debt as you are.

Posted by: Chris C on 2010-03-08, 09:41:35

I know this may sound extreme, but what about getting rid of the car loan? Sell the vehicle, and pay cash for a car. Even if it's a $2,000 car. You see, she borrowed from her 401K ... which she'll have to pay back ... and that is a taxable event. Tax on the interest earned, if she earned any. The best way to settle your debt is to not get more debt. - Sell the car that has a lien on it. - Pay that lien off in full (if it's more than what you get for it, then pay the difference). - Save up the cash to pay for a car with cash. I literally have purchased 3 different vehicles (over 4-5 years) for $1,000, but I did it with cash. So any breakdowns on the vehicle were easier to pay for. - Save up $1,000-$2,000 cash and do not touch it unless there is an emergency. That is, you have to budget for house/ rent, utilities, vehicle maintenance, vehicle repair, food, and additional savings for a replacement vehicle. An oil change isn't an emergency (that should be done every 3 months if not before). A large electric bill isn't an emergency, as long as you've budgeted for 95%-105% of last year's amount that you paid. $6k really isn't that much in the grand scheme of things. Pay it off, and then keep paying the same payment to yourselves for the next 3-4 years and you'll cover that cost when it comes back again. Good luck! PS: Feel free to visit this site: livinglikenooneelse.com, for other individuals who are motivated to pay off their debts. As a matter of full disclosure, I do have an account there (it is free), but I receiving nothing in return. And there are several people who have literally paid cash for a house ($110,000 or so for each one), while they were renting.

Posted by: Jennifer H on 2010-03-08, 09:45:27

Debt Counseling - Debt counselors reorganize your payment plans and give you a longer amortization period allowing for smaller monthly payments. Once completed, lenders often consider these programs similar to bankruptcy and you may have a more difficult time re-establishing new credit. Cost: Usually a one-time enrollment fee into the counseling program plus a monthly fee. If you're only making minimum payments it might be time to look at all of your options. just don't focus on one.