I make $13/hr and owe $18,900...

[LadyInTheRed]

So I have $600 I can put into savings.

No you don't. You have debt to pay. Stop using the credit cards and start using a good portion of that $600 to pay off the debt. You can still start building a savings, but you need to focus on the debt.

I cringe everytime somebody says "that's too little debt to file BK." One person's $10,000 is another person's $100,000. But, I think you may be too quick to pull the BK trigger. BK should be your last resort after all else fails. BK isn't as damaging as some people think, but it will stay with you for a long time and there are some lenders that will never do business with you again.

I suggest you get some credit counseling. I don't mean that you should get into a debt management plan that many debt counselor's try to put you into. Those often cost more money than filing BK and are not as effective. They also are damaging to your credit. Some say as damaging as BK. Find a reputable credit counseling agency who can help you budget and show you how to best pay off your debt and start a savings. Or, start by taking a pre-BK credit counseling course which will include alternatives to bankrutpcy. Before you get any counseling, make a list of all of your expenses, including ones that don't occur monthly. Your list is missing expenses and having a complete list will make counseling more productive.

If you still think BK is a good option for you, make a few appointments for free consultations with BK attorneys before you stop paying credit cards. If you decide to file, you will have plenty of time after you stop making payments to save enough to hire an attorney.

[InT00Deep]

LadyInTheRed,

I have to set money aside for emergencies. I can't spend all of my extra money on the debt. How much are you suggesting that I put towards the debt? My list is actually pretty complete. Not sure what I'm missing? My only other expenses would be clothing (rarely buy) and occasional car maintenance.

My biggest concern is my living situation. By the end of the year I may have to get an apartment. Saving only $300 a month by then for it isn't going to cut it.

[LadyInTheRed]

LadyInTheRed,

I have to set money aside for emergencies. I can't spend all of my extra money on the debt. How much are you suggesting that I put towards the debt?

I don't know. A credit counselor is the right person to go to for that kind of advice.

You can also use the calculator at http://cgi.money.cnn.com/tools/debtp...ebtplanner.jsp to help you figure out how much you should put to your debt based on how quickly you want to get out of debt. A general recommendation is that if you can pay off your dischargeable debt in 5 years, you shouldn't file BK. I input the information you provided in the calculator. If you increase that $62 a month payment to $82.64, you will have all of your credit card debt paid off in 5 years. If you add $200 to your monthly payments, you will have your credit cards paid off in 2 years and 4 months. Add another $100 and you'll be out of debt in 1 year and 9 months. The calculator will show you how much to pay on each card so that you pay off your high rate card more quickly. You didn't say how much interest SS is charging you, but if I add that debt at 5%, you can have all of your debt paid off in 5 years by paying $347.66 a month.

I am more convinced now that BK may not be the right choice for you.

While I agree you should not rely on credit cards for emergencies, you may have to until you build a savings. Freeze them in an ice block in your freezer to make them harder to get at. Make sure it is a true emergency before you use them. You may get your debt paid off well before you have an emergency. But, if you don't, you can consider filing BK again after the emergency.

My list is actually pretty complete. Not sure what I'm missing? My only other expenses would be clothing (rarely buy) and occasional car maintenance.

Those are two of the things I had in mind. What about out of pocket medical expenses. You may not have them monthly, but you should budget for them on a monthly basis. You'll need to buy replacments masks, hoses and filters for your cpap machine. What about personal hygiene products?

My biggest concern is my living situation. By the end of the year I may have to get an apartment. Saving only $300 a month by then for it isn't going to cut it.

So, for now, save $600 a month and continue making the minimum payments on your cards. After you get into a new apartment, reevaluate your situation and determine how much to put towards debt payment and how much to save. Finding an apartment may be easier without a BK on your credit report.

[InT00Deep]

I am kicking around the idea of getting a consolidation credit card loan from my credit union. I tried several months ago and I was denied because of my income and credit score. But I am earning more money now. If I can get that loan and transfer both my cards to it, I could potentially have a smaller minimum monthly payment. The SSI is still only $25.

[ValleYum]

The SSA will consider an offer in compromise on your balance as long as it is at least 80% of your balance. I don't know if you are required to pay the 80% in one lump payment or if they will allow you to keep making small payments. Google search: social security overpayment and offer in compromise. This may help you out. Good luck.

[TheBajan]

Ok, couple of things I'd like to respond to here.

This is probably going to be my level of income for the foreseeable future. I don't have a college degree. I work in a skilled trade. My job doesn't pay a lot but I do have good benefits. Those benefits came in handy because I was recently diagnosed with sleep apnea. I had to pay for the breathing equipment out of pocket ($800) but the testing was all covered by insurance. Had to put the equipment on credit card as I don't have that sort of cash on hand. As far as having a credit card for emergency... I would argue that if my machine breaks that's a valid emergency. Sleep apnea is one reason I may not seek a part time job. My job already demands occasional overtime and some nights are worse than others as far as my sleep quality goes. Leaves me very tired at the end of my shifts. I haven't used my credit cards in about two months and I have cut back on my spending drastically. The amount of money I make isn't really what got me into this situation. It's my lack of managing the money I do have. I could afford to make the minimum payments right now, but I am not able to save much money while doing that. I need to have an emergency fund (work slows down during the holidays / medical equipment breaks / car breaks / need to move into an apartment / etc). I really would like to avoid having to file but I'm not sure what else to do. At the rate that I'm paying off the SSI, it will take me 29 years. If they're ok with that, then I guess I am too.

Here are some numbers:

Amount I make per month : $1600
Rent: $400
Gas: $100
Car Insurance: $56
Cell Phone $50 (looking to lower this soon)
Food: $200

Those expenses use up about half my income. If I pay my credit card minimums, that's about $200. So I have $600 I can put into savings. If I have to move into an apartment... My rent goes from $400 to probably almost $700 or more. But I can walk to work, so my gas is now almost $0. I'd be able to put less than $400 per month into savings.

I already missed one payment... Now looking at the numbers I'm wondering if I should try to settle with them?

TooDeep,

I've been looking at this spending plan and it begs a question. If this is your current spending plan, and you have $594 dmi (un-allocated funds) that you can save every month, why have you missed a payment? Why do you need to consolidate to have a lower monthly payment? According to this plan, you should be able to make your current monthly minimum payments and still save $394 a month for emergencies (things like the car breaking or a deposit on a new place).

I'm not bringing this up to be harsh. It's just that I'm afraid we are still missing something here. There is a problem with reality not adding up to what's on paper. Again, let me say that BK won't fix that. Consolidating your balances won't fix it either because according to this, you shouldn't need to consolidate your balances to make ends meet. You should be able to make those payments, pay a little extra every month, and still put aside $150 or so toward savings.

Here's a suggestion, over the next month or two, keep written track of EVERYTHING you spend and EVERYTHING you have coming in. You really need to know exactly where all your money is going and why. This will help you see where you can make cuts. It will give you the reality picture to compare to the ideal that you have written down here and find out why you are not saving like you think you should be.

Personally, I would not do the consolidation loan. It equals no gain for you. It may lower your payments but that doesn't appear to be the problem so we still aren't addressing the problem. I wouldn't file BK, I wouldn't stop paying the credit cards, I wouldn't do anything drastic until we have found out exactly what the problem is and dealt with it. If you are going to make a financial decision that will impact you negatively (ie BK or settlement), you should at least know how you got there and deal with that issue so it doesn't come back again.

Hopefully this makes sense. That is my biggest concern here. Once you are on the right track as far as budgeting, saving, and financial discipline, then we can talk about the right solution to the debt you have.

[InT00Deep]

I think where I may have gone wrong here is that I never was actually budgeting for things and tracking my expenses. I started doing that this month. I stopped eating out as often. I limit it to one time a week and it's less than $10. Every time I spend money on food, I track it in an excel spreadsheet. Even if its only $1 for a drink or something, it all adds up. I'm also tracking other miscellaneous living expenses (had an alignment done on my car, needed a new tube for my bicycle tire, etc). Before I started doing this, I just paid all of my bills and minimum credit card payments, spent whatever was left and then said "where's all my money? I better cut out the credit cards." I realize now that I probably do have enough to pay them each month and still put money into savings. I'm just looking for an easy way out. I'm wondering why I shouldn't still look into the consolidation loan? I realize that having a smaller minimum payment may not encourage me to pay it off as quickly, but it would allow me some more leverage if I need extra cash one month, maybe beyond what I wanted to dip into my savings for.

[kornellred]

Pay back the SSDI overpayments no matter what you decide to do. By way of anecdote, I will relate just one more amusing, but very true, story:
My mother died in January 1980. One of my younger sisters was still living with my mother when she died, and my mother was collecting Social Security Payments since 1976 on account of the death of my father. Somewhere between 1976 and January 1980, my mother had become ineligible for further payments - probably because my sister had come of age during that time. There was an overpayment of approximately $2,000 to my mother.

My sister had that $2,000 overpayment deducted from her 2012 income tax refund. 32 years later, Social Security confiscated that overpayment made to my mother. From my sister, who had nothing to do with any of it. My sister tried to fight the confiscation, but it was ruled that the original Social Security payments were for my sister's benefit to begin with, and when she turned 18 the entitlement stopped, but the payments did not.

Even though SS overpayments are dischargeable in bankruptcy, it is doubtful that Social Security will pay you any amounts you are entitled to if it is on record that previous overpayments were not repaid. After all, they already have your money, so there would be no violation of the automatic stay. Just sayin'......

[Pizza]

I think the big thing to consider is after you file, you're fixed for 8 years. If worse things happen - such as big medical debt, for example - over the next 8 years, you won't have this way out. The debt you have been describing, while difficult to overcome, probably isn't insurmountable at this time with some strict discipline. I agree you should hold off and try your hardest to clear this debt. I have been there before and would be in deep trouble if I had filed back then.

[TheBajan]

I think the big thing to consider is after you file, you're fixed for 8 years. If worse things happen - such as big medical debt, for example - over the next 8 years, you won't have this way out. The debt you have been describing, while difficult to overcome, probably isn't insurmountable at this time with some strict discipline. I agree you should hold off and try your hardest to clear this debt. I have been there before and would be in deep trouble if I had filed back then.

This is exactly why I said "In your case, it's like dropping the A-bomb to kill a gopher... it's a bit overkill." Leave that arrow in the quiver for bigger game.

[angel2002]

Hi InT00Deep.

If I were you I would avoid bankruptcy and do everything possible to get those credit cards paid off or settled.

I would pick the one with lowest balance and tackle it as aggressively as possible and let the other one go. If your smallest one is only $62/month and the other is $113 then I would take that smaller one and pay as much as you possibly can each month and get it paid off. At least then you'd be able to keep one card in good standing and by the time the other card decides to make a move you might be a lot better off so you can just settle with them. The credit rebuilding process might not be as difficult that route than just burning both cards all together or filing BK. This is just my opinion I am by no means an expert.

Whatever you decide I genuinely wish you the best of luck and hope that everything works out for the best.

[InT00Deep]

So... I pulled up my credit report and it shows something that may be a game changer. I was going to just pay the $25 a month to SSI overpayments and focus on the credit card debt. However, on my credit report the SSI debt is showing as having a collection status. It is my understanding that will remain on my report for 7 years, even if I paid it in full rightnow. Does the 7 years start AFTER it's paid off? Because at a rate of $25/month, it won't be paid off for almost 30 years. How much is a collection account dinging my score vs having credit cards that are almost all maxed out? I think my score is in the 640s.

[InT00Deep]

You didn't say how much interest SS is charging you, but if I add that debt at 5%, you can have all of your debt paid off in 5 years by paying $347.66 a month.

As far as I know, there is no interest on the SSI debt. It is mentioned nowhere on my monthly statement. My concern with that debt now is that it's in a collection status on my credit report.

[kilowatt]

You may want to contact Consumer Credit Counseling Service to see if you can make arrangements to have your interest rates lowered then enter a payment plan. You make $28k per year if you work full time so you are able to pay off your debts so you would qualify for a chapter 13. When you enter a debt payment plan with CCCS your credit cards will be frozen so you can't charge up any more debt on them and you won't qualify for further credit. It will take time whether you go the CCCS route or the Chapter 13 bankruptcy route to pay down your debt. I have gone the CCCS route in the past and struggled through to pay off my debt over three years. One of the things you also need to do is get a savings started so if you have car problems you can get it fixed or buy a used one. HTH. Been there and done that.

[kilowatt]

So... I pulled up my credit report and it shows something that may be a game changer. I was going to just pay the $25 a month to SSI overpayments and focus on the credit card debt. However, on my credit report the SSI debt is showing as having a collection status. It is my understanding that will remain on my report for 7 years, even if I paid it in full rightnow. Does the 7 years start AFTER it's paid off? Because at a rate of $25/month, it won't be paid off for almost 30 years. How much is a collection account dinging my score vs having credit cards that are almost all maxed out? I think my score is in the 640s.

You are stuck with the SSI debt on your credit report. After you pay it off you could request the government to remove it from your credit report. Even if you pay it off today you stuck with it on your credit report for 7 years.