Small salary, ill spouse, big credit card debt leave few other choices
By Sally Herigstad
To Her Credit
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com.
Dear To Her Credit,
I have credit card debt about of about $20,000. I tried to
settle it using a debt management company, but Citibank would not work with us.
Now that I think about it, I probably could not have made the payments ($410 a
month). I have a very small salary and my husband is ill, not working. I just cannot pay this bill. What can I do? -- Ruby
Dear Ruby,
It's hard to see where you're going to get the money to pay
them in the near future. Two people living on one small salary, sickness and a
crushing debt load in proportion to your income all add up to a very desperate
financial situation.
You say that Citi would not "work with" you. I'm
hearing that phrase used often when people mean that they want creditors to
reduce the amount owed. Even in hard times such as yours, we might as well call
negotiating a credit balance what it is -- asking the bank to give us money by
forgiving debt. Citi, on the other hand, is obligated to work in its own
self-interest and try to recoup as much as it can of the money spent paying vendors on
your behalf.
Unfortunately, the bank is probably not going to collect on
this debt. I'm going to recommend something that I reserve for only very rare
cases where there doesn't appear to be any other way out. You may need to
consider filing for bankruptcy. Unless you have resources you're not telling me
about, such as a motorcycle or second car you could sell, you are broke. If
your husband's illness is short term, perhaps you could hang on until he gets
well and then with two incomes, you could dig your way out of debt. If that's
the case, the bank may give you a temporary reprieve due to his illness.
Otherwise, you need to talk to a counselor, show her all
your bills, expenses and how much you make, and decide if bankruptcy can help
take away some financial burden for you. As a rule of thumb, if your debts other
than mortgage and car loans are more than you make in one year, Chapter 7 bankruptcy may be the best option.
Bankruptcy is not cheap, nor is it a cure-all. You'll have
paperwork to fill out, meetings to attend and probably $2,000 to $3,000 in
bankruptcy costs. Try searching in your area for legal help for low-income
filers to keep the costs down, but stay away from nonattorneys -- especially shady
looking ads that advertise very low rates and easy, spectacular results.
Getting the right help can make all the difference as you go through this
process.
If you file for bankruptcy and have your debts cleared, your
financial troubles won't be over. You still need to find a way to increase your
earning power. Perhaps you qualify for a training program to help you qualify
for a better job. You may even need to work another part-time job. As difficult
as that would be, it might be worth it to earn a few extra dollars while you
are the sole support of your family.
If your husband's illness is long term, ask his doctor if he
may qualify for disability payments. Social Security disability payments, for
example, are not easy to qualify for. But if he does qualify, the benefits
could make a big difference for you.
As long as we have health, we can overcome almost any
financial problem. I hope your husband gets better soon, and that you and your
family soon find yourselves in better times.
Sally Herigstad answers questions about credit every week for CreditCards.com. Herigstad is a certified public accountant, author and speaker. She also writes regularly for MSN Money, Interest.com, Bankrate.com and RedPlum.com, and has been a guest on Martha Stewart radio and other programs. You can read more about personal finance and download free budgeting worksheets at her website: www.sallyherigstad.com
To Her Credit answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to Sally.
Published: November 4, 2011
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