Dear Rick:
My New Year’s resolution was to get my financial house in order. Plain and simple, it’s been a mess and I know I need to get my act together. After reading one of your recent articles, I did a personal balance sheet and a cash flow statement. I must tell you the numbers were shocking. I have a negative net worth, and while I thought it cost me about $3,000 to $4,000 a month to live, it appears that it’s costing me close to $6,000 a month. The main reason is the amount of charge card debt I have. Currently, I have a little over $75,000 on a variety of my charge cards. I also have about $15,000 in other assorted debt. I have already started to cut back on my expenses, but the credit card debt is killing me. My question to you is do you have any ideas on how I should handle the charge card debt?

Thank you.

Barry

Dear Barry:
I think it is a great New Year’s resolution to get your financial house in order, even though it is not always the easiest thing to do. That being said, you do have a few different options that you could consider.

One option that you have is to see if you can refinance the charge card debt using lower interest rate charge cards. In your situation, I think it would be difficult to do considering the size of your debt; however, it’s not beyond the realm of possibility. If you could potentially reduce your interest rate, the payments may then be more affordable.

Another option is to visit one of the credit counseling companies. These companies will work with the charge card company to try to restructure your debt. On the whole, I am not a big fan of these types of companies because even the reputable companies have a mixed rate of success. It’s worth having a conversation to hear what they can do for you. However, in talking with these companies, make sure you find out exactly what their fees are and how they can improve your situation. Too many of these companies charge high fees and accomplish very little.

The last option, and the one that I think would probably be the best option for you to consider is bankruptcy. Bankruptcy would potentially allow you to wipe out your charge card debt and your other debt in its entirety, thus, allowing you to get a fresh start.

I always hesitate to recommend bankruptcy because there can be some adverse consequences such as hurting your credit rating. However, the benefit is that you potentially can rid yourself of your debt and get a fresh start. Therefore, I would recommend that you make an appointment with a bankruptcy attorney and discuss bankruptcy with them.

Bankruptcy can give someone a fresh start and help them get their financial affairs in order. However, if that person doesn’t change their spending habits after bankruptcy, they will be in the same situation a few years down the road.

I do not casually recommend going into bankruptcy because there are consequences. However, I do believe when someone is in financial difficulty, bankruptcy is an option they should consider. For individuals who are looking at getting a fresh start, in many situations, bankruptcy is the best alternative. In today’s world, bankruptcy doesn’t have the same stigma it used to, and many people find that after going into bankruptcy and changing their ways, they are able to significantly improve their financial situation. Therefore, if you are in dire financial straits, you should not hesitate to explore bankruptcy as an option. It may be your best option to resolve your financial difficulties.

Good luck!

Rick is a fee-only financial advisor.  If you would like Rick to respond to your questions, please email Rick at rick@bloomassetmanagement.com