If your debt is overwhelming you, my first suggestion is always to contact the National Foundation for Credit Counseling. They can very often hook you up with a member credit counselor, who will put you on a debt management plan that allows you to pay off your debt within three to five years.
I mentioned this a few weeks ago, and dljimerson left the following comment:
In my case, I went to NFCC, filled out their requested info on CC bills etc (I owe about 50K in CC and car payments). I am unemployed and have been for months now, blown through whatever savings I have and unemployment covers the bare minimum to sustain life. The response from NFCC was I should seek legal assistance – which means bankruptcy. NFCC sure didn’t help me with their DMP plan. What else can I do? Is a bankruptcy my only option?
Let me just say that I’ve heard this from other people, and the fact is, no solution works for everyone. I’m guessing that the form you’re referring to, dljimerson, is the one you filled out when you reached out to a counselor. Although one of the main goals of NFCC is to keep people out of bankruptcy, sometimes, that’s just not possible. A credit counselor won’t recommend a debt management plan if it’s not appropriate for your financial situation, because that would be of no help to you. Because you have a significant debt load, and you’re unemployed, it wouldn’t be realistic to put you on a repayment plan that you won’t be able to complete.
Gail Cunningham, my go-to resource at NFCC, says that about a third of the people who come to them are put on a debt management plan. The other two thirds either use the advice of a counselor to get out of debt on their own, or are referred to a social service agency (if they have significant issues affecting their financial situation, like gambling or drug/alcohol abuse) or to legal options like bankruptcy.
Bankruptcy is a serious financial decision, and I’ve said time and time again that’s it’s a last resort. So I’d start by calling your creditors, if you haven’t done that already, and explaining the situation. They may be willing to work with you by lowering your monthly payments or settling your debt for less than you owe. If that doesn’t work, then yes, it’s time to seriously consider bankruptcy. You may find that a fresh start is exactly what you need. While it will, of course, negatively affect your credit score, but your score has likely already started to fall. If you stay on track after filing, you should be able to climb back fairly easily. In fact, many people begin receiving credit card offers in the mail again after about two years.