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My wife and I are in some financial trouble. We are in our early 30s and our credit is terrible. We both have student loans, we have old credit card debt (though we have no current credit cards). We attempted to declare bankruptcy a few years ago, but the process got bogged down and stalled - we went with the cheapest lawyer we could find, and they communicated really badly. In the end, I think they did nothing and took our money.

We have a lot of debt - at this point I don't even know how much - but I have a decent job. My wife doesn't work, but I make enough that we can live fairly comfortably paycheck-to-paycheck and routinely put some money into savings.

Our savings account gets wiped out every few months when an un-budgeted expense comes up (especially car repairs). I'd love to have a newer car or a credit card or something to help in these cases, but we can't afford a newer car and I fear another credit card (if we could even qualify for one) would simply make things worse.

I've looked into professional advisers, but they all seem to be trying to sell something or otherwise not looking out for our best interests.

I'm open to anything - taking a loan to settle my old debt (and paying that loan off, of course), declaring bankruptcy, etc. I just don't know the best ways to find all of our debt or once we do the best way to resolve it.

What options do I have? What are the downsides to each? How long will they take?

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I edited to add country tag based on your user info. Please correct if I'm wrong. –  BrenBarn Mar 28 at 17:59
    
I suppose it would be sarcastic and unhelpful to suggest you escape your creditors by fleeing to Belize. But can I ask why you haven't calculated all your debts? It will be the first thing any advisor would do, as well as estimating your income and expenses. Is it that they are complicated or that they are held with so many different creditors? –  NL7 Mar 28 at 22:31
    
@NL7: It's old and with many different creditors. A lot of it has been sold to different collections agencies. Honestly, I'm betting some of it may even be past when it can legally be collected (not that it will stop them trying, of course). –  Jeff Mar 29 at 1:55

4 Answers 4

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I fear this question may be impossible to answer, beyond the options you already seem to know about. It depends too much on the details of your situation, some of which you say you don't know. If you don't even know how much debt you have, I think you're going to need some kind of professional advice to assess your situation. One place to start is the National Foundation for Credit Counseling. This organization can provide free or low-cost advice about your situation, including bankruptcy options.

That said, the main missing piece I see in your question is your expenses. The first thing you should ask yourself is: what am I spending money on, and can I stop spending on money on that in order to save and/or pay off debt instead? You say that you can "live comfortably paycheck to paycheck" and "routinely" put money into savings. Can you start living uncomfortably and thus put a lot more into savings, or towards debt repayment? Whether this will work or not depends on how much debt you have, but it definitely needs to be part of your thought process.

Likewise, if you continually are wiped out by unbudgeted expenses, start budgeting for them.

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There are two places to start, the spending side and the income side. Many (in the personal finance blogosphere) have pointed out that frugal has its limits. You can only live so cheaply, eat so little, turn the heat down so much. Your income and your wife's income has no limit. Not to put this all in her lap, but why isn't she working? Between the two of you, there are hundreds of things you can consider doing that will generate a few hundred dollars a week extra income.

You said "we can live fairly comfortably paycheck-to-paycheck and routinely put some money into savings," but you are still paying off debt, and don't have the emergency fund to handle the routine things that come around on a regular basis. The difference between breaking even, and making extra money, is the ability to fund that account. It's important to have a defined plan to pay the remaining debt, and build your fund in as short a time period as you can.

As Bren stated, you need to plan for the unexpected. I don't know what appliance will go this year or what day it will break, I just know something will happen and I have the funds to pay for it. The extra income is vital to a workable plan.

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+1 You bring up a good point about the wife. My wife recently went through some medical issues that left her unable to work at her old job. We could live off of my paychecks alone, but she does small side projects such as refinishing furniture and selling on Craigslist or whatever. My point being, is that there is income to be found just about anywhere, even if one spouse doesn't "work" and increasing your income is a great step in decreasing your debt. –  Dryden Long Mar 28 at 23:21
    
She doesn't work because our kids are still largely at home. The older one is in kindergarten. We also have only one car, which I have to take to work each day. I work about 20 miles away, and there's no public transportation between home and there. She won't be able to find a job within walking distance, and our town has essentially no public transit. If we had a 2nd car, she could work, but without her working we don't have enough for a second car :( –  Jeff Mar 29 at 1:58

We have a lot of debt - at this point I don't even know how much

This is your problem. Find out, and while you're at it find out how much income you have and also what your total expenditures are. You seem to be facing up to the problem, but not looking it in the eyes. You just need to take some time, and a little bravery, to get all your financial documentation together and lay it all out so you know what your situation actually is.

Its not hard to do this, get a box and put all (old) bills and statements in that you can find, and at the end of a month, pick them out and write down the totals. Then work out your income and all that you've spent that month. This is known as a Statement of Affairs and there are calculators to help you.

Then you can work out how much you need to pay off, and how much spare money you have to do this with. You can also start to cut down on all the really unnecessary stuff to increase your spare money that you can use to pay off the debts. Hopefully this won't take too long, and you can easily (if boringly) work the debt off over time. If it really is unsurmountable there are things you can do to help - firstly contacting your creditors and seeing what they can do to either part write off the debt, or freeze it as you pay it off (most creditors understand that if you're desperate enough to talk to them (!) then they may not see any of their debt back and are at least willing to help you pay them back).

Generally though, it sounds like you are not in a total mess as you can pay it off. There are people in far worse states than you! But you really do need to be fully aware of your financial situation. Sit down and 'count your money' one lazy Sunday.

There are links to help. Try the Motley Fool's guide, and its dealing with debt forum, both of which are very practical (if UK based, the Fool has a US site too, see for yourself if there's the same stuff on it, but this kind of thing tends to be fundamental to people of all nations).

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Others are very correct to indicate you NEED to put numbers on it. Exactly how much debt are you talking about? What kind of interest are you paying on it? Put that against your income (on a spreadsheet) and then start charting your monthly expenses. Now add in a "fudge" factor for the unexpected like car repairs or other unknown that appear from time to time. Once you do that you'll be staring straight at "reality" otherwise it's just fiction and guesswork. As Mrs. John isn't working she should be doing everything possible to help you save.

Great saving ideas include: Buying in bulk and portioning food in the freezer. Preparing bulk meals like Chili, rice dishes, noodle dishes and thing you can prepare for 1/5th the cost of eating out, portion and freeze meals. Wash dishes in the sink, use cold water (but buy good soap, you'll use much less). Take short showers, save energy everywhere you can. If it's cold, dress warm even at home and if it's warm, undress to the tasteful limits. Minimize heat and AC use. Do you NEED cable and all the channels? So much to view online. You and she may need to find creative ways to earn money, if she's paying off student loans then she has a degree, use it! Can't find a job? Be a consultant, go sell yourself and find some work. It's out there but may take work to find work. If she's disabled than look into government subsidies to assist. If not, then find work that needs to be done and go do it. Time to get busy!

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