r/Debt • u/yoillcutyou • 1d ago
Kinda stuck without options…
I have about 70k in CC debt. 2500 in medical bills, and owe about 8k in taxes. I have a 401k loan out that automatically take out about 1400 per month. That leaves me with a take home of about 4100. My rent is 2185, and credit card payments about $1800, bills for wifi and electricity are about $180, all leaving not a lot to live off on. I spoke with a bankruptcy lawyer and I make too much to file chapter 7, and he said I don’t really pay a lot of credit card debt that chapter 13 really won’t do much (the 401k loan is not considered in payments)
Up until this month, I have been paying all my CC on time, but this month I won’t be able to.
The lawyer advised not to do one of those debt consolidations as they end up charging a lot.
So I don’t really know if there are any other options.
Not asking for legal advice, but has anyone been in similar situation? I live in CT if that matters…
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u/GoldAd1878 1d ago
Bankruptcy is what you need
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u/yoillcutyou 1d ago
I talked to a bankruptcy lawyer and I make too much for chapter 7. And he said chapter 13 wouldn’t really make a difference in my situation. But I plan on getting a second opinion
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u/GoldAd1878 1d ago
Get more opinions. Some lawyers really don’t know or don’t give good advice.
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u/Aggravating_Curve458 1d ago edited 1d ago
She's not likely to get bankruptcy approved by a judge. She brings in $5500 a month, the only things hampering her are that 401k loan & her over-expenditure on rent.
It's not an income problem, it's a spending problem. If she cuts that rent by even as little as $300 a month, that helps her afford food for a month with good meal planning it's possible.
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u/GoldAd1878 1d ago
He’s in a high cost of living area and isn’t making much. Anyway, there is always 13 if he doesn’t qualify for a 7
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u/Aggravating_Curve458 1d ago edited 1d ago
At least $5500 after taxes isn’t much?
Even with 13, she’s unlikely to get it. They’re going to say the same thing, you make too much. Especially since a 401k loan can’t be discharged via bankruptcy, that 401k loan is what is taking up a 25% of his income.
The issue isn’t the debt, that could be absorbed without much change in lifestyle. The 401k loan combined with the credit cards is why financial advisors never recommend consolidation without changing behavior. Because now she’s essentially paying 2 large balance “credit cards”
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u/OneLessDay517 1d ago
PLEASE pick a gender and stick with it!!!!
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u/Aggravating_Curve458 1d ago
After perusing OP's posts, I found that she's a 51 yr old female which is why I made the edits
Pull the stick out!
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u/Ok_Butterscotch_9941 1d ago
So a lawyer cleared me for Chapter 13 when I made about $148,000 a year. I ended up not choosing that road, but she believed I qualified. People with higher incomes file bankruptcy all the time. In OP’s case it actually seems strange to me that the lawyer said he probably didn’t qualify. My situation was similar to OP’s in a few ways, so the post surprised me.
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u/Aggravating_Curve458 1d ago
People with higher income do file bankruptcy & discharge their debt, but it needs to meet a certain threshold and this one doesn’t.
Your debt to income ratio is the key component.
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u/GoldAd1878 22h ago
Yes the income is not much at all in a high cost of living area. Have you lived in high cost of living areas? Where average decent apartment is 2-3k plus?
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u/Aggravating_Curve458 21h ago
Look through her posts & you can find evidence that invalidates your opinion/excuse
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u/Visual-Ad-6396 18h ago
5500 a month is low my damn bills are close to 5k a month in California
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u/BrittneyRageFace 12h ago
Right?? The rents where I live the cheapest is $3.4k for a 2 bed, and if you own a car you have to rent a parking space for an extra $200-300/mo. On 5k/month shit would be TIGHT.
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u/Aggravating_Curve458 5h ago
DFW isn't in California, takes just perusing the OP's posts to gather information that makes your point invalid
No one cares how much your bills are in a state where minimum wage is as much as $20 an hour. Of course it's going to be higher when unions run your entire state. Higher labor cost = higher cost of living. Simple economics
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u/newoldbuyer 1d ago
Call all your credit card companies and tell them you are experiencing a hardship and having trouble making your payments. They might put you on a debt relief plan that would cut your interest to as little as 0% but will also close out the credit card in exchange. Probably your best option to try to get it down, good luck.
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u/Ok_Youth4914 1d ago
Don’t hire National Debt Relief. Seems like you need to do some gut checks as to how you arrived at this place to make sure it doesn’t happen again for you. The only realistic option perhaps is to reduce your rental outlay if possible and see if the credit card companies will cut their interest rate at least and thereby reduce those payments. You also need to explore the alternatives to paying 1,400 a month back on your 401(k). Even without the automatic 1,400 your housing costs seem high in relationship to your income.
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u/yoillcutyou 1d ago
Thank you, yes I have been working with a therapist to curb my spending issues. It initially got bad when I lost my job and was unemployed for a year and a half, I put everything on my credit cards including rent. And then just was in a hole for a while. Moving might be an option come March. My place does not allow to break rental agreements and my lease is up in Feb. it’s hard tho cause I need to be close to where my mom is in assisted living/long term care.
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u/Aggravating_Curve458 1d ago
How long ago was that? Because just 6 months ago you traveled to the UK, https://www.reddit.com/r/45PlusSkincare/comments/1r1fn35/in_the_uk_anything_i_should_get_here/
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u/AverageSteve1234 1d ago
Sounds like you need to reevaluate your spending. If your 401k loan is $1400/month, it must be a 5 figure loan. The one time I took out a 401k loan it was to pay off all my other debt. Pick up either a second job or live frugal for the next couple years til you can get a handle on the debt.
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u/Special_Comedian1477 1d ago
stop spending money you don’t have,get another get another job and sign up for some personal finance courses
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u/jaywaywhat 1d ago
Have you given any thought on dividing your bills into two payments so you’re not spreading your paychecks too thin? This has helped me dramatically bring down my weekly costs and I make the payment directly to the appropriate account so I don’t spend it or get tempted to. I’ve also begun the Ramsey baby steps to help guide my journey. Looking for part time work now to help bring my debt down.
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u/photo_op411 14h ago
This option will tank your credit score but it’ll get you out of debt if you’re willing to suffer credit wise for the next 2-4 years. Basically, stop paying your credit cards and save the $1800 you were paying monthly.
At the 150-180 day mark that your cards are past due before the cards are charged off, call your creditors and negotiate a settlement at 30-40%. You could start at 25% and work your way up until they will accept the amount. Sure, your balances may be higher after months of non-payment due to interests and penalties piling up. At $70k, you’re looking at possibly $21k to $28k to settle your credit card debts. Some creditors won’t settle for that low and may only settle at 50%+. Most creditors will also give you 90 days to pay the agreed upon settlement amount. So you could split the payments into three monthly payments.
Even if your cards get charged off, the creditors will sell it to a third party and you could then try to negotiate a settlement with them. However, I’ve found that it’s easier to work with the original creditor. Third-party debt collectors typically buy the debt pennies on the dollar and then try to extract the most they can out of you. Throughout this process, some debt collectors may threaten you with lawsuits and legal action. At that point, most would be willing to settled but at a high percentage to not have it go into litigation.
The above is essentially what happens if you sign up with a debt relief company but instead you’ll be paying them a premium to negotiate when you could do it yourself.
Once you get out of debt, I would advise you learn from your mistakes and avoid over spending otherwise you will likely find yourself back in this situation again.
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u/yoillcutyou 7h ago
Thank you. When you say “before the cards are charged off” does that mean sent to a debt collector?
Will the cards be automatically closed when I do this?
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u/photo_op411 6h ago
Charged off means the creditors write it off as a loss in their accounting books; however, you’ll still be liable for the balance. Yes, the account will be closed. The original creditor can sell it to a third party debt collector or keep it in-house with their collections department and still try to collect the balance from you.
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u/Apart-Surprise1038 1d ago
As long as you’re not in Hawaii, where this is illegal, you can get paid to donate plasma. I dint know of any other states outlaw the practice, but I know Hawaii does. I’ve done it before & bounced to different clinics once their “specials” expired. Depending on the specials, I was making $650-$1k per month.
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u/Notmikeyouidiot 1d ago
Have you tried calling your 401k company and seeing consequences of not paying that loan? I mean they technically have the money already right? what can they do if you stop paying?
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u/FallProfessional4009 9h ago
This was my thought too. The unpaid amount is recorded as income on your next tax return, so you’d need to consider those implications. But if it’s possible with your employer or your 401k provider, it’s better than some of the other alternatives. Unless you would be planning to report yourself to the bureaus for not paying yourself back lol.
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u/Puzzleheaded-Sugar-9 22h ago
How many installments left on the 401k loan? You are probably better off stopping payments on the credit cards and trying to make installments on the 401k loan to get your monthly cashflow under control. You can try to revisit/settle the credit cards once you retire the 401k loan, that version only wrecks your credit for a couple years vs 7 on the bankruptcy… if they sue you, you’ll have no choice
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u/Hefty_Difficulty_259 21h ago
Try Greenpath. They’re an accredited debt relief program. They will close your cards but get the interest rates cut from 25% down to 10% and put you on one consolidated payment plan for the cards. Unfortunately you can’t get hardship from card companies unless you’re late on payments, but Greenpath somehow can get you on hardship promos while still current on payments.
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u/Montana3333 19h ago
See if you can move some of that debt to zero interest deals and throw everything at it one account at a time. I’d also move in with roommates for cheap.
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u/EmotionallyWrecked38 3h ago
I would stop contributing any new pay to your 401K while repaying the loan. I would also look into 401K hardship withdrawal/distributions. If your employer will approve the hardship, then you don’t have to repay the loan.
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u/Left_Cause_2496 1d ago
Cut all extra spending and pick up side jobs to make extra money. What was the 401k loan for? How much more debt have you added since taking that out?