Credit Counseling

i'd talk to a financial advisor over a credit counselor. we have had a very difficult 18 months also, with massive medical bills and job loss thrown in the mix, and i've been a student all along. now DH is a student too! so we can sympathize in a way.

we discussed the best way to rearrange our finances to help make ends meet a little better until i'm out of school and making some real money, talking with someone in the know really helped. it was all little things that made sense but had to be pointed out to us.

i also learned some different ways of looking at things, so i feel confident about rearranging our own debts at the lowest cost to us.

i'm a kinda roundabout member of thrivent financial, so the service was free for us. i don't know how much it would cost otherwise. good luck.

 

I don't have any experience with counsellors, but know that there are a number of agencies around here that offer services (I think even the bank/credit union will) for free or nearly-free. I don't know if that's one of those things where you get what you pay for though.

After you get professional advice, I'd recommend continuing to talk to someone on a regular basis, even if it's just your wife or a close friend, just to go over things and say things aloud to make sure that you stay on track, etc.

I don't know how helpful this might be, but I can give you some very general advice:

- Live cheap. Remember that you've only got about a third of the salary that you had a few years ago, so you have to spend about 2/3 less on the stuff you used to buy (food, car, entertainment, housing, clothes, vacation, etc.). Some of those categories may be easier to cut back on than others. Don't pay for anything you don't really need. If you can watch your three favourite shows over the air, cancel the cable/satellite. You'll probably still need a phone (and maybe a cell phone too), but you can probably cut back on the feature list (call display, call waiting, etc.). Skimp on x-mas gifts if your family/friends will let you get away with it (a nice card and some recent photos can go a long way). Likewise, ask for things you need from them (rather than things you merely want). Don't let a bank gut you with random charges (I know in Canada there are a ton of free chequing accounts and credit cards, there should be some in the States too).

- Watch your credit cards. Credit cards can be a wonderful tool or a real disaster, so you have to know what your discipline is like with them. If you charge things to them, carry a balance, and are more tempted to buy than you would be if paying with cash, then just cut them up and make your life simpler. If you can use them, then they can be a good way to put off bills for a week or two (and then pay the balance in full). Reviewing the bill also serves as a second glance at your spending through the month, which may help you spot patterns of over-spending. A no-fee rewards/cash back card can also help make a tiny difference in getting ahead.

- "Consolidate credit" -- just saying it may get me tossed into the spam filters it's so common to hear these days, but it is a good idea. High interest can be killer, and not all forms of debt have the same rate. If you can open a line of credit or other low-interest-rate debt and use that to pay down your high interest rate debt (credit cards, etc.) then you can save yourself some headaches.

- If you own your home, consider selling it. It's a bit of a gut-wrenching thing to even think about, and after careful consideration you may still decide to keep it, but it's worth at least running the numbers. This will depend highly on your situation and local conditions, but if your housing market hasn't been hit too hard by this "subprime crisis" and if your house can sell for a good deal more than you owe on it (don't forget the real estate agent commissions/for sale by owner fees and other closing costs) then you might save money by renting a comparable/smaller place, and then the money you get from the sale can be put into income-earning assets like bonds, GICs, stocks, mutual funds, etc.

 

I have no personal experience with this, as I've never borrowed money in my life. However, from the sound of it I'd take galaxee's advice:

I would think that "credit counseling" would be more for people that have gotten into trouble through the ill-advised, excessive use of credit. It sounds like your problem is that you were trapped when a formerly manageable amount of credit could no longer be supported by a greatly reduced income.

Some of the recommendations will be the same, dealing with how to economize and maybe restructure your debt. But the focus will be different, since you presumably are responsible with money and only have to re-adjust to a reduced income.

I'm sorry to hear of your financial difficulties, though, and I wish you the best of luck with your reorganization.

 

What would a credit counsellor say, when the mortgage is now a hundred grand more than the house is worth, and the payments are too much to bear? Is it best to take the hit to the credit rating, and simply walk away? Do you have to declare bankruptcy, or will the loan be discharged by seizing the collateral?

 

Interesting question. Anybody know the law on this point? Anybody know if the law is consistent across the country, or if it varies from state to state?

My gut feeling is that the bank would claim you owe the full amount of the mortgage, and that they would try to go after your other assets if you had any. And since they have plenty of lawyers, and the government is sure to be on their side, they'd likely win. Unless the law or your mortgage contract clearly states otherwise.

I've never had a mortgage (I don't borrow money!) so I have no idea if the standard mortgage contract specifies your responsibility if you default on an upside-down mortgage.

 

I should point out that this hypothetical situation isn't mine. The real estate markets in Canada are quite different at the moment from those in the States. The OPs question, apparently resolved, had me wondering what would happen if someone else wasn't so lucky.