I have a little over $11,000 in credit card debt. Now while I personally view this as a large amount to get out from under, I have learned in my recent research that this is a relatively small amount compared to most people today. Lucky me.

It should be noted that most of my credit card debt was incurred while I was in law school. Where my student loans didn't go far enough to support me, I supplemented with credit cards. I very rarely use my credit cards these days. Mostly they sit in a drawer where I can't access them easily, and I work toward paying them off.

Due to some mistakes that were made a few years ago (mostly late payments, sometimes 60 or 90 days late) as well as to high balances compared to available credit, the interest rates on my credit cards mostly hover around the 29.99% mark. This makes the $11,000 of debt actually a lot more (over time), and makes it so that making the minimum payments each month (or even double the minimum payments!) doesn't really do much to shrink the principal owed.


My credit score is in the fair-to-poor range and I don't qualify for any lower balance cards onto which to transfer this debt. I might have been able to get a loan from my credit union when I was still working, but now that I'm unemployed no one will give me a loan - why would they?

Because my credit score is poor anyway, and because I am about to be bringing in a mere $1,900 a month in unemployment, my first thought was whether bankruptcy would be an option. I think the big banks are crooks who took U.S. bailout money and used it to fuel their private jets and pay their big bonuses and who have made no efforts at reform since playing a huge role in the crash of our economy. And I think they are crooks for charging nearly 30% interest because they can get away with it. So I don't feel bad about the thought of walking away from the debt owed to them, especially after having worked very hard to try to pay it off over the years and given my present financial situation.

So I spoke with a friend who is a bankruptcy attorney. This was very informative and helpful. The first thing he said was how little debt I actually have. Most people who file for bankruptcy owe $50,000 or more (sometimes much more). His advice based on my predicament was to either get the assistance of a local reputable consumer assistance company, or to stop paying the credit cards, wait until the debt is bought out by a debt collector, and then try to settle with the debt collector for a portion of the total owed.

The problem with the latter option, I discovered from a conversation with a friend who recently went this route, is that the debt is incurring more debt throughout this process. Until the lender sells the debt it continues to accrue interest and late fees and penalties for all of your non-payments. By the time it gets to the debt collector it can easily be 1.5 of 2 times as much debt. So if I stopped making payments and let my $11,000 go to a debt collector it very well might be $20,000 in debt by the time I was able to start negotiating with them. If they were then willing to settle for half of what I owed I'd be settling for $10,000. I'd only have saved $1,000 (plus the interest I'd have paid over the years which is about $3,000), and while I would have bought myself some time while not making payments, I would have also incurred the hassle of constant daily phone calls from my creditors harassing me over my failure to pay and I would be shredding the last bit of hope for my credit score.

So bankruptcy and voluntary non-payment are both options I am not really interested in pursuing. But I also can't afford to continue paying my credit cards at this rate on my unemployment income. While I was working I was paying about $530 per month toward my credit cards. That figure is impossible for me to keep up at this point. Were I to pay only the minimums on my cards it would be $313 per month. That figure I could technically pay, if I were willing to forgo every single luxury in life (dinners out, pedicures, waxes, haircuts, my therapist, the gym, my writing classes, drinks with friends, movies, entertainment, etc.) in exchange for the ability to make payments to my creditors that barely touch the principal owed.

That is not the route I wish to take. Don't get me wrong, I plan on making significant sacrifices to live on my unemployment. But to make those sacrifices in order to pay my creditors under our current inequitable agreement, while not even making a dent in my debt owed, while having to sacrifice things like my ability to see my therapist, is not the path I wish to follow.

Enter the local, reputable, consumer assistance option. I contacted Balance, a subsidiary of Consumer Credit Counseling Service of San Francisco, which is a local, reputable, non-profit agency that will not take advantage of me or my situation. I qualified for Balance's services for free because I am a member of one of their partner credit unions, Safe America Credit Union. Balance can be reached at (888) 456-2227. If you don't belong to a member credit union you can contact CCCSSF at (800) 777-7526 for the same or similar services.

The process of working with Balance was very informative. I prepared for my telephone appointment by filling out a worksheet with all of my financial information. Throughout the process I ascertained that my necessary living expenses are comprised of my rent, renter's insurance, PG&E, internet, cell phone, groceries & household items, and costs related to my car including gas and insurance, among others. My necessary expenses total $1,581 a month. This leaves me with an "excess" of $319 a month, based on my projected unemployment income.

Now, my "excess" of $319 a month can go to whatever I choose to spend it on, but remember that the above necessities do not include my monthly credit card payments.

According to my Balance counselor I have three options regarding my credit card debt. I can participate in a debt management program, I can attempt to work directly with my creditors to lower my interest rates and monthly payments, or I can seek the advice of a lawyer in considering bankruptcy (which we know I've already looked into).

The debt management program option would leave me with total credit card payments of $309 per month. This is almost the same amount I would be paying if I just continued to pay off my credit cards at the minimum each month. However, with the debt management program, the interest rates on most of my cards would be significantly lower. Many would be at around 10%. With the debt management program my debt would be paid off in about 4 years, whereas if I pay the minimums directly to the lenders I will be paying them off for another 10 or 11 years!

There are a few serious considerations if taking the debt management route. One is that the cards stop being revolving debt. I can no longer use them in case of emergency or to supplement my income or for any reason. I am strictly paying them off without the ability to use them for any spending. Another consideration is that the payments MUST be made consistently for the entire 4 years I'm on this plan. Missed payments will seriously jeopardize my credit and will make it so that I no longer qualify for the option of a debt management program. Basically I must know 100% that I can succeed in maintaining the $309 in payments every month, period, until the debt is paid off. Finally there is the reality that I have an excess of $319 a month. So essentially every spare penny I have will go to the debt management program, and I will be giving up the therapist, the hair cuts, all of the luxuries I mentioned before in order to make payments to this program.

The option of working directly with my creditors is a tricky one. I have to work with them in writing, documenting my hardship (that I am unemployed) and asking them to reduce my interest rates and monthly minimum payments. It is completely up to the lender whether they are willing to make these changes for me. If they do, they will likely only be temporary (3 months or 6 months) and then I will be right back in this same position, likely looking at the option of the debt management plan.

So my plan as of now is to contact my lenders directly. My Balance counselor is emailing me a sample hardship letter so I have an idea of what I might write to my lenders. I will write my lenders, let them know I'm unemployed with only a few hundred dollars a month available, that I can't afford to make payments to the lenders under our current agreement, and ask them to lower my rates and my minimum payments. And I'll see what they offer. If they are willing to work with me and their offer is as good as or better than the option of the debt management program, I'll go that route. If the debt management program is a better option, I'll go that route.

Either way it is comforting to know exactly where I stand financially, what my options are, and that no matter how hard it may be I will be able to get by while getting out from under my debt. My credit card debt, that is. My student loan debt is another story, for another day.