What is the lessor of two financial evils?

Question

My wife brought into our marriage about 23K in debt from a divorce about 4 years ago. She hired a credit counselor to get things consolidated and they charge $40/mo. Current payments of $750/mo (which includes the $40).

I'm thinking about breaking off the agreement with them (there's no "contract" agreement, except that they reduced the interest rate on agreement with the creditors), and paying it off in our own timing, smallest debt to largest.

The way it is now, we're going paycheck to paycheck, and keeping up with the bills, no saftey net, and only about $200/mo going into savings.

I'm wondering if #1 - her credit is already screwed by the arrangement with the credit counselors,

#2 - if I can pay it off earlier than the schedule that the counselers set up, but have a two month gap in payments (to build up an emergency savings of about 2k), should I go that way? it would take 24 mos for me to do it AND I would have some kind of safety net, vs taking 28 mos and having no saftey net.

Your thoughts?

Answer 1

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Answer 2

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Answer 3

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Answer 4

I'm not a financial advisor, but I think a two-month gap in payments would further destroy your credit rating.  I think your only alternative if you're living paycheck to paycheck, is to contact the credit advisors again, and see if they can reduce your monthly payment.  It will take you longer to pay off the debts, but at least you'd have more money to live on, and would keep your credit rating intact. Another alternative is to pay whatever the amount is of your smallest debt, and when you get that paid off, use the same amount to apply to your next smallest debt, and so on, until they are all paid off.  That method of making the same monthly payment to eventually clear all the debts should not break the bank too much, and will also save your credit rating and give you enough money to live on, even a steak dinner out now and then.    Good luck!