<p>Sometimes, whatever the reason, there is just no way to solve the problem by cutting back on spening.</p>
<p>Very often, credit card companies will take a much smaller amount than the total balance due just to close out an account.</p>
<p>(Been there, done that, wear the t shirt. And no spendthrift here–we don’t live large, we live very, very small, but hard times are hard times.)</p>
<p>It is a good idea to call a nonprofit credit advisory service.</p>
<p>This seems unquestionably idiotic. That’s the actual reasoning? If it had to do with an annual fee it would make sense maybe, but “to see progress” is a completely insane reason. Paying off the highest interest cards surely makes the most sense. If</p>
<p>It is crazy IF there are other cards at higher interest rates. however, if they have the same rates, then do pay off the smallest balance first to show progress.</p>
<p>Did you find, mom2collegekids, that one spouse was usually on board and one was the spender? It seems that way in most family’s I know who get themselves to that point.</p>
<p>Yes, often it is one spouse that is the unreasonable spender, but sometimes it’s both. And even if one spouse isn’t “that bad,” he/she may still have some “luxury spending” going on which the “bad spouse” will point to as a reason that he/she shouldn’t have to cut back. </p>
<p>What I noticed were that there are different kind of over-spenders…there are the ones who never had a dime when they were growing up, so the concept of saving just isn’t there…and there are the entitled spenders…they’re impulsive and have to have what they want to have.</p>
<p>Since the OP’s friends have a good income, then really a good approach can be:</p>
<p>Each person can pick one or two “luxury-but-not-too-pricey” expenses to keep (maybe things that don’t cost more than $50 a month each). That way, they’re not feeling totally deprived. The problem with total deprivation is just that…they quit because it’s too painful. They can’t maintain it for the longhaul when they have bad habits.</p>
<p>nearly everyone has a few “gotta haves”. I have a brother who pinches a nickel so much it does cry. He is an amazing saver. HOWEVER, he insists on real butter and real maple syrup…lol. but, in the end, those luxuries probably only add $10 a month to the budget…so do-able on his very good income.</p>
<p>Another budget eater…(one that I fight with DH about)… Utility bills. Many folks just turn to the thermostat the moment they feel uncomfortable…put on a sweater for goodness sake…or don’t run the A/C down to 60 degrees!</p>
<p>Oh, and another one (another DH issue…lol). having one of the pricier satellite plans.</p>
<p>“This seems unquestionably idiotic. That’s the actual reasoning? If it had to do with an annual fee it would make sense maybe, but “to see progress” is a completely insane reason. Paying off the highest interest cards surely makes the most sense. If there are annual fees then maybe you do some calculations to determine what your best choice is there, but at 120K I doubt the annual fees would be a big factor.”</p>
<p>The rationale is that it gives you an incentive to scrimp and throw every cent at the debt. Imagine that the friend can put an extra $500 a month towards her debt; if she distributes it uniformly or pays off her highest-interest card first, she might feel like she’s not making any headway. Several months in, she will be tired of scrimping with nothing - or what feels like nothing - to show for it. </p>
<p>However, if she throws it all at her lowest-balance card (let’s say $6k, just for numbers), she can look at her balances in six months and think, “Wow, I’m halfway towards paying off one of these suckers! This is worth it! I can get this albatross off my neck. The hardship is worth it. Screw you, expensive Starbucks coffee and fancy gym.” </p>
<p>It’s emotional, not rational, which is why works for emotional savers/spenders.</p>
<p>What is really sad is that these people are probably still getting solicitation letters in mail from other credit card companies offering them more credit</p>
<p>If they are getting those…and they’re for 0% interest for X months, and they can transfer debt to those, then they should do so. Then work on the remaining high interest ones first, and then work on the 0% ones. They have to stay current, though, or they’ll lose that 0%.</p>
<p>If it were me, I would get a second part time job and use that entire income to wards the credit card debt.</p>
<p>This is a great idea, but only if they’re responsible and do this. However, for some people, “more money” isn’t the solution…they just spend more. And, working MORE hours could mean turning to more expensive “convenience purchases” because they don’t have the time to cook, clean, etc.</p>
<p>"Your debt, altho a horrible burden, wasnt’ the result of immature impulse purchases. I think many of us would have done the same to have a child (I’d do anything, I admit that). My point is that you were able to transition into penny-pinching ways because you weren’t crazy spendaholics.</p>
<p>BTW…I think you did the right thing. You can’t put a price tag on a child."</p>
<p>Thanks. We don’t regret anything, though I still get a bit aggravated when I think back on it since a few years after our insurance started covering infertility treatment. </p>
<p>It really put us in a whole as, in total, it was 10 years of not being able to contribute to H’s 403B or save anything. The good thing was we remained frugal afterwards and this allowed us to start saving, send S to sleep-away camp, private high school and now college. H’s income increasing helped to. </p>
<p>We still drive used 10+ yr old cars, don’t take extravagant vacations, and I cook at home most nights. But once we’re done with college tuition all bets are off! ;)</p>
<p>Rockvillemom…If you do sit down with this friend to help solve this, have them review:</p>
<p>1) Repeating monthly expenses that aren’t food and shelter:
gym memberships,
cable bills (including Pay per View!!!),
Cell phone plans,
Sirius radio,
internet,
lawn/pool service,
kids’ lessons (music, dance, and so forth)
housekeeper,
private school tuition K-12
Netflix…a cheap luxury that probably could be kept.
insurance, and so forth.<br>
Many times if you call your cell phone or cable company, they will reduce your rate if they think you’re going to jump ship. And, your friends may be able to “go down” to a lower level (cable, cell) or eliminate completely (gym membership).</p>
<p>2) Review food and shelter expenses:
utility bills!,
Rx’s (often cheaper by mail order, Sams Club, Costco, Walmart),
food expenses (convenience foods),
clothing expenses,
Gas, etc.</p>
<p>3) Extra expenses:<br>
Hair and Nail,
massages!!
Dry Cleaners,
Booze expenses wow, I was shocked to learn how many “income struggling non-alcoholic folks” still buy a lot of booze or routinely order booze at restaurants!!!),
Cigarettes (wow, pricey!!!),
Hobbies,
Parent Sports (golf, etc),
Kids’ “other” (summer camps, seasonal sports, etc)
Gifts,
Travel,
Home improvements
movies
dining out
pricier toiletries, creams, etc.</p>
<p>These are off the top of my head, but they’re things that I saw while advising those in debt.</p>
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<p>This. My 85 year old mother has a (unrecognized) spending addiction, yet very little income to sustain it. Her solution? Credit cards. She has $50,000 worth of debt on her various credit cards, pays the minimum each month and complains she has no money. Wonder why.
When she dies, everything she owns will go toward paying off her debts, and Dh and I will be the lucky ones to settle her estate with the creditors.<br>
She had a chance to get out from under this a few years ago by selling her house, moving into a smaller place (she has a 5 bedroom home and lives alone). Instead, she decided she couldn’t live “in a condo”, as she’d be “claustrophobic,” so she got a reverse mortgage instead. So now she has no rent to pay, but still spends and has not been able to reduce her debt. And she no longer can sell her home if she needed the cash for assisted living.
Until someone sees it as a problem, there really is nothing you can say that will help. One thing that I can say in favor of my mom taking the reverse mortgage is, she probably would have run up her cards again if she had paid them off. At least if they are high, she’s aware of her problem and it tempers it a bit. I just pray that she can continue living there until she dies.</p>
<pre><code>How does she spend? She “needs” a new refrigerator, “needs” a new mattress, etc. She “needed” new carpeting this year. None of these are really needs, I would say. She has a very nice mattress in her second bedroom that she could swap out with her current one (which is only a few years old, but she doesn’t like it anymore) but she won’t because she wants a good one for company that never comes. Her refrigerator is fine, but she wants one that has drawers on the bottom. She thinks she’s frugal because she doesn’t buy a lot of new clothes, but then spends a small fortune on creams, lotions, furnishings and decor for her house, and any new gadget that she sees advertised, and at the same time complains that she can’t afford things that are necessities. It’s very frustrating, but I’ve given up.
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<p>
Be careful with this. While the transfers might be 0% interest, they often have a significant fee associated with the transfer. This can eat up a huge amount of the savings.</p>
<p>Also make sure that the 0% doesn’t require full payment at the end of X months. Some cards say that if you don’t pay in full at the end of the promotion, your interest rate is retroactive to the start of those X months.</p>
<p>I have a friend that is headed into a similar situation, i have been trying to go over the finances with her to help. She was putting ALL of her bills into her credit card every month just for convenience, but likes to carry a small-ish balance because she thinks its better for her credit, so she was just paying off most but not all of it every month. Every few months for over a year she made one BIG payment that kept her balance from building and masked the problem with her strategy. She was spending more than she was making and didn’t see it because it appeared to all be working out okay. Just one time she didn’t have the money to make that large payment and everything instantly spun out of control. </p>
<p>She has one card that was 0% interest until January and then it’s high interest and all the back interest is due if it isn’t paid in full, and she has the cash to pay in full, so she’s paying the minimum on another account and wiping this out before January. Once that’s paid, applying the minimum payment from that card to the other card cuts the time on the last card to only 5 years, and she’s going to apply tax returns and bonuses to it too to pay it off sooner. She will be okay. </p>
<p>The key is to have a strategy and not just keep throwing the minimum payment in. That is procrastinating coming up with a real solution and is building their debt from the interest that is continuing to accrue. They need debt counseling to help them devise a strategy.</p>
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<p>Wouldn’t he get fat if he ate $10 worth of butter and maple syrup per month along with typical food?</p>
<p>I would have suggested downsizing her house, but with that bad credit rating I don’t know what kind of mortgage rate she may find. Her kids are done with school so it’s a natural time to downsize, including moving to a modest neighborhood with lesser schools.</p>
<p>With that amount of debt they are better off declaring bankruptcy than looking for debt forgiveness. The amount forgiven by creditors becomes taxable income, so she will still owe a hefty amount since they are in a higher tax bracket. Credit rating will still be destroyed, and they will owe the IRS big time. With bankruptcy they will at least be debt-free.</p>
<p>Wouldn’t he get fat if he ate $10 worth of butter and maple syrup per month along with typical food?</p>
<p>lol…no he’s skinny as a rail…a runner. And that is for his family of 6 people.</p>
<p>I would have suggested downsizing her house, but with that bad credit rating I don’t know what kind of mortgage rate she may find. Her kids are done with school so it’s a natural time to downsize, including moving to a modest neighborhood with lesser schools.</p>
<p>Maybe they could rent out a room to a “keep to themselves” kind of person…or a person who’s gone a lot and just needs a place to hang their hat.</p>
<p>She thinks she’s frugal because she doesn’t buy a lot of new clothes, but then spends a small fortune on creams, lotions, furnishings and decor for her house, and any new gadget that she sees advertised</p>
<p>Yes, people like this nickel and dime themselves to death. They won’t bring a drink from home, they’ll go thru the drive thru and spend $2.50.</p>
<p>I can easily pick out the people in fast food restaurants who will eventually get in financial problems. They are the people who pay $3.50 for a jumbo sized soda at order counter in fast food restaurants that sell small size for 99 cents and the restaurant has a free refill policy at soda dispensing station.</p>
<p>If someone is completely serious about getting rid of debt, they should spend a lot of time listening to Dave Ramsey and reading his books. He has inspired so many people. If your friend has a religious bent, more the better, but many non religious people listen to him and find a path to becoming debt free. It really does need to be an obsession, when it has taken over someone’s life so much as it has your friend.</p>
<p>I suspect his methods would be more than she could stomach, but even taking some of his advice would go far. I disagree with some of the things he suggests, but when you’re talking about debt…he is the guru.</p>
<p>One of these days we’re going to call his show with a big debt free scream (but it’s not going to happen for a long, long time, as we couldn’t stomach doing all the work).</p>
<p>^^^</p>
<p>Agree about the Dave Ramsey approach. One of his main rules is “pay off the smallest debt first”, regardless of the interest rate. Nothing idiotic about it. He will tell you that this will give you a quick sense of progress and help build momentum.</p>
<p>"“pay off the smallest debt first”, regardless of the interest rate. Nothing idiotic about it. He will tell you that this will give you a quick sense of progress and help build momentum."</p>
<p>Yes. So much of this is completely psychological. If you just keep plugging away towards the largest one, it is hard to see that progress, but if you’re knocking out those little guys, you get a sense of victory and you are inspired to keep doing even more.</p>
<p>“I would have suggested downsizing her house, but with that bad credit rating I don’t know what kind of mortgage rate she may find. Her kids are done with school so it’s a natural time to downsize, including moving to a modest neighborhood with lesser schools.”</p>
<p>If they sell they could pay off their debt with the proceeds - if they have any after paying off the mortgage, and then rent.</p>
<p>We are digging our way out of a bad financial situation right now, due to almost $20,000 of out-of-pocket medical expenses in 2013. I AM going to take advantage of the “0% interest free for one year” checks that Capital One has been sending us. The fee is 2% of the check amount. We have one year to pay it off, or we WILL be charged retroactively, at 13.9% interest. I will make sure that doesn’t happen!</p>
<p>One other caveat - I can do this because this credit card is an “extra” one that we don’t use. If we were to charge additional purchases using the card, we would have no grace period - those purchases would have interest accruing immediately.</p>
<p>I’m trying to lose a bunch of weight. I’m 20 down so far. To think about how much I needed to do at first made it seem impossible to me. I came up with some hokey thing to go along with my invisalign braces - a lb week. So I call it my 30 in 30. </p>
<p>It’s hard to think about the total, but everyday I can decide to get on the treadmill, or only take a bite of something, or make one better choice. It’s the same with paying off debt. You’re better off not feeling like it’s hopeless and go after a quick success.</p>
<p>And say what you will I’m really against bankruptcy in cases of people just overspending. How is that morally okay to go out and overspend and then just get it discharged? What kind of lesson is that.</p>
<p>And perhaps we as a society need to take the focus off the almighty fico score. How about you live within your means and stop trying to manipulate some mystery number.</p>