extreme credit card debt

Parent Cafe
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<p>MaineLonghorn, if you have a paid off car (that isn’t too old), consider this. PenFed will give you a refinance for 60 months, at 1.99%. They give you very close to the value of the car. They will just send you the check, because though they call it a “refinance”, and the lien holder is you. For example, we had two cars with no loans on them. They sent us a check for 14K for one, and 17K for the other, we sent them the title. The 14K car wasn’t even worth that. It is a bit more hassle than just applying for a credit card, but we wanted 5 years to pay off the debt. That has been the cheapest longer term way to get money.</p>

<p>The very best credit card deal out there is Slate. They will give you 0% for 15 months, and if you balance transfer within 60 days, there is ZERO balance transfer fee. No other credit card gives you that deal nowadays! Back when we got it, they said the max allowed on this card was $25K, though honestly we would have loved to transfer everything to a 0% card.</p>

<p>Yes, Dave Ramsey would not approve of our methods. We bought a bunch of short sale condos for cash (that we didn’t have), and have been shuffling like crazy to get the cheapest interest rates. They have been a great investment.</p>

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<p>We bought a bunch of short sale condos for cash (</p>

<p>That’s a smart thing to do…getting loans on condos that you’ll be renting is hard to do.</p>

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<p>Yes mom2collegekids, that was the only way we were able to get them. With the short sales, you don’t know if it will take a week or a year, so you just can’t wait for the loan process to go through. One of the banks gave us a day notice on when they wanted to close. It was a competitive market, so I’m pretty sure the only reason our offers were accepted was because it was cash. We pulled the money from our HELOC, but keep shuffling things around for lower interest rates. REALLY hard getting loans on those condos, it is ridiculous. Very few lenders will even do it. We found one who gave us a HELOC, but only because it was the first condo we had…once you start collecting them, you hit a magic threshold where they refuse to give you money. Even if you’re only looking for less than 50% LTV. Crazy times.</p>

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<p>If she cannot get a home equity loan, use a hard money lender, in her case, the interest rate might be 7%(the lowest I have seen) vs 20% on some credit cards. The hard money lender may want to be in the first position on the loan so that will increase the payment a little bit, depends how much she borrowed on the first.</p>

<p>Other than that, you can go chapter 13, I have one in front of me(not mine, lol), where I was dumb enough to be a “hard money lender” on a second! Court will order distribution of payment in an equitable way among creditors.</p>

<p>AND the MOST important, cut those credit card up, carry cash and go to dollar stores only.</p>

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<p>This reasoning is idiotic. You clearly pay less if you pay off the higher interest cards first. “Gives you a sense of progress” is just some psychological thing, when in the end you pay less if you pay off the higher interest rate cards first. I don’t even understand how someone taking this approach could stop from pulling out their hair knowing that they’re doing what is clearly the wrong thing to do and will cost them more.</p>

<p>I can’t help but stomp my foot and shout “NO! NO! NO!” here.</p>

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<p>I get VERY nervous when someone advises another to look into bankruptcy. This should only be considered as a LAST RESORT ONLY, the hit to your credit rating is HUGE, and stays on your record for 7 years. It is much better to put away those cards and pay them down over those 7 years, MUCH better. And it will only HELP your credit rating, not hurt it.</p>

<p>Several things mentioned already, but I make it into a nice easy list. </p>

<p>1) Make a REALISTIC budget. REALISTIC is one they can live with. Too many folks make budgets only to blow them apart within several months because they simply can’t live within it, or they don’t account for “life’s little surprises”. Re-assess their budget after 3 months and again after 6 months to see where they need to adjust. </p>

<p>1a) Many here mentioned they need to honestly assess “need” versus “want” in that budget. Establish PRIORITIES. Things like premium cable, multiple smart phones, eating out, buying lunch versus taking lunch in from home, etc., ALL add up, and they usually are “wants” versus “needs”. Bottom Line: Live within your means. This means SACRIFICE needs to become their life-style for a while.</p>

<p>1b) That budget needs to include spending money, which should be their primary means of paying for something until they are out of debt or the card balances become manageable.</p>

<p>2) Start saving for an Emergency Fund NOW! Shoot for saving one month’s take home pay for now, putting a manageable amount of money aside each month until you reach your goal. Use those funds to pay for those “life’s little emergencies” versus a credit card (which is a major reason so many folks can’t get out of credit card debt – they use those oh-so-easy cards to pay for those unexpected expenses). Their ultimate savings goal should be 6 months, but they should focus on paying off debt first after reaching that initial one month take home level before trying to increase their savings.</p>

<p>3) Your friends need to have an honest discussion with each other on SPENDING HABITS. They need to be honest in discussing HOW they got into this mess, and honest on how they will get out. This discussion needs to address where they can adjust their outcome so they CAN get out. It ain’t going to work if one is cutting corners only to be sabotaged by the other continuing to spend like they got a money tree in their yard. </p>

<p>4) Pay off the high interest card versus the low balance card? Couldn’t care less. But they should focus on paying off one card at a time, putting that card away once it is paid off, and rolling that money into the next card. </p>

<p>5) It took them TIME to get into this situation. They have to expect it will also take TIME to get out of it. The only quick solution is bankruptcy, and again there is a reason for this: it comes with the most severe penalty to your credit rating.</p>

<p>Now for my advise to you. You must be sure on how strong of a relationship you have with this friend. Your about to give them your honest opinion on how they handle their finances, and outside of giving them honest advice on how they are raising their kids, nothing is more personal. You know best on if they are ready to handle some painful truths from you, and if they won’t be insulted (or embarrassed) that they need some basic financial advice. </p>

<p>Good Luck.</p>

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<p>Wow - thanks for all of the replies. I believe my friend confided in me in part because I work in mortgage lending and she thought I might have some fresh ideas. So, I appreciate your adding your thoughts to what I already had in mind.</p>

<p>I do want to clarify that bankruptcy is off the table, she won’t consider it. Her plan of last resort is to sell their house - they have enough equity to pay off mortgage and all cc debts with money left over.</p>

<p>I have no idea of what her credit card interest rates are, but I am going to encourage her to pay the minimum on 6 cards and pay more on the 7th - whether it be the smallest balance or the highest rate - and focus on paying off that one card, and then moving on to the next one.</p>

<p>I am also going to suggest the Parent Plus loan for her D’s final year of college, rather than putting any more debt on credit cards.</p>

<p>My impression is that this situation has been snowballing for years. I don’t want to be judgmental - just trying to give her some advice and support.</p>

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<p>I just downsized recently. Passing along this suggestion, as it worked well for us: If she has bought some nice furniture with those credit cards, encourage her to investigate having a professional do an estate sale. She wll likely get better prices than trying to do yard sales. Whatever doesn’t sell professionally, she can try to do piecemeal by Craigslist, or donate to charity for a tax chit. </p>

<p>If the estate sale happens while she’s trying to market the house, she can leave fliers and realtor cards for the traffic coming through; it might help her find a buyer. Or, wait until right after the house is sold, and then do the estate sale. </p>

<p>She won’t need nearly as much furniture in a smaller place. All the kids’ homework desks will sell well, and with laptops they don’t really need that any more for college visits. Books will sell for volume, at $1/hardback; 50cents/paperback; $5-8 for artbooks or coffetable books, depending. </p>

<p>Also, go though jewelry boxes and get rid of all the pieces she doesn’t wear often. Women’s scarves and men’s ties go like hotcakes because they all fit. </p>

<p>The total, even after paying off the professional company, will help her finance the move and likely a bit will be leftover to help with her other situation. Don’t attend your own estate sale; it inhibits buyers who often know you. Tell all your friends and neighbors to come, but don’t be there to watch them shop.</p>

<p>To choose our company, we found the one with the best website. They had followers who come from far away, if the pictures are good. The neighbors will come automatically, if the signage is good.</p>

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<p>And you will tell her continue using the credit card? If so, she will NEVER get out of it.</p>

<p>CUT THEM UP</p>

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<p>"This reasoning is idiotic. You clearly pay less if you pay off the higher interest cards first. “Gives you a sense of progress” is just some psychological thing, when in the end you pay less if you pay off the higher interest rate cards first. I don’t even understand how someone taking this approach could stop from pulling out their hair knowing that they’re doing what is clearly the wrong thing to do and will cost them more.</p>

<p>I can’t help but stomp my foot and shout “NO! NO! NO!” here."</p>

<p>This approach isn’t for people who are thinking, “Sure, I have this amount of money to apply to my debt every month, la la la, no big deal.” This works for people who are crazy about their debt, that debt is messing up their lives, and they are taking a drastic approach. This approach is far more about psychology than just working the numbers. If someone was to start paying down their highest interest rate debt first (and perhaps it was their biggest debt, perhaps their mortgage), they could easily feel discouraged about making little progress, and just give up. But if they knocked out a little one and thought, “Yippee, cutting that credit card up, it’s gone!” that could have far more of a boost than anything, and they keep on the path to debt freedom.</p>

<p>This is an approach for people who are deciding to temporarily live on nothing, lower their lifestyle to very little, sell everything on Ebay, pick up part time jobs, and obsessively pay off/down that debt. Not everyone has the stomach for it. I don’t. We pay off our highest interest (and largest debts) first. Then again, maybe that’s why we aren’t making too much progress! I definitely get the point of getting rid of the little guys, even though it doesn’t make sense numerically.</p>

<p>“Just some psychological thing” can mean EVERYTHING.</p>

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<p>I have friends like this. Always struggling with money and in debt. They don’t live over the top, but they’ve always had ways to cut back and just wouldn’t do it. It’s so hard to watch. At one time they lived about 1/2 mile from the H’s work. They had two cars and live in a state known for over 300+ sunny days. The first time she talked about money issues I told her they should sell the second car and he could walk to work. Didn’t do it (both new cars with payments). They went on to get into further debt and ended up having a car repossessed and then lost their house. Their credit is ruined. I’ve always tried to be the voice of reason (when they were buying the house I repeatedly asked if they could afford it). </p>

<p>It’s really hard for me to understand because we live below our means and always have, even when we had very little means. Our first car was $500 and a fixer upper. Granted DH is good with fixing things, but we drove that car for 3 years and the driver seat wouldn’t move, so I always had to sit on the front edge or use a pillow. We could have gotten a loan for a car, but preferred to save up and buy one. </p>

<p>As others have said they can get out of debt, but will have to sacrifice. They have to want it more than they want their “stuff”.</p>

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<p>It makes a lot of sense to evaluate your friendship to see how much you are willing to do work in this delicate subject with your friend. There are good reasons for tackling largest interest rate OR smallest debt, or a bit of both, depending on what the debtors are willing to do and what will motivate THEM. </p>

<p>One thing I’ve read about that can help is to literally freeze each of the credit cards–put them in a ziplock with lots of water in the freezer, one card per bag. Do not touch them and see how long you can do without them. If you absolutely MUST use one, take it out and wait for it to thaw, while you write out a plan of how you will pay off this new charge and when. If you haven’t used the CCs in 6 months (or other date you set), cut them up and discard. If you really need them reissued, you can look at your statement and order them. </p>

<p>Waiting for the card to thaw and writing out your repayment plan will greatly reduce impulse spending.</p>

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<p>“One thing I’ve read about that can help is to literally freeze each of the credit cards–put them in a ziplock with lots of water in the freezer, one card per bag. Do not touch them and see how long you can do without them.”</p>

<p>That’s hilarious! And here I thought a credit card freeze was when the credit agency disallowed any more credit under your name…</p>

<p>I wonder how this would work if instead of freezing it, I buried it in a chocolate cake? Ah, no need to wonder. Maybe two minutes.</p>

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<p>I read about the technique and thought it was an ingenious method for folks who couldn’t bring themselves to cut up the cards YET, but were having problems with impulse spending. It San take quite a while for the ice to melt around the card. :)</p>

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<p>^^Hey, whatever works, HImom! I’ll bet just having to wait awhile can stop some behaviors.</p>

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<p>Yes, I’d imagine it would greatly reduce impulse purchases and cause more thoughtful reflection. Disclosure: I have not done this myself but thought it was an idea that has potential and is pretty easy to implement. ;)</p>

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<p>I’d heard that technique before. I’d also heard the suggestion to keep it in a safe deposit box. There are times you need a credit card - like renting a car or paying for a hotel room- where if you use a debit VISA, they hold a significant amount of your available cash for up to a week. You don’t necessarily want to get rid of all of them. The key then is to write the amount charged in your checkbook immediately so you know not to spend that money and then pay it as soon as the charges show up online. Don’t even wait for that next bill.</p>

<p>My dryer died a few weeks ago and people have asked why I haven’t gotten a new one yet. I’m refusing to charge it. I need to have the cash to buy it. There are other priorities right now - like a plane ticket to get my daughter back to school in January and my text books. It will have to wait a little longer, even though going to the laundromat is a royal pain. </p>

<p>But to the MaineLonghorn- try to work out payment plans for those medical bills. I got socked big time this year myself and have an easy payment plan- no interest, no fees- for my major hospital bill. They asked ME how much I could pay a month and I told them and they just said “Ok”.</p>

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<p>Actually, you can call the number on the CC and pay it as soon as they tell you the amount has been posted. Yes, the safety deposit is another safe but more difficult to access option. The whole point is to make the user more conscious of spending and repaying at the time of any purchase. Whichever methods work to achieve this and get a handle on debt are good, when used regularly until it becomes internalized and second nature to always figure out whether the purchase is really needed now and how it will be repaid.</p>

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<p>My D has been freaking out about how much money she is spending and downloaded an app for her iPhone. She can download her her online banking details into the app and it categorizes her spending. It made her realize how much money she is spending on food delivery. That could be a good option to figure out where the money is going. Although, I suspect, with $120K in credit card debt, the majority of the money is just paying the minimum balances. Don’t most cards require like 2% of the balance as a minimum payment? That would be $2400 a month alone. Ouch.</p>

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<p>I don’t know how you’d possibly have this kind of discussion with a friend. I think I’d hand them a dave ramsey book and wish them well and tell them you’ll help them pack ;)</p>

<p>Time to sell that house. </p>

<p>It can be done, we got in serious trouble with our business about 10 years ago and things were awful - we had to sell our house, move to a new area, in overwhelming debt. We followed Dave’s plan to get us on our way. We’re now less than 2 years from paying off our house. But it terrified me to be in debt, terrified me to think we’d never have enough for college, living paycheck to paycheck and worrying about paying the electric bill and groceries. I don’t know how you sleep soundly at night with that hanging over your head.</p>