<p>"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>
<p>Yes, that would be just awful. You’d feel like you’re just throwing money at a problem that never lessens, much less goes away.</p>
<p>Really inspiring eyemamom! Way to take care of things, you should be very proud. Most people don’t have your fortitude.</p>
<p>That’s the point - she’s not sleeping soundly! I think she has been in denial for years about this growing problem - and reached out to me for help/support - because we are longtime friends and because I work in the mortgage industry. From what we discussed, she is getting increasingly stuck - paying roughly $3600/month on the cards - but not making much headway. And everyone here is right - she needs to stick those cards in the freezer!</p>
<p>One particular comment she shared really stuck with me. They have had various times over the years where cashflow was tight and a credit card sent her a low interest rate “convenience check”. She would write herself a check for $5000 or $10,000 - deposit it - and have the illusion of plentiful cash in the bank. All with good intentions to pay it off within a year - when finances improved - and then something else would come up, etc., etc. I really had to bite my tongue on this one - hard to believe a well-educated intelligent woman could be so foolish. But again, I don’t want to judge her. I think I may be the only person she has confided in and I want to help her as best I can.</p>
<p>^ About 25 years ago, the banks were still sending out real checks to homeowners in the amount around $10K. Obviously, the checks came with fine points and if you cash those, you are borrowing from the bank.</p>
<p>One time, I could not hold my curiosity and cashed one of the check. Two days later, I called the bank wanted to return the money. Well, they told me there was a “processing” fee in addition to the interest charge. Total:$250 on a $10K loan for two days. I screamed my heads off and we settled on some thing like half of the charge. I will NEVER do that again! Including those “free stay” in a resort type of ploy. There is no free lunch in this world.</p>
<p>busdriver - I think the difference is my debt was not from overspending or shopping.</p>
<p>Rockville - they’re in trouble, and selling the house seems obvious to me. However, I almost think that’s the easy way out, they need to lay this all out on the kitchen table, grab an old fashioned piece of paper and write out every minimum and every balance and see it with their own two eyes. They need a budget they stick to, and put in some ‘blow’ money and start chipping away at it.</p>
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<p>Doesn’t make sense if she actually has enough equity and has actually been making the payments. Refinancing is the solution. Somebody will do it for her. If her credit is low, they will just charge her more interest. </p>
<p>Tell her to try Amerisave. If she knows her credit score, they will give her a free quote online with no personal information needed. I’ve used them successfully twice.</p>
<p>Alternative is to sell the house, pay of the debt with the equity, and buy a smaller house.</p>
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<p>I would NOT put insurance on the same list with cell phone plans and pool service. Skimping on insurance is never smart, no matter how dire the debt situation. It would be wise for the OP’s friend to talk with their agent to see if they’re paying for coverage that’s not really necessary, or if there are cheaper policies, or policies that could be bundled for a better rate. But dropping it as an unnecessary luxury? No way.</p>
<p>Reviewing insurance, not dropping it, can often save money. Are you paying too much for an old car? How about the deductible? Every time I really look at it, I change it.</p>
<p>I agree with busdriver. I also comparison shop every couple years to see if I’m getting the best deal I can get. My home owners insurance was way over-estimating my replacement value and I fought that and got it lowered. If you’re paying more than the value of a car in auto insurance, it’s time to make some changes there.</p>
<p>I looked at the Dave Ramsey website and that is now on my list of suggestions for my friend - we are getting together this weekend. He uses a concept called the “debt snowball” - where you list all debts except mortgage from low to high, and pay just the minimums on all but the smallest debt, and then pay that small one off as aggressively as possible. Once first debt is paid off, you take the funds that were going towards that pymt and start attacking next smallest, and so on.</p>
<p>Yes, this approach ignores the interest rates. But he is addressing this as a psychological issue, where the person needs to see results, and that seems to mesh with Sally’s situation. I think she should try this approach first, while also considering selling the house and downsizing. My concern for her is that selling the house and paying everything off gives them a clean slate, but it does not cure the underlying issues that led to accumulating all this credit card debt. I think a very disciplined approach, like that advocated by Dave Ramsey, might be better in the long run.</p>
<p>We will also discuss refinancing options, but I know many will advise against turning unsecured credit card debt into secured debt against your residence, and given that selling the house is also an option, not sure the refi is the way to go.</p>
<p>I’m not sure how involved she wants me to be - frankly, I’m not sure how involved in this I want to be! But I want to present her with a plan that I would try if I were in this situation and see if she wants to try it. Thanks again for the suggestions.</p>
<p>For some folks who run up giant credit card balances it doesn’t really sink in with them that they have a real spending problem until after their wages are first garnished and their bank accounts and other assets are cleaned out by creditors who get judgments against them.</p>
<p>I think you’re right about the scenario if they sell the house. They will have a clean slate, and all those credit cards which can just be run right back up again. Then they won’t have an “out”. Some of the people who do the Dave Ramsey program get a little gung ho-obnoxious- about it, but I know rational people who have used it and got themselves into a very good place financially without ramming it down other people’s throats. </p>
<p>He’s really extreme about things like college student loans. He is against them completely and says nobody should ever do them. I don’t necessarily agree with that. I think there’s a reasonable amount that can make sense when you do some of the math.</p>
<p>^^Definitely agree with all of BarnardMoms post. I disagree with some of what Dave says, and people can get really over the top obnoxious about it. But for some people, that’s the only way to go about it, to be obsessive and make paying off debt their religion. Otherwise, they just can’t bear the daily sacrifice, it’s too hard. Another good thing about pointing your friend to Ramsey is that he says the tough, confrontation things that you would NEVER want to say to your friend! You would lose her friendship if you talked to her like he does, but he is direct and honest. He does catch you up in his enthusiasm, and listening to other people’s stories is inspirational.</p>
<p>*I would NOT put insurance on the same list with cell phone plans and pool service. Skimping on insurance is never smart, no matter how dire the debt situation. It *</p>
<p>I’m not recommending skimping on insurance at all. However, there are less expensive plans and companies for same/similar coverage. And, sometimes it does make sense to increase deductables to lower costs.</p>
<p>And, I didn’t say that insurance was a luxury. lol I listed it as a repeating expense that could be reviewed (to see if there were less expensive alternatives).</p>
<p>Busdriver’s quote:
Reviewing insurance, not dropping it, can often save money. Are you paying too much for an old car? How about the deductible? Every time I really look at it, I change it.</p>
<p>Exactly! That’s exactly what I meant.</p>
<p>Then we’re definitely on the same page, m2ck.</p>
<p>For some folks who run up giant credit card balances it doesn’t really sink in with them that they have a real spending problem until after their wages are first garnished and their bank accounts and other assets are cleaned out by creditors who get judgments against them</p>
<p>Probably…but it also likely happens when they’ve maxed out on everything and can’t charge anymore.</p>
<p>In my mind, the family ran up the credit card bill because she used credit cards to finance the DD’s college. I thought some one would be crazy to do that, now I am witnessing the drama unfold. It is so easy to run a 120k bill(using compound interest) with college expenses mounting.</p>
<p>There are lots of good suggestions here in the thread and I hope the sell of the house will solve the current bind. I would think it will be difficult to refinance as the bank will look at the entire credit history. Even refinancing could be done, in today’s market with their financial condition, the amount of the refinanced loan MIGHT not solve the problem, since we have no knowledge of the home value and the mortgage balance.</p>
<p>A friend of mine is dealing with huge credit card debt after a divorce. She only uses cash or debit card. She writes down every purchase she makes even if it is under a dollar. She also attends debtor anon meetings.</p>
<p>One particular comment she shared really stuck with me. They have had various times over the years where cashflow was tight and a credit card sent her a low interest rate “convenience check”. She would write herself a check for $5000 or $10,000 - deposit it - and have the illusion of plentiful cash in the bank. All with good intentions to pay it off within a year - when finances improved - and then something else would come up, etc., etc</p>
<p>this suggests extreme impulsivity control issues. In that other thread when ADHD with impulsivity issues was discussed, this kind of behavior was described. Reaching for the “quick fix” to “tamp down” anxiety from the debt. No real foresight is used because we all know that “something else” always comes up to thwart good intentions.</p>
<p>Rockvillemom…do either spouses’ parents have good spending/savings habits? If so, then following their examples would be good. I’m guessing that at least one set of in-laws has horrible spending habits.</p>
<p>Rockvillemom, do you know her credit score?</p>