Skip to comments.Credit card debt bleg shameless vanity
Posted on 04/05/2011 9:18:51 AM PDT by Sherman Logan
A relative has gotten herself deep into debt by misuse of credit cards. She still has a good credit rating but this won't last long if something isn't done.
She has asked me to assist her. While I have a lot of advice on how to stay out of debt, I'm pretty useless on the getting out once in part.
Brief googling indicates there are two major groups that want to "help." One group is essentially shills for the credit card companies, and the other group seems to be in it to exploit the debtor further. I assume there are other organizations but don't know how to find them.
Since she has a good credit rating the present very high interest rates she is being charged seem unreasonable. I understand it is possible to negotiate such things, but I really don't know where to start.
Any suggestions will be greatly appreciated.
For those who are judgmental, she is aware she screwed up.
How many credit cards and how much in debt?
Very much worthwhile.
Baby steps. 1) Save a $1,000 emergency fund.
2)Pay off lowest balance first (maximize those payments, while paying the minimums on other balances). It's a start.
Scissors meet credit/debit cards.
End of story.
Ditto on Dave Ramsey
Have her find a group that meets locally and join it
From them she can get recommendations for a financial counselor to help her get out of debt amd make wise choices in the process
Try having her look at a credit union for a card to transfer those high-interest rate balances to. This, of course, is with the understanding that she close the paid-off accounts. Also, some signature loans (you say she has good credit) can often be at a lower fixed rate than many credit cards. Check with a credit union - it’s a temporary option, not a solution. Again - close the accounts when they’re paid.
I am working 4 part time jobs, and am applying for the 5th. Every extra dime goes to the c.c.s (well, mostly). But then the kids have also moved out and are mostly self-sufficient—couldn’t do any of this while they were still living with us.
We’re also selling everything we don’t need/want.
It’s soooooo worth it.
Also, I talked to the major carrier of my debt, and asked for a lower interest rate-and they lowered a 13.99 to a 8.9 for 6 months! :)
Now THAT is gazelle-like intensity! Best of luck to you on your journey to financial independence! My wife and I are a few months ahead of you and we can see the end of the tunnel approaching swiftly.
This is FreeRepublic - what fun would it be if we can’t pass judgment? ;)
DO NOT go to a third party to solve this.
Have her get into a Dave Ramsey class immediately.
They will tell her to save $1000 for an emergency fund (so that she isnt living too close to the edge).
She will then organize her debt from lowest to highest and begin paying it off. Call the other companies and let them know what is happening - they wont be happy - but they will eventually be paid.
Her credit rating is going to get dinged (but nothing can stop that now). The other companies will hound her (do not avoid them - but give them a consistent message that you are paying off your debt and they will get theirs soon).
My wife and I paid off $33,412 in debt in 8 months. It was INCREDIBLY hard - but we did it and are now on our way to total financial freedom - I had no idea it felt this good!
I ended up going through a debt consolidation service recommended by the local family services people...in retrospect, it may not have been the “best” option, but it has worked out well. We had about $22,000 worth of credit card debt. Four years later, it’s now down to $3,000 and should be paid off by the end of the year. They negotiated the companies’ rates down from the 25-30% range to 8-14% and set a fixed payment schedule of slightly more than the minimum payment on each card.
She MAY be able to do the same thing herself if she contacts the card issuers and is honest with them. If she does this, she needs to pick a payment schedule she knows she can meet (missing even one payment means they’ll ratchet the rate through the roof and come after her *hard*) and get the deal IN WRITING from each company before committing to it. Verbal agreements are no good, get it in writing before committing to ANYTHING. I had American Express agree to the debt management plan, accept four payments, then back out claiming they never agreed to it and throw me into collections.
Card companies will generally be flexible because they know that once an account gets in serious trouble, it’s the best possible option for them to take a lower interest rate and let the account get paid off rather than just have it go to collections, or have her declare bankruptcy.
Also, if she does still have good credit, a consolidation loan is an option. Just be careful who she gets it with. My wife had one card that went into collections and they basically forced her to go to Citifinancial to get an unsecured loan to pay it off. That loan pays off in two months. The interest rate was positively Mafia (around 21%) but it was still lower than the 29% the card company was charging, and it stopped the collections calls.
If her credit is good, she can probably get a consumer loan from a credit union or bank at much lower than defaulting CC rates (which are usually in the 30% range nowadays if not higher). Then apply the Ramsey strategy of throwing as much at it every month as possible, minimum payment notwithstanding.
1. Create a budget, immediately...everything that must be paid, but bare, bare bones only......make sure taxes, medical insurance and things like that are calculated properly and included.
2. She has to take the extra cash and start making more than the minimum payments. Rank the cards by interest....Pay a little more than the minimum on each card and on the highest interest card as much more than the minimum as possible.
3. No new credit for anything...everything must be paid by debit card and checks. Avoid ATM fees at all costs. Put the cards away in a safe place. DO NOT CANCEL THE CARDS.
4. You have created STABILAZATION. There can be no backtracking on this. Budget must be updated monthly or sooner.
5. GET the Credit Report and learn how to read it. File any corrections if necessary. Get the credit score. This may cost $20 -30 bucks but it is worth it. The credit report can be gotten free.
6. Try to set up a small savings account but remember, paying off debt is the same as savings.
7. Get on the phone and call each card company, ask if you can get a lower rate/different card from them. Tell them what you are trying to do and that you are shopping around to transfer balances. If they see you are paying (good credit) and see you are paying more than minimums, they will deal with you because they don't want to lose you.
8. Search for the best deal you can find for the lowest interest rate and lowest transfer fees. A personal bank loan might be wise to look at. DO NOT APPLY repeatedly for new credit. READ what affects your credit report.
9. Step by step every other month, do something to reduce those interest rates, repeat steps 7 and 8, and keep that budget to the bare bones while increasing payments above the minimum more and more on each card and ALOT where can on the highest interest card.
10. Torturous at first but in six months you'll notice a difference. In one year a big difference. Pull your annual credit report, pull the score and go back to step 1 to prepare the year 2 plan.
This is like eating and sleeping and working...you work on your credit every day, in the way you budget, spend, and control and know things.
This is a plan for someone like your sister who is NOT over her head, missing payments, and with bad credit...that is a different matter.
The Big Boo
Have her call the individual creditors and explain her situation. 90% probability they will offer more favorable terms and payments she can handle.
There are millions of borrowers right now who cannot even make their payments. With numbers as they are, a creditor is much easier to negotiate with. They would rather receive something than nothing.
Good luck to her.
I’m not familiar with the Ramsey classes, but a third party solution saved my butt. 10 years ago now. I believe it was with Trinity, then later with Cambridge. They stopped the escalating rates, penalties, etc. and I was able to gain ground.
I did pay them for their service, but I was thrilled. iirc, I paid 45 a month for the service for about 30 months...12,000 approx in debit and climbing, until I hired Trinity.
Now, I charge everything I can on one card and pay it off every month. The reason I charge so much is to take advantage of my card's cash back program, which is 1-2% of every purchase (depending on the type of purchase).
Credit cards are like hammers....they are great tools as long as you don't hit yourself in the head with them.
I wish I could buy things I cant afford . .
I am curious as to why you say don’t cancel the cards? It seems to me if one doesn’t have the discipline to not the use cards, keeping them open is just an unnecessary temptation.
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