Debt/Interest advice

In My Humble Opinion
1

I’m looking more for generalized advice than anything else.

I have debt. Quite a lot actually. It started out when I was fresh out of college, unemployed, and didn’t quite grasp the whole “plastic is not fake money” thing. I got in over my head. I finally got employed and learned how to live within my means. Shitty job that it was, I could only pay the minimums. I got into a car accident at work. Worker’s Comp company went bankrupt, and they came after me with the medical bills. I foolishly put some on my credit cards, until it was pointed out to me that them dogging me was illegal. They responded by sending these bills (thousands of dollars) into collections, and I’ve been battling with them to get them to stop (and to get them off my credit report) for years now. My credit card company took it upon themselves to use this to raise my interest rate. My minimum’s doubled.

I lost my job at the worst time, and got to experience the ever-exciting unemployed+uninsured+sick. I paid what I could, which wasn’t enough. My interest rate when through the roof. Collections people called me all the time. I considered bankruptcy.

That was over a year ago. I have a good job now, an excellent budget, and cut up my cards during the crisis. All of those outstanding bills have been paid in full (Just did the last one in April and, man, did that feel good). The only thing I have left is my one 5-figure credit card bill, towards which I pay about half my monthly income. I am on track to be debt free by Nov. 2007. My interest rate is 27%. I have not missed or been late with a payment in 14 months, and have been paying more than double the minimum for the past 6 months. Today I called my credit card company to discuss an interest rate reduction. They said no. The woman actually lectured me about how I did this to myself (yes, thank you, I know).

I’ve talked to some of those credit counseling places, but it seems like I am in too good a shape for them to help me (only one card, not past-due, nothing in collections etc.). They told me to call my credit card company. But, it’s going to be a couple of years (and possibly legal action about the workers comp thing) before my credit doesn’t look like a train wreck, so a bank loan is out. I have nothing to borrow against. But that interest rate just kills me. Is there any other way for me to get that lowered? Even a small reduction would save me a lot of money, and have me out of debt sooner.

2

Wow, first of all, congratulations on doing as much as you have towards getting rid of some of your debts.

Have you contacted another credit card company? You have nothing to lose really (except another credit check showing up on your history). 27% is brutally high.

The only other thing I could suggest is to get a part-time job and dedicate that income towards paying your debt as well.

Good luck! You’re in a tough situation and you should be really proud of all you have done so far.

3

Another thought - is there someone who could co-sign a loan for you? A parent perhaps?

4

If you have cash, you have something you can borrow against. Put an amount into a savings account, let’s say $1500.00. Go to your bank in person and ask to take out a $1000.00 loan against that money in savings which they can use as collateral. Have the loan be a minimum of 6 months and make sure that they report the loan to all three credit bureaus. This should help your score.

You’ll also want to pull all of your credit reports (Experian, Equifax, TransUnion are the main ones.) Go to www.annualcreditreport.com and get all three for free. Now’s the tricky part that may take a while to do. Anything that’s a ding against your score should be challenged. The company that reported them has a limited amount of time to verify the report as accurate. If they don’t do it in time, that negative part will be removed which could raise your FICO score.

If you’ve got a parent or a significant other with a good credit history and a credit card, you can always ask them to do the following. They can put you on their credit card as an authorized user. Their history on their credit card would then show up on your report (note, not all credit cards report the same and some do not report the score for AUs). A credit card would be issued with your name on it and you can hand it over to your parent/SO/et al and have them destroy it, so they don’t have to worry about you using it. The longer and cleaner the history on the card, the better.

Hang in tight, it sounds like you’re doing a great job so far.

5

I actually have this with my mom. . . I’ve had it since college, and it’s one of the reasons my credit is not TOTALLY destroyed. Also, I have student loans that my parents pay, so that has always been current.

I have disputed the illegal collections. It goes away for a while, then comes back. At this point, I’m basically down to legal action as an option. It is a large bill (about $5,000) and his been in collections for 3-4 years now. I’m not confident that I can get any kind of loan with that hanging out there.

I’ve begun getting “pre-approved” credit card offers again. I’ve considered getting a few new cards and moving the ballance to them. But I really, REALLY don’t want to. I want to have less plastic, not more, and I don’t need the tempation.

Though I wonder if I can play hardball with my CC company a little. “Look, you’re making a lot of money off of me, so lets compromise or I’ll take me debt elsewhere”

6

If it gets you a lower interest rate & you DO pay the card & DON’T pile on more debt, there’s not much wrong in transferring a debt. Just watch out & read the fine print. I transferred a balance to a Chase credit card and was assessed a whopping fee. Since I had been in contact with Chase three times and they’d been hard-selling the transfer with no mention of a percentage fee on balances transferred, I called and asked the fee to be waived. I had to talk to a supervisor (and be very convivial) but it was waived. I hate financial ambushes.

Length of credit account matters too, so if they are cards without annual fees, leave them be. You can use different cards for different expenses (as long as you remember to pay them, I love this bright modern world of auto-pay & e-billing, so much easier than stamps and lost or delayed mail) and this can even help you figure out spending habits (and where to cut fat).

7

I *highly * recommend prosper.com for a situation like yours. I’ve only been using the site (as a lender) for a few weeks now, but it’s tailor made for situations like yours.

It’s a site where borrowers and lenders bid on loans. One of the most common scenarios for people borrowing is exactly what you’re describing. Pay off credit cards to get a lower rate.

The procedure is to go on there, tell your story, find an interest rate that you want to borrow at, and people bid on lending to you. Several people can bid 50+ dollars a piece until your loan is fully funded.

But, it’s FAR from automatic that you’ll get a loan funded. It’s not charity. People want to lend to you, but they don’t want to get hurt any more than the credit card company does.

They do a complete credit check on you, and if your loan gets funded, prosper will do a more thorough check of your employment status and identity before they allow you to receive the money from the bidders.

Couple of caveats:

Tell your story right the first time, and get your spelling and grammar down. People trust a loan to a person who sounds intelligent. Good news: your OP is a better write-up than most of the loan requests there, so it’s a good start.

Don’t ask for too much at too high a rate.

Lenders have the right to contact you (you’re anonymous) and ask you questions. Be prepared.

Nose around the site for a while. Find out what other borrowers with your credit rating are getting for rates. Ratings go from AA-High Risk. If you’re “high risk” then you’re going to pay a higher rate. But, it’s good that you didn’t actually file for bankruptcy. Your debt/income ratio is going to hurt you a little, but don’t lie about either because prosper will check you out, and if you get found out, you’ll never get a loan.

Look into what a “group” is. People in groups tend to get more easily funded, and better rates.

Also, 5 figures might be too big to start with. The loans are all 3 year terms, so if your payment would be $600 per month, that’s going to be a slight turn-off. But, lenders don’t really mind if you re-list a loan for lesser value at a lower rate. What they DON’T like is when you re-list a loan and give a different story.

Seriously, check it out. What I wrote might sound daunting at first, but it’s really not.

It’s a new site, but people have been using it well, and a borrower is at much less risk than a lender. There are lots of people willing to loan money, but they have to like the story, and they have to like the rate.

Some people will write up their loan request with a basic budget in there, like:

salary: 2000
food : -250
rent : -400
car : -150
cable & cel : -100

Left over: 1100

Prosper Loan: -400

8

I mentioned this in the “consolidation loan” thread but when I was having trouble with high interest rates and too much debt, I got a consolidation loan through a credit union at a much better rate (9.9%, not insanely great but way better than 27%). I didin’t have good credit either so my father cosigned. Sounds like you have a good relationship with your parents and have gotten your budget under control so you might ask them if they would cosign.

The loan worked out really well. I had set payments automatically drafted from my bank account and the loan was for 48 months so the payments weren’t huge. And there was no penalty for early payment so when I had extra money, I could apply it. Plus, the completed load with on time payments really, really boosted my credit score.

9

If you can get another CC w/ a lower interest rate I would suggest doing it. Not only to transfer the ballence, but even if this is not a practical option, you can put your living expenses on the new card and use that extra money to pay off the higher one (after you make the min payments on the new one). Even if it’s a store or gas CC, that would be extra money that you can put towards the higher interest debt.

But you have to have the disipline to only use the card for things you would have bought with cash.

Another option you may consider, if you have a nice ride - sell it, use that money to pay down the debt. Get a station car or a bike for now, the money you can put towards that debt will net you 27% on that money till it’s paid off - that’s BIG.