Debt Relief Advice

In My Humble Opinion
1

I’m drowning in credit card debt. My current debt is almost half my annual income and I am barely making the minimum payments.

I contacted a debt relief service and with the very basic information I gave them, which was just my e-mail address and the dollar amount of my debt, they said they could have my debt paid off in less than 3 years and my monthly payment to them would be $200 less than what I’m paying now in minimum payments.

Do any of you have any experience with any kind of debt relief service? I’ve heard warnings and negative things about some of them but I’ve also heard that some are legit and can really help.

Just thought I’d ask the largest group of smart people I know before I dive into this thing.

2

Been there, done that…

To be brief, don’t do it. The only way to climb out of debt is to realize several points…

  1. You took years to get into debt, it will take years to get out.

  2. You cannot get out of debt without serious changes in how you spend money.

  3. You need to destroy your credit cards, and tell every debtor your restitution plan by letter, and stick to that plan.

  4. You need a wise budget and you’ll need to stick to it. Get advice from a trusted friend (who’s noy in debt, obviously).

It hurts, at first, to not go to restraunts at the drop of a hat, or travel, or shop but it gets easier, and you know what? After a while you actually have more money to play with and no more sick feeling in your stomache that you’re just borrowing from the devil to buy groceries.

I was badly in debt in 1999. Now my wife and I own rental properties and our house is paid off.

3

[QUOTE(who’s noy in debt, obviously). **[/QUOTE]

who’s not in debt… :smack:

4

What BMalion said. If you get a consolidation loan and pay off your cards, then do not use your cards again or you will just wind up further in debt.

If you feel you must have a card for emergencies, keep one card and ask them to lower the limit to something harmless (like $500) or, even better, get a debit card that acts has a MC/Visa logo, which deducts the money from your checking account.

If you decide not to go with the consoldiation loan, follow this plan (or one like it):

Figure out the minimum payments you need to make on each card for each month. Then figure out the maximum that you can pay total each month (note: it must be more than the mimimum for all your cards total.). Begin paying the minimum to each of the cards, and any extra pay toward the card with the highest interest rate. Once that one is paid off, then take the amount you were paying to the highest rate card and pay it to the next card. Keep doing this until your cards are paid off.

For example, suppose you have four cards from Bank A, B, C and D. A charges the highest rate, B the second, etc. Now suppose they all have mimumum balances of $100/month each. However, because you can scrimp and save, you can put $600 a month away toward your debt.

So, in the first month, pay $100 each to Banks B, C, and D. Pay $300 to Bank A. Keep doing this until your balance with Bank A is $0.

Once Bank A is paid off, take that $300 and apply it toward what’s left of your balance from Bank B. So now, you’ll be paying Bank B $400, and Banks C and D $100 each. Keep doing this until Bank B is paid off. Then put the excess to Bank C.

Lastly, before you start, call all four banks and try to negotiate a lower rate. You have nothing to lose and hundreds of dollars to gain. Threaten to cut them off if they don’t lower your rate (you’re going to quit them anyway, but they don’t know that…).

Good luck.

Zev Steinhardt

5

Ditto what Zev says. You have to put yourself on a budget immediately. You need to start brown-bagging your lunches, go to the library instead of the bookstore, that kind of thing. All the money that doesn’t go to the basics (rent, utilities, food) needs to go to your debt plan. Pay off one at a time. Starting with the smallest first will give you some relatively immediate gratification. Negotiate lower interest rates while you’re paying things off. If some company’s won’t lower your interest rate, pay them off first. You have to radically rethink the way you live, because it’s your lifestyle that has gotten you in this position.

I’d recommend reading the book “Financial Peace” by Dave Ramsey for a way to start. Best of luck to you.

StG

6

Thank you all for some very good advice. You’ve given me lots to think about.

7

Here I’m merely part of the chorus. Screw the consumer credit counselors, you can do it on your own, pal.

In October 1996 I hit my unsecured credit debt high water mark, which was actually several thousand dollars above my annual income at the time. It became my goal to kill the monkey that had been riding on my back for many years by then.

I’ll be repeating a lot of what’s been said. Become Mr. Frugal. It can become a kind of game to see how cheaply you can eat well. And, entertain yourself; if you have something akin to Half-Price Books in your area, $3-4 can entertain you for a week. Sixteen bucks a month plus maybe twenty for your ISP and your idle mind hours are fixed up for $36 a month. With a watchful eye, you can bag some free live music here and there.

Don’t go to bars. If you’re going to drink with friends, steer it towards somebody’s abode.

Which brings to mind another reckless credit usage scenario - don’t let social situations draw you into spending money that you can’t afford. Let your friends and acquaintance know that you’re scrooging out. Some may be dismissive or mocking…, how badly do you need them as friends, anyway? Others will be encouraging. Several of my friends accepted that it just wasn’t feasible for me to even think about joining them for a weekend in Cancun, so they didn’t ask, but they knew I could come up with a couple of bottles of wine for Thanksgiving (and really wouldn’t have cared if I’d showed up empty-handed); and so, kept me in the loop knowing that I couldn’t do the high dollar things. Those are your real friends.

You can do all sorts of other things that don’t cost any money to do. Walk in the park, shop the gals at the laundromat, browse the bookstore…

And you don’t need no steenking cable tv; in fact, you can live quite well without tv at all. Tv does, after all, just encourage you to spend money. If long distance or other telephony expenses gnaw on your budget, examine that - you may well be able to do without a lot of that.

How about housing? Could you ratchet down by say, $200-300 a month? Not forever, for now. You don’t have to live nice now - you’re killing the monkey. What you forego now is an investment, a real investment, in your future. Live nice, and debt-free, just a few years from now.

As someone said above, start killing 'em one-by-one. Rid yourself of the pesky little ones at first. BAM! Got one! Then BAM! again. Then move up to the real ones. Obviously, you want to kill off the higher percentage rate ones first. While you can help yourself a lot with judicious maintenance of balance transfers, and that should be part of your strategy, the main thing you want to do is identify the higher profile targets and start firing the money you’re saving through frugality at them until…BAM!..you pick off your first big one.

And then you’re into the killing zone. You’ve tasted first blood and now you know the monster can be rolled off your doorstep, as the corpse it’s now become. That first victory both builds your resolve and frees up a little more monetary firepower to bring to bear on the second most bothersome. They want $57 this month on your $4800 balance, $49 of that being interest? Screw that, send 'em $400 until it’s dead. Soon enough…BAM! Another corpse to roll off the porch.

At my nadir, I had about two dozen credit cards as well as the usual monthly bills. I used an Excel spreadsheet to track almost daily payments, and I’ll gladly email a blank copy of that to you, if you think that’ll be usefull.

Once you’ve killed a couple of monsters, you’re in to it.

And, as also noted above, learn to live absolutely without them. I haven’t charged anything on a credit card since 1996.

I still maintian an MC, and I use my Amex regularly, and pay it off every month. In February 2001 I killed off the last of my unsecured credit debt forever. 54 months from bondage to having more economic freedom than most that I know. Since then, I save over half of my income.

I spent part of last weekend traveling in spirit with one of my favorite songwriters, and I’ll quote from him:

You think you can’t.
You wish you could,
I know you can,
I wish you would…

You’ll do it, pal.

8

Great advice here thus far. Let me add to it with this: Call your credit card companies. Tell them you’re serious about making headway on your debt. It’s in their interest to work with you–they lose if you declare bankruptcy. The thing you want is a lower APR–that means more of every payment will go towards paying down the debt, less towards interest.

One response is that they might lower it and put a “stop” on your use of the card while you pay it down. It doesn’t go on your credit report, and it doesn’t take the card away. It just keeps you from using it while you knock your balance down.

I called one credit card about a high rate and they said I didn’t qualify for anything lower. So I asked (very politely) if I could make arrangements to close the account. I figured, if they’re not going to work with me, why let them have me as a customer? They transferred me to someone and that person said they’d “see what I could do.” Then they gave me a rate that wasn’t much higher than our mortgage rate. Whoa.

I think the hardest thing is probably admitting that you’re too far in debt. You’ve done that. You’re on your way.

9

So, velvet. where’re goin’ with this?

10

I went into debt management after racking up 26k in credit card debt.

There are a lot of places that offer that service. They sign you up, they get your creditors on board with the program, and you make one payment a month to the debt management place(often they charge a $10 fee per month).

Most, but not all, of your creditors will lower their interest rate and wave penalties when you are in the program. When I did it, Chase Manhattan dropped their rate by 1/3rd. One company waved the interest altogether.

One caveat: If you miss a payment, they may drop you from the program. If you are dropped, the interest rates return to normal, and the late charges and penalties reappear.

I recommend it. It took me 4 years to pay it off, but I bet it felt a lot better than bankruptcy.

11

More good advice. Thanks.

In answer to your question Ringo here’s what’s happened this week:

I did call one company and their advice/service was basically that I “choose to stop paying on my credit cards”. Put the money instead into a savings account and the agency in question would try and re-negotiate the amount owed after I’d been in arrears for 36 monts or so. I didn’t really like the sound of that.

I have also been in contact with a company that does more of what spooje described. I didn’t follow up (this was about 6 months ago) but I’m going to call them back (I just found the number again)

For right now I’m going to reload Quicken into my PC and start tracking my expenditures and budgeting. I’m also going to seriously take a look at some of the things that ringo mentioned like cable TV and other “entertainment” and see where I can cut corners. I know I can do this. I just need a little self discipline.

12

I emphatically agree. See here for info

Also see here

velvetjones, there is a way out of this pit, it just isn’t quick. But take heart, you didn’t get into it overnight so you can’t get out of it overnight either. Stick with it though, it’s worth the effort.

This book (Originally released as ‘Financial Peace’ now re-released as ‘Financial Peace Revisited’) really did change my whole outlook on money and debt. Dave Ramsey is not gimmicky - he simply gives common sense advice that people began to disregard a couple of generations ago. He is on a lot of AM stations across the country and you can listen live to his show M-F 2:00 - 5:00 EST on his website for free. There are also archives of recent shows. I suggest starting with the book though. Most public libraries have it. If all else fails, drop me an e-mail and I’ll send you a spare copy.

The basic philosophy is this:

Get a mini Emergency Fund ($500 or $1,000 depending on your income)

Cut up all of your credit cards (get your Emergency Fund in place first so you can catch your problems without using the credit cards)

List your debts smallest to largest. Pay minimum payments on everything except the smallest one - that one you attack with a vengeance. Put every extra dollar you have towards it. When that bill is gone, roll that money to the next smallest debt. Repeat.

Consider selling some things or taking a part time job if possible. Pizza delivery, Newspaper delivery, etc.

Avoid the places that pay your bills for you:

You need to learn how to handle your money. Also, many of these places have very bad track records (take your money and pay your bills late or not at all). You can contact the Credit card company yourself and try to get your interest rate lowered - some may not do it but don’t let that deter your plan. The interest rate isn’t nearly so important when you get intense about paying the debt off.

Best Wishes to you.

13

See an attorney, and declare bankruptcy, all your debts will be canceled in 3 months to give you a fresh start.

Lots of people have declared bankruptcy, Walt Disney, Tom Edison, John Sutter, Milton Hershey, etc.

If it were not for bankruptcy, we would not have Mickey Mouse, electric lights, gold, or chocolate to enjoy.

14

**Once you get cards paid off, keep them. ** (Unless you’re paying an unreasonable yearly “membership” or “service” charge on them.) Feel free to cut up the cards so you can’t use them, but keep the accounts open.

A very common mistake people make is to close paid-off credit cards, thinking it will help their credit score. Closing paid-off cards actually does the opposite as the score process looks at the ratio of available credit to balance as well as length of time you’ve had the accounts. If you have a couple cards with zero balance along with a couple cards near limit, it factors out much better than just two maxed-out cards.

15

Slainte Thanks for the advice. I’ve heard it before here and elsewhere and it looks like the right road to take. I’ll visit the library for that book or see if I can get a cheap used copy at half.com.

susanann I’ve seriously considered bankruptcy but somehow it feels like the easy way out. I got my self into this with my reckless spending habits. Seems like I should bit the bullet and get myself out. We’ll see. Right now I can barely make the minimum payments let alone pay any extra but I’m sure with some judicious budgeting I can make some room.

gotpasswords Thanks. I didn’t know that and would have probably closed them all. I’ll remember that.

You know, that’s what I love about this message board. Everyone is so friendly and helpful and it’s a wonderful place to get a wide variety of opinions on any subject. You all are great.

16

While bankruptcy can indeed give you a fresh start, it comes at a price. You will have that bankruptcy on your records for 10 years – and getting any sort of loan will be most difficult.

Before everyone chimes in, yes I know Velvet may not want or need a loan today but at some point all those debts will be cleared up, and he (she? sorry can’t tell) may have to get a car or perhaps a house.

I speak from experience – my ex husband and I did declare bankruptcy. It’s been nine years now and it’s still on my credit record. I was able to get a car loan this year (to replace my 10-year old car) but I am paying pretty high interest (8%).

17

I was once in debt for about 10K on the credit cards. Three days ago, I closed on my first house, still have cash leftover and still have zero balance on my cards.

You can do this!

Please, whatever you do, avoid the companies who will do this for you. ESPECIALLY the one that said,

That’s a very bad idea and those 36 months of delinquent debts will follow you around on your credit report for years to come. Very bad.

Please check out the Motley Fools. I used the information on this web site to get myself out of debt. Followed their steps to the letter.

Good luck!

18

Consumer Credit Counseling is an excellent service. They are non-profit and work well with your budget. The ONLY thing that bothered me about them was you are forced to cut up your credit cards and put them in a barrel which sits in front of their office.
They want to teach you to live within your means and not “charge” things.

19

IsabelleYou know there is a Consumer Credit Counseling service nearby that I contacted once in the past (again never followed up).

I think I can do this. Hell, I know I can do this. All it takes is a little self discipline.

dogzilla I’ll check out that site. Thanks.