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! :)
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!
Good luck.
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.
}:-)4
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.
}:-)4
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.
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 . .
Dave Ramsey is a good start as another poster posted the link. Some hate him and think his ideas are silly, but the fact remains he has an immediate, common-sensed, approach to out of control spending and getting your credit use and debt in order NOW!
First off, screw the credit rating. It means nothing right now. It is also REAL easy to rebuild. I know guys that have walked away from mortgages that had 720 ratings within a few months.
Dave preaches one thing: Stop spending, start saving and paying off that debt, and eat baloney if that what it takes and it does take it. You already spent your lifestyle so now you get to pay for it. He has helped many people through common sense logic.
Whatever she does, do not participate in any way, shape, or form with a “credit counseling service”. They add to your debt, screw with your credit, and can do far more harm to you than they can ever fix. She can do this all by herself without those vultures.
Years ago my personal company went belly up due to the tech industry crash. We didn’t have Dave Ramsey, but we did follow much of the advice he gives out today and it worked great.
Two words: DAVE RAMSEY
Financial tatics for getting out of debt.
Rule #1 - don’t accumulate any more debt
- cut up credit cards
- establish a credit watch service with notification to an external trusted advisor to hold the individual accountable
Rule #2 - get a handle on your expenses
- record every single expense every month
- use a software program such as Quicken to enter your expenses
- create a budget for each month
- ON THE DAY THAT YOU GET PAID, pull the money out for your known expenses. Pay the bills right away.
Rule #3 - Create an emergancy savings account but manage your risk
- save $1,000 for handling emergancies
- change your car and home insurance deductuable to $1,000, this should free up some monthly cash
Rule #4 - Cut out unnecessary expenses
- go to the local library and get a card. Many have movies you can watch or audio tapes you can listen to for entertainment. Books work as well
- put off that vaction
- air up your tires, change your air filter and get a tune up (reduces gasoline expenses)
- stop buying ... Starbucks, fast food, cigaretts, clothes you dont need, school fun raisers, alcohol, etc
- stick to your budget
- comparison shop your groceries
- serve smaller portions of food and shift the composition to less expensive fillers such as rice and potatoes
- cut out and use grocery coupons. Plan a time for this and make it a family activity.
Rule #5 - Manage your interest rate
- Make min payments ON TIME for all of your cards except one. On that card, put the most amount of money you can each month
- If one card has a significantly higher interest rate, see if you can move the balance to another card.
- If possible, get a lower interest consolidation loan such as a second or signature loan to consolidate the debt from the other higher interest cards
- call the credit card company and find out what assistance programs they have. Some companies will give you a 3 month or 6 month reduction in interest, others have different programs
Rule #6 - Increase your monthly income
- ask for a raise
- reduce your tax witholding to the level that just pays for your taxes
- seek out and get a part time job
- Consider a minor decrease in you retirement contributions
- take a loan out against your 401K to pay off your debts. Interest is paid back to yourself often at a rate higher than you could earn in the market these days
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.
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You also need to be aware that some of these debt management companies are also shills for bankruptcy attornies. Obviously you should ignore them. And ignore any debt management companies that charge a fee.
Several posts on this thread are very good. One by the Big Boo and one by Moose are worth reading. And the Dave Ramsey remarks are good too.
I’m also facing a mountain of debt and working on getting out of it. Mine wasn’t from credit cards, it’s for 3 years of unemployment due to medical issues, and the associated medical bills. Still, I owe more in medical bills than the mortgage on my land, and that is not a pleasant feeling.
There are several strategies for paying down debts, most of them boil down to this: make the minimum payment on all your debts, plus choose one to pay more than the minimum on every month. When you have that one paid off, take what you were paying on it every month, and add it to your payments on the next one. This way the payments snowball, with each one being paid off faster than the one before it, while still paying the same total amount every month.
You and she will probably get lots of advice on how to sort those debts in order to choose which to pay first. Highest interest, smallest amount owed, etc.
I actually chose 2 debts to work on first, the one with the greatest consequences if I were to default, and the one that bothers me the most. The first is my overdue property taxes, the second is my homestead association dues. My land is on a small private road shared by 14 properties, and the dues pay for plowing and maintenance on that road. Right now the owners of the other 13 properties are having to cover my portion of the bill, and that bugs the heck out of me. At the same time, I’ve spoken with the county’s treasury department and know exactly how much leeway they’re granting me on my overdue taxes, and I do NOT want to lose my land after all this, so with that one the consequences are great enough to push it to the top of the list.
I found a new job near the end of February and had a couple of surprise expenses since then, but I’m making a measurable dent in my debts already!