SIGNIFICANT debt...I want to help

[Randomthoughts]

If you are in significant debt who do you turn to for help? I'm sure you won't believe it's not me but it's not. I just need to give good advice. There is NO HOME to get a home owners loan......I have heard the commercials for debt helpers and have also heard they will charge you significant amounts of charges to help you......their credit is maxed out...
Aside from the obvious fact they need to get their **** together I would like to be helpful. They know they need to take action. Bankruptcy is not an option either. They want to do it on their own. There is an income in the family. God forbid that disappears! No mortgage and a low rent so I think they can do it. I just wish there was some legitimate professional free help for them! More fees won't help! Paying the interest is bad enough. The only positive note out of all of this is that the debt is caused by low interest loans that were taken out on credit cards so they are NOT paying anything higher than 10%...the average percent is around 6 or 7.
Thanks for your advice. I would love to pass on some good news for them!

 

[LanaJae]

I believe it's not you

Many people will reply that this is the place to start: http://www.daveramsey.com/

I really don't know anything about Dave Ramsey, just that he's helped and inspired MANY people to get out of debt.

 

[karliebug]

If they go for credit counseling they should make sure it is with a nationally recognized program. most of those that you see advertised on tv tell you to stop paying your creditors and then when they go in default they will negotiate lower payments but this totally ruins your credit.

 

[owensamo]

Does your local community have a 211 service? It's usually government run or run by the United Way and is specifically set up to help with information about programs that assist in these sorts of situations. I heard a recent report on NPR about the LA 211 service, and the same day read something in our local paper about the United Way helping people who had posted on Craig's List with 211!

 

[lalagrace]

You can still have an income, and keep assets like cars in Chapter 13 bankrupsy. It is something worth considering. In Chap 13 the court arranges a payment plan based on your income and outgoing expenses. All "extra" money goes to repaying your debt. However usually the credit cards are unsecured loans so you don't always have to pay back the full amount.
It is a great option, but usually only if they are aleady behind on making payments. If your credit is already bad, the bankrupsy does not hurt it all that much.

 

[minnie1928]

Consumer Credit Counseling Services is a legitimate non-profit agency for these types of situations. Look for them or call the United Way, I believe they work together or have some type of relationship.

You don't mention the source of the debt (medical, stuff, etc). Did they buy things that they could sell on ebay? They won't get what they paid for it, but they'll get something. Something is better than nothing in situations like these.

I also recommend Dave Ramsey, they need to get "gazelle intense" and quick. Get them the book Total Money Makeover to read as a holiday/new year gift. Make them a list of websites to help them cut their costs (think frugal) and make it into a bookmark for the Dave book.

 

[Randomthoughts]

All these thoughts, advice, opinions, resources are great! I am going to print out this thread and let them know everything you have shared!

I do know as a stay at home Mom the Mom is looking for ways to make money. She has A LOT too sell! She is always asking me what I think would be the best way to sell her clothes, toys, etc. She has nice stuff too. Plus she is looking to work when the kids can be with their Dad.

 

[sylvenmaid]

Dave Ramsey is great. You can either buy the book for them as a present or tell them to check it out at their local library. The first thing for anyone to do is stop using any credit cards. They have to stop making new debt. Then they need to get current on any past due bills and then scrape together a small emergency fund of $1,000. Once they are caught up and have their $1K then they need to write down all their debts in order from smallest balance to largest. If they owe more than $10K on a car then they should get rid of it and buy a beater as Dave calls them. We had to do this many years ago and it's hard to get rid of that nice car. Looking back it was the right thing to do and we did get out of debt and have stayed out and that was almost 8 years ago.

It's called a debt snowball so you pay off your smallest balance first and then take that money to off the next debt and so on. I did this long before I even heard of Dave Ramsey. The Tightwad Gazette talks about a similar process for saving for a down payment on a house. I used it to pay off my debt. That's another great book your friend should read. It gives lots of great tips for cutting back on expenses. You don't have to do everything in the book, I know I don't, but it gives you lots of good ideas. It really helped me a lot when we were getting out of debt. We did this all on one modest income with a small child at home. I did eventually start selling on ebay full-time so did that help boost our income. I also had several yard sales to get rid of stuff and used the money to pay off debt. She needs to start using cash for everything. I also shop yard sales, thrift stores, and clearance sales.

They also need to write a monthly budget with all the expenses coming up. We still do this every month. It really helps me to stay focused and to put away as much as we can for savings. We are also saving money for our next newer vehicle. I do plan on doing Dave's plan for Cash for Cars for life soon. They can do it if they really want to be out of debt and save up for a house. It's a wonderful feeling to have no debt, a paid for house, and money in savings. That's something no one can take away from you. I also sleep better at night not stressing over money and the paid off car does drive better.

 

[mom2d&b]

We used consumer credit counseling. They have not charged us for anything. We have also built a budget using info form Suzy Ormans books. It took a bit to compile. I went back and put all expenses for the past 12 months into a spreadsheet to figure out what our budget should be. I will tell you, we started out with out expenses being over 2K in excess of our income. With a lot of work and soul searching, our expenses are now about 1,000 over our income each month. Hopefully 1 of 2 cars wil be paid off with our tax refund. Once we can get our income to exceed our expenses then we will work on that emergency fund. I have worke with a couple of the credit card copmanies. At first they offered nothing, then when I told them we were working on a debt managemnbet plane with a credit agency they suddenly had options for us. We have made such progresss that our credit counsler has suggested we keep on the track we are on and not get on theor debt program yet.
The thing I have a hard time remmbering is this debt didn't happen overnight and it will not go away overnight.

 

[minnie1928]

The thing I have a hard time remmbering is this debt didn't happen overnight and it will not go away overnight.

That's a really good point and I think alot of people forget that!

Congrats on the progress you've made, keep up the good work!

 

[Randomthoughts]

Once again this is ALL very helpful. I really want to be supportive and there for this friend. Also, I can learn from there mistakes in a sense. All opinions and suggestions are welcome!

 

[Randomthoughts]

Should she cancel her credit cards completely or should she lower the limits on them? She still has a lot of available credit to their name?

 

[KibbyCat]

Should she cancel her credit cards completely or should she lower the limits on them? She still has a lot of available credit to their name?

Canceling the cards will negatively affect her credit score, so I wouldn't recommend that. Maybe a couple of accounts she doesn't need or plan to ever use again (like department store cards), but not ALL of them. And she should only lower her limits if she wants to repair her credit and doesn't plan on using them - overlimit fees are horrendous.

Sometimes churches offer free counseling. Check your area to see if there are any pastors willing to meet with your friends and help them get on the right track. Dave Ramsey and the Crown Financial Study are both excellent sources of information for financial freedom.

 

[flying_babyb]

Doesnt chapter 13 bankurcpy reduce your ability to get certian jobs where they run a credit history? I just wonder cause im thinking of going with this.

 

[JonS99]

Canceling the cards will negatively affect her credit score, so I wouldn't recommend that. Maybe a couple of accounts she doesn't need or plan to ever use again (like department store cards), but not ALL of them. And she should only lower her limits if she wants to repair her credit and doesn't plan on using them - overlimit fees are horrendous.

Lowering her limits will also hurt her scores...

 

[SnowWhite2]

Any bankruptcy will hurt your chance for certain jobs. And if you have a job, it may hurt your ability to work on certain projects.

 

[aka-mad4themouse]

If you are in significant debt who do you turn to for help? I'm sure you won't believe it's not me but it's not. I just need to give good advice. There is NO HOME to get a home owners loan......I have heard the commercials for debt helpers and have also heard they will charge you significant amounts of charges to help you......their credit is maxed out...Aside from the obvious fact they need to get their **** together I would like to be helpful. They know they need to take action. Bankruptcy is not an option either. They want to do it on their own. There is an income in the family. God forbid that disappears! No mortgage and a low rent so I think they can do it. I just wish there was some legitimate professional free help for them! More fees won't help! Paying the interest is bad enough. The only positive note out of all of this is that the debt is caused by low interest loans that were taken out on credit cards so they are NOT paying anything higher than 10%...the average percent is around 6 or 7.
Thanks for your advice. I would love to pass on some good news for them!

Should she cancel her credit cards completely or should she lower the limits on them? She still has a lot of available credit to their name?

(Bolding mine)

So, is their credit maxed out or do they have credit available on some cards? I think that you're getting conflicting stories.

If a card has any kind of balance on it, the account cannot be closed. And if it is maxed out, you cannot lower the limit on it. The best that they can do is ask the card issuer to freeze the card so that no additional charges can be made to it as the balance is being paid down.

If there are cards that are unused, it is probably better for them to close those accounts and take the temporary hit to their credit score. It will remove the temptation to turn to those cards to make ends meet and only dig themselves further into a hole. As they pay off the remaining cards, their debt-to-credit ratio will lower and their score will slowly rise.

Continue being the supportive friend and let them know that there are no quick solutions. The debt took time to incur, it will take time to work it off.

 

[TastefullyChris]

There are only two ways to improve the bottom line...reduce expenses and increase income! You mentioned that mom is willing to work while the kids can be watched by dad. She should find some type of job ASAP and dedicate that income to paying off the debt. (The Dave Ramsey "snowball" technique is great!)

If she cannot find something to her liking, she could try a direct sales business. Many have low-cost start-up kits. I have been involved with one for 9 years (gourmet food) and it has really afforded me a nice stream of income with the flexibility I needed as a SAHM. Now that my kids are older, I have taken on a "regular" full-time job for the insurance benefits, but STILL love the extra income from my direct sales business. We were even able to travel to DISNEY a couple of years ago with an incentive trip that I earned!

If she is a people-person and diciplined enough to run her own business, tell her to find a product she LOVES and share it with others! She can message me separately if she would like more info...

Finally, tell her not to be discouraged...little by little the debt will get paid if they are committed to it. She is doing the right thing.

 

[SarahKate]

I also concur w/ Consumer Credit Counseling Services. I used them several years ago and it was a great service. They do charge you a service fee but it was VERY nominal. They worked directly w/ the creditors - the day you sign up with CCCS, any creditor calls STOP immediately. Creditors will reduce or even waive the interest rate.

It took 2-3 years to get everything paid off. Of course, now I'm back in debt years later! But it's much more manageable.

They will counsel you regarding budgeting, and sometimes they will also have free classes you can attend. I was able to go to a free first-time homebuyers class, and it was very valuable.

 

[Debbie6221]

Has anyone heard of credit card companies consolidating debts at a lower rate or lets say you have three cards with debt from the same company...do you think they would put the debt together and offer a low rate? Is that even a good idea to request?