Debt

[kellyb32]

puzzleannie:

Start paying all your extra money on the card with the smallest balance, when it is paid off, cancel it. Then apply that money to the next account and so on.

Transfer all your credit cards to one with the lowest interest, and cancel the rest. Put all extra money to pay the cards off. Whatever you do, don’t get a home equity loan, pay off your bills, then proceed to rack up more bills and credit cards.

.

I’ve talked to plenty of banks regarding cancelling credit cards. Not a good idea if you are already in a pickle with bad credit. I’ve been told this and read an article pertaining to this topic.

1. Definitely transfer your balances to the card with the lowest rate. That is a given.
2. DO NOT cancel credit cards that have zero balances or are close to zero and you no longer use. The reasoning is this: It’s better to just cut up the cards and keep the accounts open so you don’t hurt your credit score.

When lenders decide if it’s a good bet to extend or give new credit, they look at how much of your AVAILABLE credit you’re already using. For example, if you have 5 credit cards with a $10,000 limit on each of them and you owe $6000 combined…your only using 12% of your credit. BUT if you were to close all but one card and carried the same balance, you’re using 60% of your credit. To lenders that looks like you are overextended. It is ideal to keep your utilization ration below 50% (info c/o Readers Digest July 2005 edition).

One last thing, go to this site annualcreditreport.com/cra/index.jsp and get you and your husband’s free credit report. That way you can see what is in there, print everything out and if there’s any discrepancies you can take care of it. You won’t get your credit score for free from here but you may be able to get a free credit score from one of the credit card companies that you deal with. I got mine from Providian for free, I don’t know if any other cc company offers this.

I know what it’s like to rob peter to pay paul. We live check to check ourselves and sometimes have to make payment arrangements with utility companies. Call your cc companies, see if you can make arrangements for lower interest or lower payments. You don’t necessarily need a credit counselor, just some resolve to face this yourself. Credit counselors may be able to get you even better deals, but if you head this off before it gets worse, credit card companies will work with you. Some even offer a once a year hardship payment. They’ll waive a payment (and make it for you in some cases) so that money could be put towards something else.

These are some of the things I’ve learned since having to file bankruptcy 8 years ago. Now I have excellent credit, a credit score of 768 and I intend on keeping it like that.

God bless and good luck.

 

[lifeisbeautiful]

lifeisbeautiful:

Since you mentioned selling the house, it sounds like you own. How about a home equity line? The interest is usually considerably lower than many credit cards (it varies by bank, and it won’t be a steady number I think, but I think it may be around 7% now, not sure though), that way you can pay down the balance rather than just paying the interest every month. That way you can keep your house and get out of the hole.

What I meant was pay off all your higher interest credit cards and debt with your home equity line and that way you can pay less interest and with the money left over you will be able to pay towards lowering the balance too.

 

[BLB_Oregon]

mercygate:

Selling a house is usually about the worst thing you can do. It is the one asset that generally can be relied on to appreciate – and it gives you a place to live. Pouring cash down a rent-hole is gruesome.

Selling a house in order to move down to something more appropriate for your standard of living, however, is not gruesome. It is financially prudent.

You have to balance the appreciation you might realize on your house with the upkeep (time and money), property taxes, insurance, and fuel costs. Don’t fool yourself. If you are living in a house that is more than you need, you are spending money on a somewhat higher standard of living when you could have invested that money elsewhere.

Having said that… using home equity to re-finance your debt into a loan payment that is a) lower interest and b) has interest that is tax-deductible makes sense if you arrest your spending at that point. In other words, if you consolidate your debt and change your ways so that you are paying yourself first (saving and investing) and not incurring any more debt, it can be an excellent move. If your mouth is going to start watering when you see those clean credit card bills, though, you’re just buying a bigger shovel to dig yourself deeper into debt. Also, you are putting your house on the line when you refinance debt with your home. If you can’t pay and can’t quickly sell the house at a price that will cover your outstanding loan amount–and in a down market!–they will foreclose. You lose not just your financial equity but also your home. These loans fool many into overextending themselves. Don’t let it be you.

Look at everything you own and spend money on not just in terms of initial outlay, but in terms of to what degree it is a long-term asset or a liability. Is there an alternative that either costs less or brings in a higher return, on an annual or long-term basis? Your house may be an asset (not all are, even counting appreciation!), but a house that could prove to be a more lucrative asset may be out there for you. Furthermore, living in a less costly house implies that you will have other money available to invest elsewhere, allowing you to diversify your risk. Ask the people who just suffered Hurricane Katrina… you don’t want all your financial eggs in one basket!

The federal government has again started borrowing like there is no tomorrow, but on account of Hurricane Katrina, interest rates are not going up at the rate they might have. Now that school is started, the real estate market will not be quite as hot. The time to make a move to a less-expensive home could easily be much worse. If I could predict the future, I could retire, but I don’t see any reason to believe that interest rates are going to get better any time soon. I wouldn’t rush into anything, but I wouldn’t put off doing the calculations, either.

(BTW… if you get into the market to change homes, research the concept of a “buyer’s broker.” It could save you a lot of money. Oh, and if you sell… don’t leave your financial paperwork where the prospective buyers can find it. You might be surprised what people will stoop to in order to assess their bargaining position.)

 

[wabrams]

BLB_Oregon:

(BTW… if you get into the market to change homes, research the concept of a “buyer’s broker.” It could save you a lot of money. Oh, and if you sell… don’t leave your financial paperwork where the prospective buyers can find it. You might be surprised what people will stoop to in order to assess their bargaining position.)

Very similiar to a buyer’s agent, which all real estate offices have.

 

[BLB_Oregon]

wabrams:

Very similiar to a buyer’s agent, which all real estate offices have.

This is good to know! I haven’t been in the market for about 10 years. This was a new thing back then. Unless an agent is strictly a buyer’s agent, I would think it extremely difficult to avoid some conflicts of interest. Is it the norm to specialize in either buying or selling?

BTW, many people in bad financial straits try to save money by selling their houses themselves. While some have the time and know-how to do this, others get less than they would have after paying an agent’s commission. You have to be honest about your abilities to avoid being penny-wise and pound-foolish.

 

[1ke]

wabrams:

You’re incorrect: most, if not all, credit companies treat it as a bankruptcy.

The Experian Fair Issac scoring isn’t affected, but the Equifax Beacon score and the Transunion Fico is.

No, a Chapter 7 is not paying back your debt, and is for a large amount of debt you cannont feasibly get out of. A Chapter 13 BK is a repayment plan.

Credit counseling is about the credit counseling company getting paid first, then paying your creditors second. Chapter 13 Bankruptcy is negotiating with your creditors, through the courts, to get a settlement and a time frame to pay it all back.

A little harsh, don’t you think?

No, I don’t believe it is harsh. And, I completely disagree with you regarding credit counseling. Apparently, so do bankruptcy trustees because starting October 17, credit counseling is MANDATORY prior to even filing for bankruptcy. Credit card companies obviously believe in it because they work with the counseling agencies. And, if it looks the same as BK that obviously is pretty meaningless these days b/c I know people who’ve filed BK and gotten a boat load of new credit cards right away. The price you pay with either option is higher interest rates when you apply for new credit (you don’t apply for credit while in credit counseling, that’s part of the deal). And, a credit counseling notation is removed when you complete the program so a lender won’t even know you were on a plan after you complete it. BK stays on 7-10 years. Seems like BK is not the easy way out and while initially credit counseling and BK might be viewed equivalently BK has much longer term impact, over time the person who went through credit counseling will be much better off.

I personally believe in being responsible for my own debts. If the CC companies will not reduce their rate through individual negotiation, then Credit Counseling is a good alternative. And, when you negotiate a hardship plan with a CC company it is typically short-term only such as 6 months then your initial terms resume… plus you’ve just used your only workout reage and won’t be eligible again for 5 years. So, I think while trying to negotiate on your own might sound good it also has ramifications.

There are some places that are just mills wanting to put people on a plan, but there are reputable agencies who work in the best interest of the cardholder and who are interested in educating and helping the person be positioned for the future when the come out of debt.

I again disagree that lenders view credit counseling and bankruptcy equivalently. And, certainly some of the other suggestions such as settlements are not good advice.

Credit counseling is not the right alternative for someone who just wants to lower the rates. This woman already stated she had bad credit, was only able to pay minimally, has high interest, is getting behind, has stress on her marriage. I think that makes her a good candidate for at least attending a counseling session-- which is free- to find out what can be done for her and helping her establish a budget, look at her assets and liabilities, and determine a course of action. Maybe a debt plan isn’t the right option, but the counseling session will tell her that. If she has such a serious budget deficit that BK is the only option, that will come out in the counseling. They may be able to brainstorm ideas with her that she herself has not thought of.

 

[wabrams]

BLB_Oregon:

This is good to know! I haven’t been in the market for about 10 years. This was a new thing back then. Unless an agent is strictly a buyer’s agent, I would think it extremely difficult to avoid some conflicts of interest. Is it the norm to specialize in either buying or selling?

BTW, many people in bad financial straits try to save money by selling their houses themselves. While some have the time and know-how to do this, others get less than they would have after paying an agent’s commission. You have to be honest about your abilities to avoid being penny-wise and pound-foolish.

There are still buyer’s brokers around, but not like there used to be. All real estate offices have buyer agents, who are usually new agents, who specialize in finding the buyers a home. Then you have the listing agents who not only list, but help buyers find a home. There really is’t much conflict of interests anymore.

 

[BLB_Oregon]

wabrams:

There are still buyer’s brokers around, but not like there used to be. All real estate offices have buyer agents, who are usually new agents, who specialize in finding the buyers a home. Then you have the listing agents who not only list, but help buyers find a home. There really is’t much conflict of interests anymore.

My feeling is that an agent cannot at the same time be trying to get a seller the best price and also getting me, the buyer, the best price. Somebody’s interest has to come first.

Most buyers don’t know how to successfully make a bid on a house without over-paying. They don’t know how to assess how desperate the seller might be or how common is the type of property the buyer is after. This takes a professional. I would want someone with experience in the market, and who truly has my best interest as their main interest.

 

[wabrams]

1ke:

No, I don’t believe it is harsh. And, I completely disagree with you regarding credit counseling. Apparently, so do bankruptcy trustees because starting October 17, credit counseling is MANDATORY prior to even filing for bankruptcy.

And this is going to make these consumer credit counseling places even worse b/c people now HAVE to go through them first, which means they can rip people off even more.

1ke:

Credit card companies obviously believe in it because they work with the counseling agencies.

No, they just want their money. They don’t care if it’s a court trustee on a Ch. 13, credit counselor, or you the consumer.

1ke:

And, if it looks the same as BK that obviously is pretty meaningless these days b/c I know people who’ve filed BK and gotten a boat load of new credit cards right away. The price you pay with either option is higher interest rates when you apply for new credit (you don’t apply for credit while in credit counseling, that’s part of the deal).

What’s your point?

1ke:

And, a credit counseling notation is removed when you complete the program so a lender won’t even know you were on a plan after you complete it. BK stays on 7-10 years. Seems like BK is not the easy way out and while initially credit counseling and BK might be viewed equivalently BK has much longer term impact, over time the person who went through credit counseling will be much better off.

Yeah, BK stays on for 7 years from the file date, but the credit report will show the account was “Settled” or “Settled For Lesser Amount,” which means they defaulted or were in credit counseling.

1ke:

I personally believe in being responsible for my own debts.

We’re not talking about your debts, we’re talking about what really happens which these programs and the pros & cons of them.

1ke:

If the CC companies will not reduce their rate through individual negotiation, then Credit Counseling is a good alternative. And, when you negotiate a hardship plan with a CC company it is typically short-term only such as 6 months then your initial terms resume… plus you’ve just used your only workout reage and won’t be eligible again for 5 years. So, I think while trying to negotiate on your own might sound good it also has ramifications.

6 months is feasible if you have the minimum amount of debt needed to get into credit couseling, but several thousands of dollars is going to take at least a year or more. Ch. 13 BK is anywhere from 2 - 5 years depending on your amount of debt.

1ke:

There are some places that are just mills wanting to put people on a plan, but there are reputable agencies who work in the best interest of the cardholder and who are interested in educating and helping the person be positioned for the future when the come out of debt.

Few and far between.

1ke:

I again disagree that lenders view credit counseling and bankruptcy equivalently.

I wasn’t stating my opinion, I was stating a fact. I work with this stuff everyday.

1ke:

And, certainly some of the other suggestions such as settlements are not good advice.

Settlements aren’t good? What do you think credit couseling companies do? They get settlements for you at a lower interest rate, same as a Ch. 13 BK.

1ke:

Credit counseling is not the right alternative for someone who just wants to lower the rates. This woman already stated she had bad credit, was only able to pay minimally, has high interest, is getting behind, has stress on her marriage. I think that makes her a good candidate for at least attending a counseling session-- which is free- to find out what can be done for her and helping her establish a budget, look at her assets and liabilities, and determine a course of action. Maybe a debt plan isn’t the right option, but the counseling session will tell her that. If she has such a serious budget deficit that BK is the only option, that will come out in the counseling. They may be able to brainstorm ideas with her that she herself has not thought of.

And if you’re that bad off, bankruptcy is probably going to be your only option.

 

[masondoggy]

1ke:

No, I don’t believe it is harsh. And, I completely disagree with you regarding credit counseling. Apparently, so do bankruptcy trustees because starting October 17, credit counseling is MANDATORY prior to even filing for bankruptcy. Credit card companies obviously believe in it because they work with the counseling agencies. And, if it looks the same as BK that obviously is pretty meaningless these days b/c I know people who’ve filed BK and gotten a boat load of new credit cards right away. The price you pay with either option is higher interest rates when you apply for new credit (you don’t apply for credit while in credit counseling, that’s part of the deal). And, a credit counseling notation is removed when you complete the program so a lender won’t even know you were on a plan after you complete it. BK stays on 7-10 years. Seems like BK is not the easy way out and while initially credit counseling and BK might be viewed equivalently BK has much longer term impact, over time the person who went through credit counseling will be much better off.

I personally believe in being responsible for my own debts. If the CC companies will not reduce their rate through individual negotiation, then Credit Counseling is a good alternative. And, when you negotiate a hardship plan with a CC company it is typically short-term only such as 6 months then your initial terms resume… plus you’ve just used your only workout reage and won’t be eligible again for 5 years. So, I think while trying to negotiate on your own might sound good it also has ramifications.

There are some places that are just mills wanting to put people on a plan, but there are reputable agencies who work in the best interest of the cardholder and who are interested in educating and helping the person be positioned for the future when the come out of debt.

I again disagree that lenders view credit counseling and bankruptcy equivalently. And, certainly some of the other suggestions such as settlements are not good advice.

Credit counseling is not the right alternative for someone who just wants to lower the rates. This woman already stated she had bad credit, was only able to pay minimally, has high interest, is getting behind, has stress on her marriage. I think that makes her a good candidate for at least attending a counseling session-- which is free- to find out what can be done for her and helping her establish a budget, look at her assets and liabilities, and determine a course of action. Maybe a debt plan isn’t the right option, but the counseling session will tell her that. If she has such a serious budget deficit that BK is the only option, that will come out in the counseling. They may be able to brainstorm ideas with her that she herself has not thought of.

I completely disagree with you. First of all, it was a STUPID move on the government to require people to get raped through credit counseling to get debt relief. These credit counseling companies are DESTROYING people’s credit who already have enough problems to deal with.

If the OP follows your advice and signs up for credit counseling, they will REQUIRE her to close all of her credit card accounts which will DESTROY her credit score.

And if you don’t believe me, I can dig up plenty of testimony from people who have gone through credit counseling only to have their credit reports poisoned with LATE PAYMENTS. Once it’s done, it’s done. The report is trashed and it will take her 7 years to have good credit again. You can throw around the term “reputable company” all you want, but there is no way for this woman to know that any company she signs up with will not do this to her. I think this practice is sickening and it happens too often.

And yes, while the notation may be removed once the debts are paid off, she’ll be left with a trashed credit report. The benefit to filing bankruptcy is she can eliminate the stress around her neck and begin rebuilding her credit immediately. With credit counseling, that’s not possible at all until she’s done with the program. And from what I believe, there is still a very small window of time that she can file bankruptcy before the new law takes effect where she can avoid credit counseling.

And remember, the credit counseling companies are supported by the credit card companies. They work for them, not the consumer. (Do you really think they’re non-profit, doing this for the fun of it.)

I’m not advocating bankrupcty for the OP (if she thinks that’s right for her, then I don’t think she should feel ashamed for it), but I’ve heard too many stories of people being burned from credit counseling and I hate to see somebody go into that with blinders on.

 

[momof3boys]

Just a quick reply here. We joined some credit counseling company a couple of years ago & it lowered our credit score. It’s something that I would never do again. We were not approved for certain things because of being with the company & we also had one of our credit card companies ( who wasn’t even on the list of our debtors ) cancel our account, w/o telling us. Credit counseling is NOT GOOD!!!