Getting out of debt.

Discussion in 'Archived Threads 2001-2004' started by Dan Whalen, Feb 11, 2003.

  1. Dan Whalen

    Dan Whalen Stunt Coordinator

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    Over the past 5 years or so, my wife and I have gotten into some credit card debt. We've got about $16,000 in debt on a couple of credit cards. We don't use the cards anymore, and we don't have any problems paying on them, but we would like to get them paid off as soon as possible (we want to start having kids in a couple of years). What is the best way to get them paid off? I've read that if you have money in a savings account you shouldn't keep money there, but use it to pay on the cards. I have a problem with this though. I don't like not having a safety net to fall back on in case some unexpected expenses come up. I've already talked to our bank, but the interest rate on the loan they were gonna give us was pretty high (not sure of the exact number). Does anyone have any ideas for us? What should we do?

    Dan
     
  2. Ryan Wright

    Ryan Wright Screenwriter

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    Few choices,

    Consumer Credit Counseling organizations can reduce or eliminate interest for you. Problems: You can't get any credit without their permission while you are in the program. If you already have good credit, it will suffer considerably. When the debt is paid off your credit record may show "Not paid according to original agreement" or something similar (depends on the lender).

    What is the interest rate on these cards?

    Best solution:

    1. Reduce or eliminate any small expenses you can. Do you have cable TV or satellite? Get rid of it. Cellular phones that aren't completely necessary? Get rid of them, or switch to a plan with very few minutes and only use it when you have to. Anything else? Any extra features on your phone (caller ID, etc)? High speed Internet connection? Get rid of as much as possible.

    2. Reduce or eliminate any large expenses. This is more difficult. What kind of vehicles do you drive? Do you NEED that brand new car? (I'm not asking you. You need to ask yourself.) Can you buy a less expensive vehicle and reduce or eliminate a payment? Any other large expenses? A friend of mine bought an $8,000 motorcycle (dirt bike - not even street legal) and then complained because he couldn't pay off his credit card debt. I told him to sell the motorcycle and put the $125 per month he was paying on that towards his credit cards. (He didn't listen. They never do.)

    3. Reduce eating out. Start taking sack lunches to work.

    4. Finally, once you've reduced your expenses, you want to do what is called a "snowball" payment. Take the cards with the lowest interest rates and pay the minimum balance on them. Take the card with the highest rate and pay as much as you can possibly afford onto it every month. I personally suggest writing a large check to the bank every time you get paid. That way you aren't tempted to spend the money later, because it's already gone. Then scrape by until your next paycheck, and do it all over again.

    Once the first card is paid off, roll that balance into the next. So if you were paying $500 on the big card and $50 on the next one, now you start paying $550 on that one. This continues until you are out of debt.

    As for your savings, that all depends on how much you've got in there. A popular idea is to dump it all onto the credit card, then use the credit card to fall back on should you have a problem. Whether this will work for you depends on you. Many people tend to have "emergencies" a little too often this way. "Oops, I bought three DVDs this month and now I can't afford to eat. I guess I'll charge my groceries to the credit card." Etc, etc. When it's coming out of savings it tends to be more difficult to blow like that. But again, this all depends on you. If you make sure you only use the cards in the event of a real emergency, then dump your savings onto them. It will eliminate a bunch of interest and help you pay them off more quickly.
     
  3. Ted Lee

    Ted Lee Lead Actor

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    definitely check out cccs, but make sure you choose the right one - there are some out there with similar names, but they're not the non-profit one.

    here's the link for the one in my area:

    http://www.cccssacto.org/

    it does have an 800 number you can call to find locations near you.

    as far as using savings or not, that's a tough call. it's usually a good idea to pay off your debt first because you're being charged more interest than you're savings is earning. so you're really losing money.

    but i get what you're saying about having a nestegg. i'm pretty much the same way - i have to have a nestegg for emergencies.

    i do feel for ya. at one time i was in a much-worse place than you are right now. at least it sounds like you can make your payments and you're trying to be responsible.

    good luck!
     
  4. BrianB

    BrianB Producer

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    What Ryan said. He's 100% on the money. It's hard, it can be painful, but it's the way to do it.
     
  5. Carlo Medina

    Carlo Medina Executive Producer

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    Absolutely what was said above is appropriate if you have less-than-stellar credit. But in your post you say that you have no prob paying on the cards you do have. Should we take this to mean that you aren't in bad credit yet? I mean if you have high balances is one thing but if you keep making the payments and don't miss any, your credit should be decent.

    you might try applying for low APR cards with balance transfer options. My credit is in pretty good shape but I had some high interest credit card debt coming out of college. I was paying minimums and hardly making a dent but my credit rating was still good since I didn't miss any payments. I eventually took advantage of several 0% APR and 4.9% APR cards and transferred balances from cards that had 17.9% - 23.9% APRs. Holy smoke what a difference that made! Instead of treading water every month paying off interest, I actually started making headway on the debt owed (around $8K) and that actually motivated me to pay more into it because you can see the balances going DOWN! And yes I did do the sack lunch thing for a year or so. Not every single day, I usually allowed myself a pay-lunch a week or so, but you'll be surprised how much cooking saves you in $$$.

    Good luck!
     
  6. Todd Hochard

    Todd Hochard Cinematographer

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    I wouldn't go to CCCS just yet. Since you said you don't have any trouble paying, adversely affecting your credit (which is what a plan from CCCS will do) is not the way to go, IMO.
    [Dr. Phil mode]It's time to get real with yourself. While you're boo-hooing about having to pay off the debt, let's remember that YOU were the one who frivolously ran it up. If you weren't willing to spend money that you did have on these purchases (as indicated by your savings thoughts), why in the world were you so willing to spend money that you DIDN'T have? It makes no sense.

    In order to get it paid off faster, you'll have to either-

    a. Earn more.
    b. Spend less.

    The party is over, and it's time to pay the piper.
    [/Dr. Phil mode]

    Ryan's on the money. Cut your expenses, make the hard choices, and most importantly, you need to take a look at the way you handle your money. If you treat this payoff period as merely a hangover to be tolerated until the next party, you'll be back where you started in no time! Don't get caught in a financial crash diet.

    Sorry, you're receiving the brunt of my frustation. I have two friends that are always whining about how "The Man" put them so far into debt (over $90K cars and credit, in the case of one!!!) Don't go "six-figure spending," if you're not "six-figure earning." I just can't get them to understand that. I don't mean to pick on you.

    Personally, I'd eliminate the frivolity from my expenses, use most of the savings, and pay the rest off quickly. Consider doing the balance transfer/low rate card shuffle for a while, to reduce your interest on your way to zero. Then, IMMEDIATELY rebuild that cushion of savings to the level you require. Get rid of all but two cards, with the lowest rates. My check card is a VISA debit also, I have Mastercard, and AMEX (for Costco). All bases covered. No balances carried.

    And, use Quicken.

    Todd
     
  7. Reginald Trent

    Reginald Trent Screenwriter

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    Quote:

    I've read that if you have money in a savings account you shouldn't keep money there, but use it to pay on the cards. I have a problem with this though. I don't like not having a safety net to fall back on in case some unexpected expenses come up.
    ---------------------

    This is a common mistake people make. Because you can always get a cash advance from your credit card if an emergency arise after using your savings to pay it.

    Pay your credit cards before saving start with the one with the highest APR= Annual Percentage Rate. Always, pay more than the minimum when possible. Otherwise, you're on a treadmill that won't stop to let you off. Depending on your balance you could literally be paying for decades using their minimum payment strategy.
     
  8. Dan Whalen

    Dan Whalen Stunt Coordinator

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    Thanks for all the great responses. We have very good credit, so I don't want to ruin it. We both have vehicles that we are paying on, but they will be paid off next year, and we are planning on keeping them until they fall apart. We had looked into the balance transfer thing, but it seemed like the ones we looked at said no interest on anything that you put on the credit card after you transfer the money, not on the actual balance transfer. Is there any cards out there that have the zero interest specifically for the transfer? We don't buy a lot of extras. Maybe one thing each every couple of months, and it's not something that's expensive (usually a DVD or something), and we've cut down on eating out a lot. I always take my lunch to work (the lunchroom food isn't too good anyway[​IMG] ). My wife has also started paying more on the higher interest cards. We have cell phones, and I'm gonna go switch plans next week, drop the charges from $70 a month to $30 a month since we only use the phones for emergencies. Hmmm, that's all I can think of to say right now. Again thanks for the advice. Keep it comming.[​IMG]

    Dan
     
  9. Ryan Wright

    Ryan Wright Screenwriter

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    Check with Citibank. I keep getting offers for 3.9% fixed until it's paid off on balance transfers.

    Key points are:

    1. Set a minimum that you're willing to pay, and set it high above the card's minimum payment. Never pay less than this amount. Ever.

    2. When you change your cellular phones, you'll save $40 per month. Add that to your minimum. So if you were paying $500 a month, now you're paying $540.

    3. Every time you reduce an expense, add the savings to your minimum payment.

    4. When you pay your cars off, pretend you still have the car payment and add it to your minimum.
     
  10. DonRoeber

    DonRoeber Screenwriter

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    Hey Carlo, I'm in the exact same situation! I have about 10k in debt, on high interest credit cards. I recently was able to get a 0% APR on Balance Transfers for 1 Year card with a 10k limit, and moved all of my debt to that card. The card itself has been destroyed, and every month, I give them a big chunk of change. It's really nice to see the debt going away, instead of the interest being paid and the debt being nibbled at.

    Oh, the card is with Chase, for those that are interested (sic).
     
  11. SteveK

    SteveK Supporting Actor

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    Dan - I don't really have anything new to add, as Ryan has pretty much said it all. Find the card with the lowest interest rate (and don't be fooled by a low introductory teaser rate that goes up after a few months); pay as much as you can each month; eliminate unnecssary expenses, etc. Getting out of debt won't happen overnight (just as getting into debt didn't happen overnight), but it WILL happen. I have finally reached the point where I have no revolving credit card debt (although a portion of my home equity line is probably due to having used it to pay off other debt), and I can't tell you how good it feels not to have high interest debt hanging over you. My credit has always been good, and I've never had the kind of debt you read so many horror stories about, but I never felt comfortable with the credit card debt I was carrying. Now I have zero, and it feels great!

    One word of caution about the cash advances on credit cards mentioned above: many credit card companies charge SUBSTANTIALLY higher rates for cash advances than for normal purchases, so cash advances should not be considered a ready source of cash.

    Best of luck to you...with some discipline and effort on your part, you'll be able to reduce or eliminate your debt, which in turn will enable you to qualify for even better terms on future loans or credit cards you may obtain. But always ensure that you don't fall back into the same trap you're now trying to dig out of.

    Steve K.
     
  12. Carlo Medina

    Carlo Medina Executive Producer

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    Capital One and Fleet routinely has low-balance APRs on transfers - give those a try! Glad to hear your credit is still very good. Don't go the CCC route until you've exhausted other possibilities.
     
  13. Malcolm R

    Malcolm R Executive Producer

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    Malcolm
    I love my Juniper Bank card.

    You also want to watch out for Balance Transfer fees if you're moving a balance around from card to card. Many of those cards with the lowest APR's will charge this fee. Juniper does not.
     
  14. Ryan Tsang

    Ryan Tsang Second Unit

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    Dan:

    There not much to add as others have said it well.

    I graduated with loads of debt (about +80K: student loans, line of credit, no credit cards thank god). During school, I had no idea how hard it is to pay back debt. I wished somebody had sat me down and showed me with numbers how hard it would be. I spent quite a bit on HT gear, because I knew I would have a high paying job when I got out. After I had bought a new car $37K, I realized how slowly I was paying back my debt. After a rude awakening, I sold my car, leased an 4cyl Accord instead, moved into a cheaper apartment, and quit buying HT gear.

    I just shake my head when I hear these new dentists that just come out thinking they can all drive BMWs. Unless they have rich mommies and daddies, they won't have any savings, down payments for a home, or plans to get married. I learn that the hard way. Good thing I'm only 26.


    If you are self-employed, take out a business loan and make business purchases with the loan. Then you use your money to pay off personal loans because unlike business loans, its interest rates are not tax-deductible. (I forgot to check if you are in the US. That applys to cdn)

    You're not alone. I'm happy to hear you are not in denial and you and your wife are motivated to get out of debt. Sounds like you have a plan already. Just stick to it. Good luck.
     
  15. Eric Kahn

    Eric Kahn Guest

    being a person with a 14,000 dollar credit card load, all on one card with 7.9 fixed now, you should try to move all the debt to one card with the lowest rate as suggested by several people

    As long as you are not having any problems making payments (hopefully higher than minimum) you should stay away from the credit counciling people as you do not have a problem that requires their help

    I am in the process of trying to sell an expensive and basically uneeded second vehicle (paid for, no loan) so that I can use the money from it to pay down the card to almost nothing and be done with the debt that much faster

    then I will just have my never ending mortgage payments and the loan on my primary car to pay
     

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