Debt Sucks

[villasat]

The student loans aren't so bad, they have a low APR but the credit cards that are getting us down. We have about $18K in unsecured debt and 18k, so far, in student loans. My wife is still in school and I only make 33k. We have gone to see a couple of bankruptcy lawyers but we still don't know. We tried a Credit Counseling Service but it was so poorly managed that they only ended up getting us more in debt with late fees.
Once my wife gets out of school our situation will improve, but I would just like a fresh start and not be tied to high APR cards and debt.
Has anyone else out there done the bankruptcy thing?

[crazy-girl]

Don't do the bankruptcy thing! I haven't but one of my friends works for a bank and she says it's one of the worst things you can do. It is on your credit report for a very long time. Forget about ever buying a house or a car without a co-signer.

I joined one of those credit management services and am paying a little over $200 a month to take away my debt. Should take a total of 5 years to pay it all off. Also not one of the best solutions but I really had no other option.

I live in Austin, TX too but I make only $25k so I'm struggling here.

could you possibly consilidate your bills and just pay them slowly but surely for the rest of your life? ;) It's an option that's not too attractive but in the world of finances and money---there really is no such thing as a quick fix.

[Unregistered]

Just transfer the higher balances onto the 12 month or 6 month special balance transfer options. They come out with the credit cards a few times a year. Just apply for a new card or two and transfer those higher balances onto lower 4.9% or so rates. Some of the cards I have have fixed 3.9% for the life of the transfer.

Then make sure to set up automatic monthly withdrawals from your checking account. That way you will never be late.

[Unregistered]

what was the name of the credit management service you used? I am nervous about getting scammed, I've read some of the horror stories...

[crazy-girl]

Well, I used Genus Credit Management Services. I'm sort of a money dummy and just got their number off of a tv commercial. Although I haven't had any problems with them in 2 years---you might want to contact the Better Business Bureau in your town to find out if there are any complaints against that company.

[Unregistered]

I just wanted to add that my friend used Genus and they treated her very well...she ended up filing bankruptcy this year anyways though. I too am considering filing bankruptcy...I have about $20k in unsecured debt and will never get out from under it. My lawyer says using a credit management service is a waste of time, at least it is in my case because my income to debt ratio was so high. Bankruptcy is not as bad as everybody makes it out to be. Within 6 months after you file, all you have to do is get a secured credit card and start building your credit back up right away. But every situation is different.

[malaynab]

If you don't mind me asking, what is your income to debt ratio? Mine is not so good, and I've considered credit counseling. If I'm in the same situation you're in, I don't want to waste my time. You can e-mail me if you'd like: malaynab@hotmail.com Thanks!


Malayna

[Unregistered]

I am sorry to rain on everyone's parade, but I think that filing for bankruptcy is the worst thing you can do. Not only does it have adverse effects on your credit, I think that it is irresponsible and unfair to those of us out there that are going to "pay for" your unpaid debts with higher interest rates, etc.

Don't get me wrong, my husband and I are digging ourselves way out of the debt hole. We have both been working two jobs (requiring him to be gone for weeks at a time), and getting rid of all luxuries that incur expense. We don't have cable, long distance, a computer, dishwasher, new car. We live simply, sharing one car that is 10 years old and needs repairs fairly regularly. But we get by. The odd jobs suggestion is great...I currently babysit, house/dog sit, and garden for extra cash.

Frankly, I think if more people took responsibility for their debt by paying it off, however slowly, by getting however many jobs, by moving to however slummy an apartment, by living simply and frugally for however long it takes, we would be a much happier group of people. Honestly, nothing feels better in the long run than taking care of yourself by working hard. We all got ourselves into these financial situations, whether by spending frivolously, by a series of unfortunate circumstances, by getting educated or whatever - and it is our responsibilities to take care of it by digging ourselves out.

Let's take control of our lives by taking conrol of our debt!

[JakesRI]

I have been a loan officer for a year, and here is my advice to people in the debt trap.

If you file for bankrupcy, beware, you will not be able to get any loan for 2-3 years (this is a general rule). After the 3 year mark, some places might give you a loan and a 25% interest rate. If you dream of buying a house in 4-5 years, this will give you trouble.

Your lawyer will always tell you credit management places are a joke, becuase lawyers want to sell their services, and credit management isn't one of them.

Bankrupcies are the equivelent of saying "I give up and even though I bought all this, I will not pay for it". If it can really help you, and you will dedicate yourself to changing your spending habits, then do so, but you will have to live with the fact that anyone who pulls your credit report in the next 7 years will see that, and it is one big black mark for them.

A plan? Change your spending, work to pay off the bills. Transfer the balances to lower cards, then start paying off the cards with the highest INTEREST rates first. ANY extra cash you have could be a way to pay down that card. Get focused. Don't worry about paying down things like student loans, or making an extra payment on your mortgage if you have one. Why would you do this anyway? Part of the interest on those is tax deductible. The best kind of debt is real estate debt adn student loans, the worst is credit card debt.

Fun fact, if you just make minimum payments on your credit card bills...then if you have a balance over $20,000, it could take over 30 years to pay it off. Why? Here is how a revolving account works: You pay anywhere from 2-4% of your balance each month, while they charge you an interest rate anywhere from 9-24%. Do you really think that minimum payment will do anything? Cover the spread - always pay more than the minimum payment, even if it is only 20 bucks, it all adds up.

If you do file bankrupcy, afterwards change your spending. I can not say it enough, change your spending. From then on: don't blow money at the bar, use coupons, buy everything at a discount store, do whatever it takes and learn how to spend properly. Learn how to live within your means, not outside of it. Budget, don't impulse buy. Cut up your credit cards. Put money away, save 2-3 months income for an emergency fund so if something does happen, you don't have to go into debt to manage it. You get a great deal of confidence knowing you can go having a few thousand dollars sitting in the bank for the sole purpose of dealing with emergencies.

Something else to remember, the average American is average because their money works for someone else. It DOES NOT PAY TO BE AVERAGE! WHy? Becuase 70-80% of all Americans retire into poverty. That is what being average will get you. And I think we can all agree we probably won't see anything from Social Security when we get older. So get a hold of your finances, take a look at where you are right now financially, then set a goal and develop a plan to get there.

Good luck.

[CAT11]

Jake-
Thanks for the advice. I am sure it will help a lot of people.
I hate the cloud of debt hanging over me. And it is...student loans. I just want to work my butt off and pay them down. But I am returning to school in a year, and ofcourse the one I want to go to is $20K.
Could you expand a little bit on student loan debt and how it effects your credit rating? I have heard someone around here say that you should forget buying a house is you have any loan debt. I haven't heard that before, and I used to work at BofA. Then I have heard other people say to invest in yourself and take out as much as you have to. That it doesn't really matter.
What do you think? I am an everything in moderation kind of person, but I don't want to get crazy.
CAT

[JakesRI]

Cat11,
Let me explain debt and buying a house.

Credit is a two edge sword. In order to get a loan you need credit, but in order to build credit you need a loan. It makes it difficult for some people our age to get started.

Good credit is a product of 3 things, Moderation, Paying your bills (on time-not two or three weeks late), and Time.

Moderation: This is actually pretty simple. Do not max out your credit cards. if you have 10 different credit card accounts with balances on them, transfer them to the lowest card, adn do not use those other cards. If you want to have good credit, try to never maintain a balance above 50% of your credit limit on credit cards.

Time: If you pay your bills/loans on time over a few years, you will have good credit ( unless you have filed a bankruptcy 2 years previously, then you are still digging yourself out of that hole.

Paying your bills on time: Self explanatory. IF you do this, then someone looking to give you a loan will assume you will pay them on time also, and give you the loan. If you don't pay your bills on time, you are deemed risky and they will give you a higher interest rate to lower this risk, or not give you the loan at all.

Student loan debt. Don't feel obliged not to take a student loan becuase of the cost. The interest on it is federally tax deductable (part of it, talk to your accountant about this) which is good. Loan officers do not look at student loan debt as bad. It is an investment in yourself, as you mentioned, and as long as you make payments on time, it is a great way to build solid credit. Since the interest rates on student loans are low, and the payments are low due to extended time frames to pay them back (7,10 or 15 years) this won't adversely affect your credit score. It can even help it. Student loan debt is seen as stable.

Most loan officers look at three things when looking at giving you a loan: Current debt level, Income, and credit history. If you are only making $2000 a month right now, and you have a student loan ($100 a month), a car loan ($200 a month), adn a credit card payment(s) ($80 a month) and also rent ($750 a month, then consider yourself maxed out. Your monthly debt to income ratio should be no higher than 45 -50%. AGain this comes back to moderation, give yourself some breathing room every month and save an emergency fund for the unexpecteds in life. If you have all the above (car loan, credit card, student loan, rent and more) then put the brakes on, your plate is already full, please do not overextend yourself.

Buying a house when you have debt is not bad. You CAN buy a house with debt, people do it all the time. If you follow the three general rules, Moderation, Pay Your Bills on Time, you will have no problem getting a house, even if you have some debt outstanding. Its all about moderation folks. Pay down your credit cards before you apply for that mortgage, it shows good faith and responsibility on your part to the loan companies.

Again, I hope this helps clear some things up for everyone. Credit is a tough thing, if you can do it moderately, and save that emergency fund for the unexpected, you will be rewarded with good credit, preparedness for emegencies, and a large degree of financial stability.

[CAT11]

Jake-
Thanks for your reply. I think as a freshman, you should have finance class and learn to manage money right off the bat. I know so many people that are just overwhelmed.
I am just hesitant about taking more loans and suffocating under them. I don't want to be paying forever.
Do you know how your credit score is assessed?

[JakesRI]

Cat,
I don't know in what context you meant that last question. But I will try to answer to the best of my ability.

Your credit score can range from around 400 to 850. The higher the score, the better.

Credit scores are given based on a lot of factors I have listed earlier on this string - amount of revolving credit, length of time at your residence, credit history, # of delinquicies, and the mother load: bankruptcies, judgements, collection accounts, tax liens and repossesions (all these things really hurt your credit score).

Different places asses your credit score in different ways. They usually have a scoring system, where if your credit score is 675 then you fall into one category and get a set interest rate. IF you have a 650 it might be a higher rate, and at 625 it will higher still. If you have a 600 they won't even look at your applicaiton becuase that is too low for their guidelines. Some insitutions look at higher credit scores only (nothing less than 675) and some will accept people with lower credit scores, but will give them a high interest rate. There is a market for everything in the lending industry.

Cat, I understand taking more loans is tough, the debt is a burden and can weigh you down for years. If you can, consolidate what you have right now while interest rates are low. By restructuring your debt you could save thousands and also have more affordable payments. If you work while you study, then put a little towards your loans each month, even if they are being deferred. EVERY little bit counts, and especially if those little bits come off of principle.

[CAT11]

Thanks! I was just wondering how they calculate the ever elusive credit score. No one was ever able to tell me before.
How do I go about consolidation?

[Unregistered]

Have you and your wife tried getting a credit card with 0% or a low APR that you can transfer balances to?

I had 2 cards maxed out plus one $10 away from being maxed out--about $6000 in unsecured debt altogether.My boyfriend is a mortgage consultant and advised me about the Chase credit card. I actually was accepted for a Gold card and now I can transfer all my other cards to it. I'm going to keep the other accounts open and not charge anything on them so my credit looks good. You can do a web search for "Chase credit cards" to find their site.

There's also a Citi Platinum Select Card with 0% APR on transfer balances for up to 12 months. This will make it easier on you, only having to pay ONE bill per month rather than a few and it doesn't collect as much interest. I've also tried getting loans to consolidate debt but they want me to pay a huge bill to them per month!

Good luck