More financial advice sought

[jmac]

I have always been one who people come to for advice.Looking back , now I wish I had got into Psychiatry or something to that effect.
Anywho.. I have something where I dont know what is best route so I am turning to the Zoners.

A friend has a financial problem and I am going to explain it as best I can cause I dont really know what to tell him.

A while ago, due to family medical problems, he got behind on his bills. He had several credit cards which he said he was never late on till all this.
Well everything began to snowball and now..he is in a tough financial crisis.

Most bills he isnt very far behind in yet still, enough that makes it hard to catch up. If he pays half the payment , he still gets charged a late paymnet/overlimit fee which continues to mount.

My suggestion was maybe going thru a local bank, get a consolidation loan and then he could pay off the debts and concentrate a fresh on his one payment.
Problem is ...due to "bad credit", he cant get the loan from the bank.
His question.."how do you get back on track from bad credit" when people wont help you do it because of bad credit.

This is where I need your advice and I am not trying to pry in anyone's personal life. Just asking for advice if anyone knows any in this area.

I told him I knew of things advertised on radio/tv about situations like this but I dont know what is legit and what isnt.
BTW..he doesnt want to take bankruptcy as he said..he would like to do this another way.
Any suggestions as I am at a loss :

[Reds4Life]

He needs to call the credit card companies and explain the situation and work out a new payment schedule. Most will be willing to work with him/her on this. Often times, you can negotiate a settlement account that can be 25-75% of the balance.

[Ltlabner]

1) Call credit card companies and negotiate lower rates, debt forgiveness, etc. They'd rather have *some* money than *no* money so they're usually open to working with people.

2) Plow every available dollar into paying off the debt. That means no going out to eat, no fancy cable package, driving a used car instead of new, etc Most budgets have fat in them, I don't care how little you make. No more starbucks, no more lotto tickets, no vacations, no "splurges".

Shop at Aldi instead of Kroger. Clip coupons. Eat at home and dont' buy pre-packaged meals (i.e. actually cook). Mow your own grass. Drop the lawncare service. Quit smoking. There's a never ending list of things you can do to lower your exenses (and plow that money into paying off the debt).

3) Increase your income. Whether this be from taking a second job or selling stuff on ebay, find a way to increase the amount of money coming in. Work overtime. Work hollidays. Offer to pick of shifts. If a sallary job do everything you can do to get a raise/bonus.

4) Avoid home equity loans (which sounds like a moot point anyway) to pay off debt. You only increase the cost of the debt, spread it out over more years and pay more interest. Besides, the equity in your home should only be tapped for emergancies, not to pay off a cheeseburger you ate three years ago. Too many people took home equity loans out to pay off credit card debt but then didn't change their spending habbits. Next thing you know the cards are all charged up again and you have no "emergency cash" to tap from your biggest asset.

Lower expences and increase income while putting every available dime into paying off the debt.

It's like dieting. You can try all sorts of wacky diets, and some might work, but eat less/excersize more always works.

[Caveat Emperor]

Eat at home and dont' buy pre-packaged meals (i.e. actually cook).

Easier said than done.

I'd honestly rather starve than eat any food that I cook.

[George Foster]

1) Call credit card companies and negotiate lower rates, debt forgiveness, etc. They'd rather have *some* money than *no* money so they're usually open to working with people.

2) Plow every available dollar into paying off the debt. That means no going out to eat, no fancy cable package, driving a used car instead of new, etc Most budgets have fat in them, I don't care how little you make. No more starbucks, no more lotto tickets, no vacations, no "splurges".

Shop at Aldi instead of Kroger. Clip coupons. Eat at home and dont' buy pre-packaged meals (i.e. actually cook). Mow your own grass. Drop the lawncare service. Quit smoking. There's a never ending list of things you can do to lower your exenses (and plow that money into paying off the debt).

3) Increase your income. Whether this be from taking a second job or selling stuff on ebay, find a way to increase the amount of money coming in. Work overtime. Work hollidays. Offer to pick of shifts. If a sallary job do everything you can do to get a raise/bonus.

4) Avoid home equity loans (which sounds like a moot point anyway) to pay off debt. You only increase the cost of the debt, spread it out over more years and pay more interest. Besides, the equity in your home should only be tapped for emergancies, not to pay off a cheeseburger you ate three years ago. Too many people took home equity loans out to pay off credit card debt but then didn't change their spending habbits. Next thing you know the cards are all charged up again and you have no "emergency cash" to tap from your biggest asset.

Lower expences and increase income while putting every available dime into paying off the debt.

It's like dieting. You can try all sorts of wacky diets, and some might work, but eat less/excersize more always works.

Very good sound advice with anyone with money problems. You forgot cell phones, especially if you have a landline phone and a answering machine.

[Ltlabner]

Very good sound advice with anyone with money problems. You forgot cell phones, especially if you have a landline phone and a answering machine.

Thats a good one.

If you *have* to have a cell phone get a prepaid one. Only use it when needed. Drop the data packages and learn to live without texting every five seconds. You can get the cost down on having a cellphone if you *must* have one. It is possible to live with only a landline phone and answering machine.

If you have a good, lowcost cellplan, and your phone works inside the house, consider droping the landline phone completly. Ours is $45ish a month. That's $540 a year you'd save.

You can go either way (cell phone and no landline, or vice versa) but when you've got a mountain of debt to payoff having both is a luxury.

[Ltlabner]

Another thing that helped me and Mrs Ltlabner when we were paying off the $20,000 of credit card debt we (mostly me) had amassed was to start thinking of everything in terms of "what will this cost me per month or year".

If it's a small repeating cost like going out to lunch, figure out what you'd spend per month doing that. IOW, if you eat out for $7 a day it sounds pretty cheap. If you think of it as $140 per month not so much. $1680 per year starts to sound crazy when you've got thousands of dollars in debt.

If you have a monthly charge like the aformentioned cell phone, think about what it costs you in a year. $35 per month doesn't seem like much. $420 per year, especially when you also have a landline phone, is a fair chunk of change.

Another thing that helped when we were paying off our debt was to make it a game. Serriously. Begin thinking of everything as a way to pay off the debt. Nearly everything we do in life either (1) costs us something or (2) brings in income. Start finding ways to minimize the former and maxamize the latter.

Lastly, write down everything you spend on paper. Whether it be a notepad or a fancy spreadsheet, record all of your expendatures and income. Track your spending by month. You'd be suprised where you money is going if you just tracked it and it makes it easier to identify areas to cut.

[MrCinatit]

2) Plow every available dollar into paying off the debt. That means no going out to eat, no fancy cable package, driving a used car instead of new, etc Most budgets have fat in them, I don't care how little you make. No more starbucks, no more lotto tickets, no vacations, no "splurges".
Shop at Aldi instead of Kroger. Clip coupons. Eat at home and dont' buy pre-packaged meals (i.e. actually cook). Mow your own grass. Drop the lawncare service. Quit smoking. There's a never ending list of things you can do to lower your exenses (and plow that money into paying off the debt).

I'll go a little bit further on the car situation: If he lives within a couple miles of work, walk, don't drive. If the grocery is only a couple miles away, walk, don't drive.
It can be done.

[joshnky]

I'll throw another thought out there: learn to live without the credit cards. After you get past the debt cut up the cards and don't look back. If you plan well and keep a sizeable chunk of money set aside for emergencies (10-15K) you can handle pretty much anything on a cash basis. Debit cards provide all the ease of use that a credit card provides without the debt accumulation.

While it is possible to live responsibly with the cards, getting rid of them completely and managing your lifestyle will ensure that you don't fall prey to the lure of easy money again.

[gonelong]

Another thing that helped me and Mrs Ltlabner when we were paying off the $20,000 of credit card debt we (mostly me) had amassed was to start thinking of everything in terms of "what will this cost me per month or year".

The Mrs. and I had a mound of debt starting out. Credit Card debt, student loans, car loans, etc.

1. Call all credit card companies and ask for the lowest rate. Tell them if they can't lower their rate you are liable to go bankrupt.

2. After this round, call them all back and ask the lowest of the rates if you can consolidate (transfer) your balances to them. Move to the next, etc.

3. Pay off the minimum on each of the credit cards except the one with the highest rate. Pay it off as fast as you can. Once it is paid off, begin on the next highest, as much as you can. 0% interest for 18 months, despite a $200 transfer fee, can be your best friend. Do the math.

4. I also began taking classes (that my company would pay for) in order to put my student loans back in deferment. This allowed me to pay more towards the credit cards (though interest still accumulated on the student loans). Eventually this also gave me a Masters degree and a healthy raise.

5. Don't buy anything over $20 today. If you find something you want that costs more than $20, come back the next day to purchase it. You'll buy about 80% less IMO. That movie you "needed" yesterday will be a pain in the rump to go and get tomorrow.

6. What is free entertainment in your area? Local parks, museums, free concerts, biking trails, etc. (Libraries have books, movies, etc.) softball team, open gyms, available tennis courts, etc.

7. If you get a raise, don't spend it, increase what you are paying towards you debt.

8. Call everyone you owe and tell them you have hit a rough patch ... ask them if their is anything they can do to help delay your payments so you can catch back up. If you are in real dire straights, find out what the penalties for missing payments to each one are and choose the lesser of two evils. Always send at least partial payment to everyone you owe. Good faith goes along way.

9. Usually our two biggest expenditures are housing and transportation. Consider how to cut costs in either of these areas and you'll catch back up much more quickly.

GL

[VR]

Using only cash works as well. It may not be practical, but it really does the trick to make you very aware of the impact of every single purchase.

If Vegas had implemented a 'cash only' basis for gambling, it would still be an oversized goat farm. The disconnect between poker chips (or debit/ credit cards) is pretty significant.

It's the first thing the Mrs. and I do when we need to tighten the belt, right along with writing down every expenditure for the month. It's pretty scary.

[Ltlabner]

Another usefull tactic when you have ballences on several cards is to send the most money to the highest interest rate card. When it is paid off, combine that amount with whatever you were sending to the 2nd highest interest rate card. When that's paid off, combine the amounts of the 1st and 2nd to the 3rd, and so on.

It takes a while, but once you get a couple of cards paid off the amount you are sending to retire debt snowballs. Your budget doesn't really "miss" the money as you were sending it out anyway. And then when your last card is paid off...whamo! You have a huge raise as all that money that was going off to Visa, Mastercard, Discover and Diners Club is suddenly staying in your bank-account.

You can do the same with car payments, mortgage payments, etc.

[Redsfaithful]

http://www.amazon.com/Total-Money-Ma.../dp/0785263268

Did the trick for me. Things became ridiculously easy after I read this.

[Ltlabner]

Sorry I keep posting, but this is one of my favorite topics.

You want to raise some cash quickly? Sell all that crap you bought racking up the credit card debt. In the case of the original poster, sell anything you have that has some sort of value.

I'm not suggesting you sell the bed and sleep on the floor, however, most of us have stuff that can raise cash, even if sold at a loss.

While it's not the cool place it once was, Ebay can be very helpfull for selling off stuff. Get a paypal acount, a small postage scale and make friends with the local pack & ship place. You'd be shocked how much money you can raise selling off nick-nacks and collectables that you never even look at anyway. A good friend of mine put a reserve note up for auction thinking he'd get $20 for it....ended up getting $1500. That's extreme obviously, but you can move a lot of items and you never know how much they will raise.

If you bought a $3000 TV, sell the thing to a buddy for whatever you can get. Use some of it to get a $200 tv and use the rest to pay off debt.

Have a garage sale. Even if it only raises a couple hundred bucks, that's money you didn't have before. Pawn some things.

This is a bit more long term, but whatever you can't sell, give to Goodwill and keep the reciepts. Deduct the items from your taxes next year. It doesn't do much to raise cash now, but it will reduce your taxable income later and thats less you have to send the Governement.

[Redsfaithful]

Also, to add to what I said earlier, sometimes its better to play offense than defense. I.e. earn extra money as opposed to cutting down on expenses. Obviously doing both is good, but when push comes to shove I'd personally rather just make more to cover an expense as opposed to going so far as to sell belongings. This is an option that I think really gets overlooked when this subject comes up.