Help a Reader: Get Out of Debt

Here's a comment that was left recently here:

I am just starting out trying to get out of debt. I wish like the other guy I would of learned along time ago to save all that extra we had. Now I have put us in a Financial mess. Have any of you tried the CCC companies and do they help. I can't file bankruptcy because I have one going to college in 2 and half years. I am so lost I owe way to much money to people and it is stressing me out. PLEASE ADVICE!!!!!

So, what would you tell him about debt counseling services? And any specific thoughts on getting out of debt?

Here's what I'd suggest:

• Illustrated Debt Snowball

• Snowflaking - A Primer

• You CAN Get Out of Debt!

Comments

[Matt]

Considering the college issue, you might want to get the advice of an expert on college financial aid (which I am not). It's possible that bankruptcy might actually help you get more need-based aid.

[MelMoitzen]

Without a more complete look into your financial picture, it's impossible to make a recommendation. You may be so far in over your head that bankruptcy is your only option.

Whatever debt reduction strategy you choose will be totally worthless without an accompanying strategy to totally exorcise the spending behavior that got you into this mess.

[Debt Free Revolution]

I appreciate the link, FMF. Like the others, I would need to know more details about this person's situation. The number One thing I found that helped me get out of debt was a working realistic budget, which I then cut to the bone at the beginning just to make some headway. (If you'd like, send this person my email and I will see what I can do)

[Kevin]

CCC companies basically do what you can already do - negotiate with your creditors. Plus they charge a fee for it. I tried one about 7 years ago and only lasted a few months when I realized they didn't really do anything and I was sending them like $20 a month that could go towards my debt.

Matt is right though, YOU have to be committed to a plan and stick to it for along time. Believe me it is worth it - I am now completely debt free except my mortgage. I paid off nearly 5 figures in credit card debt, then put all that towards my car, then started putting all that towards my wife's car and student loan and we just paid it off in January. Now we are able to save a ton and are looking for our dream house.

Start with what you make and figure out what you actually need to survive - food, clothing, shelter. Everything else is prime for elimination. You will probably have to make some hard choices. I went from living in a 3BR/2BA nice ranch home to a 1BR apartment for 3 years to get my life in order after my divorce. Best move I ever made.

Good luck!

[Matt]

Cut every unnecessary expense, stop charging things to credit cards, get a second job part-time, sell things you don't need, and pay as much as you can on your highest-interest debt, and the minimum payment on everything else. If you don't have a basic emergency fund, you'll want to work on that too, to ensure you don't fall deeper into debt during a crisis.

If you don't start seeing results, you may need to file bankruptcy after all. I don't have a clue how this might affect paying for college.

[JimmyDaGeek]

There is no "secret" to getting out of debt. If you spend more than you earn, you get into debt. To control debt, you need to increase your income and reduce your expenses. STOP SPENDING BECAUSE YOU FEEL YOU 'DESERVE' IT. No one deserves to buy anything regardless how old they are or how long they've had to make do with it.

Your 5 needs in life are food, clothing, shelter, healthcare, and transportation. Because it's so easy to make every 'want' into a 'need', before you buy anything, ask yourself:

1) Do I need to buy THIS?
2) Do I need to spend so much?
3) Do I need to buy it now?
4) Do I need to buy it at all?

You need to get your friends on board with you. Let them know what your situation is because they have a major influence on your spending. If they won't help you keep to a budget, you need to drop them because they are not responsible for your life, you are.

Beware of the "latte factor". If you spend $3.50 on a latte instead of $1 on a coffee each work day, in a year, that's a difference of $625. These little purchases add up.

Come up with a spending plan by deciding ahead of time what you will spend your money on instead of what you won't spend. You will be making conscious decisions about each purchase instead of just letting things happen.

Go to an all-cash life. Put all your credit cards into a small plastic bag and drop into a pitcher of water. Put the pitcher into your freezer. It will be that much harder to use the cards.

When I got laid off, my kids were immediately notified and told that all extraneous spending would be stopped. No allowances, no going out to eat, cable was reduced, etc.

Good luck. Look up Dave Ramsey on the Internet and the library.

[MelMoitzen]

Amen, JDG.

Just to use food as one example, it's amazing the number of people who seem to believe that a realistic approach to solving a financial crisis is to go out to dinner once a week at Applebee's instead of twice a week at Chez Paris.

The truly committed ones are those going to Costco for a couple of cases of ramen noodles, or getting a second job.

One of the side benefits to getting that second job is that it gives you fewer opportunities to spend the money you're making.

["Mo" Money]

All good comments, and all are relevant. I think this shows that there are many ways for getting out of debt. My suggestion is to number 1: start a budget, then look at your spending for the next month. Then look over your discretionary spending and see what you can eliminate and what you can cut back on. Don't leave anything out, and remember this is only a temporary situation until you get your debts under control.

Usually that means getting your spending under control! Look at everything from eating out to Starbucks. Next look at your fixed expenses. You may want to cut back on housing or auto expenses if they are too large compared to your income.

Just a few thought for starters.

[Molly]

I have a close family relative who was in a lot of trouble recently just like you. I believe like Suze Orman, until you admit it you can't solve it. You are already partly there. I would look at all of your debt in terms of interest rates. If your credit score is still okay call your credit card companies and ask for a lower interest rate. Its amazing what they are willing to do. Then I would rank the interest rates in order of highest to lowest. Pay off the highest first. Not the debt that is the least.

Take a second job. Not one that is at a store. Is your future college student working? They should be.

The good news is that there is a lot of money out there for college students and people love to give them jobs. You need to focus on taking care of your situation so that in the future your child is not the one taking care of you.

Get a plan and stick to it. You can fix this and you will not only sleep better at night but those around you will respect you more for it.

[Tim]

As others have said, you can't give advice on such a short blurb that doesn't provide any real details. CCC or bankrupcy might be options, as might be cost reductions or getting a second job. However, we are wanting in the details. With that said...

CCC has pros and cons. If you are going to go CCC, go to a reputable non-profit CCC. There are lots of companies out there that sound like a CCC but aren't. A good place to start is the Federal Trade Commission website http://www.ftc.gov/bcp/conline/pubs/credit/fiscal.shtm

As Kevin stated, you can try to negotiate a settlement or repayment plan with your creditor. Creditors can be very aggressive in not agreeing with any payment plan you offer, and will probably forward you to seek CCC anyways by saying they only accept negotiated terms through CCC. Creditors are more likely to negotiate if you have a good history with the creditor (i.e. on time payments and a longer than 2 year history). If you have late payments, your chances of negotiating decrease substantially.

Do know that your credit report will reflect that you are in a CCC program. You will not be able to get credit so long as you are enrolled in CCC. Once your last debt is paid off, ensure that your creditors reflect that you are no longer enrolled in CCC. CCC also recommends you close your accounts, and if a creditor agrees to CCC terms, they will close the account anyways. Although risky if you haven't controlled your fiscal behavior, you might think about keeping one credit card out of CCC in order to maintain credit history once you are out of debt. This card should be the longest history card with no late payments.

If either you or CCC negotiate terms, do know that some creditors (AMEX is a big one) will charge off the debt, which will stay on your credit report as a charge off for 7.5 years from the date of the delinquency. This is just as bad as bankruptcy. Also, if you have any forgiven debt, then you are required to report it on your income taxes.

Also, some creditors (like AMEX) will continue to calculate interest on your account although they have accepted CCC terms and charged off your account and given you 0% interest. This makes it very difficult to keep track of what you are actually paying off on principle. Although interest is accruing, the proceeds go towards principle only. Actively manage these kinds of agreements if part of CCC.

CCC is a misnomer, because they provide little to no "counseling" service. CCC is basically a middle man between you and the creditor. Don't go into a CCC program thinking that by making one payment to CCC to distribute gets you off the hook. It does NOT. You must ACTIVELY monitor your payments. If CCC sends out a payment and it gets lost in the mail, guess what? It will reflect on your credit report as a late payment even though you made your monthly payment to CCC on time. CCC will tell you that you have to clean up the mess. If you are late, some creditors aren't very lenient (i.e. AMEX). They will cancel the negotiated terms and the interest that has been accruing will now be your new balance.

When setting up, ensure that creditors rebirth the account to accommodate for when the CCC disburses the payment. The best thing to do is make an advance payment when setting up, this way your payments will always be in advance once the CCC payment hits. Again, you must actively manage the payments. Do NOT think it is automatic. Actively keep track of your balances. When you are close to pay off dates, I would make the pay off directly to the creditor rather than through CCC. CCC will give you some lame suggestion that it looks better on your credit report if you make your final payments through CCC. FACT: IT DOES NOT and it is NOT annotated as such, either.

CCC are supposedly non-profit; however, they raise money through a portion of your monthly payment through them and what creditors match as a fair share amount (i.e. CCC is given a payment as sort of a collection agency, although they obviously do not make as much off of your debt as a collection agency since they are a non profit).

[paidtwice]

I appreciate the link to snowflaking :)

Like past commentors said, without a better picture it is hard to give concrete advice. But you need to be realistic. You need to figure out what you are doing, what can be cut (not what feels comfortable to cut but what CAN be cut) and where you are then. Can you increase income? Can you reduce expenses? Only then will you know if your situation is workable.

good luck!!

[Get Out Of Debt Squirrel]

I am sorry that you are in this situation. The main thing is that you have recognized that there is a problem but please don't blame yourself. There are other routes to take other than bankruptcy. Good luck for the future.

[JakeTinsdale]

Greetings from The Golden State,

My name is Jake Tinsdale and I'm a cook based in the LA area. Only saying hello. :)

And that is all for today since I am just about to prepare for work.

JT