Need advice on the best way to pay off credit card debt.....

[Merry]

We owe too much and are unable to make the minimum payments on all of the cards each month. We did go for credit counseling and they can set up a three year plan to get all the debts paid and with lower interest rates on all the cards. We will have to pay 25 dollars a month for the service and won't be able to use the cards. The same place also told us that we should consider borrowing against the home equity to pay off the bills as the interest rate is much lower. We don't think we will be moving soon and I would try for a three year loan period. True, we won't be able to borrow against it again if there's an emergency. But other than that, are there other reasons why it's not a good idea to borrow against the equity? Or to use a credit counseling service?

[mommybee]

I would never use my house to pay off debt. I just feel it's too important where I live to risk it just for credit card debt.

For us I had to start a very minimal part time job to make a dent in our debt. I only pay the minimum on all cards except one I try and pay even a tiny bit more. The tendency it too borrow on your house, pay off the debt and feel such a relief that you don't (or I stupidly didn't) realize you are using the cards again and it add's up. It seems like it's just a little use on this or that credit card that I can pay off and it just builds and builds.

That's was my big mistake and now I am just doing it with patience. It hurts to see them still high, but they will go down. I don't use my credit cards for anything while I am trying to get out of debt, then I am going to budget and use a rewards card for my fixed expenses because it has benefits, but I need to have discipline.

[Cheryl in NM]

www.daveramsey.com (http://www.daveramsey.com)

Did you know that you can make arrangements with the credit card companies yourself for lower minimum payments and even interest reduction? I definitely would not take a loan on the house. You need to get out of debt, not pile more on. I would try to make arrangements with the various credit card companies to pay less than the minimum payment so that you can pay something to everyone. Then, whenever you get any extra money that goes on the biggest debt. This is Dave Ramsey's Debt Snowball. He also recommends selling whatever you can, like an extra car, yard/garage sale if you have some big ticket items you can sell. Getting another job or working overtime is also one of his recommendations, just for a short while to pay off debt. I would implement whatever of these ideas that you can, but please, don't put yourself further in a hole with yet another loan.

[Sunny]

I highly recommend getting Dave Ramsey's book Total Money Makeover. He addresses these issues.
To give you a synopsis:
1. Do not take out a loan to pay off your credit cards. You are simply reallocating the debt, and it does not solve your problem of living on what you make. Typically, people start filing up the cards again. So, although it SOUNDS like a deal to get a lower interest rate and pay your cc with home loan, don't do it, unless you have PROVEN to yourselves that you can live on a budget.

2. To pay $25/month in fees that do not go towards your debt is not prudent. Your credit is probably already shot. No need to use these services that will really make things worse. YOU CAN DO IT YOURSELF, it takes responsibility and self control.

3. It starts with a budget. You must sit down and map out where all the money goes. Find places where you simply must cut out. Sell off anything you can to help you make the monthly min. payments.

4. Dave Ramsey gives clear instructions on how to pay off the cc debt in a specific order, using a method called the debt snowball. It builds momentum.

This is not easy work, but it took you a while to get where you are, and you will have to dig yourselves back out. Nothing else, no other easy way is going to solve your problem and keep it solved.
I highly recommend you borrow the book from the library, or hunt for it used somewhere. It will be life changing for you!

[Scarlett]

Check out www.livinglikenooneelse.com for help with the Dave Ramsey plan. People there will look at your budget and give you very very specific advice on what to do. They will definitely tell you to leave your house equity alone. And they will definitely encourage you to NOT sign up with a credit counselor.

HTH

[PariSarah]

I don't think your credit counseling plan is a good one for two reasons:

1) It doesn't address the underlying problem. It's a temporary fix that will only make the problem that much harder to deal with down the line, and it won't help you that much in the mean time. Two years from now, you'll still owe more than you can pay back, and you'll have added a home equity loan to make it even worse.

2) You're paying them for stuff you can and eventually must do on your own anyway. You can negotiate lower rates with your CC companies. But even with the lower payments and the home equity loan, you're still going to have to do things like get on a written budget, cut up your credit cards and never use them again no matter what, and reduce your spending drastically. (See #1 above RE addressing the underlying problem.)

Go to Dave Ramsey's website, and get his books (all of them) out of the library. Better yet, get all your financial data in order (total indebtedness, annual income, etc.), and call into his radio show. You might get a free book or something out of it.

Good luck--it is no fun having to deal with this. It may be a tough year or two while you're getting the mess cleaned up. But if you can really be disciplined and diligent about it, you can get through it and even be happy on the other side!

[PariSarah]

How many more "Dave Ramsey" responses do you think you'll get?!

:D

[*anj*]

I'm begging you:
Please go to Dave Ramsey's site.
We used his method to pay off a very large debt. We really had to work hard, but the debt is paid and it took less than a year. We are now working our way through the rest of his suggested steps. Visit his site, listen to his radio show, go to the library and borrow a copy of Total Money Makeover. We never attended any of his classes or bought any of the more expensive stuff. Just the book, though you don't even have to do that. And you can listen to his radio archives for free. People like you are always calling in and asking questions like yours and he tells them just what he thinks.

Please do not use that credit counseling service. You will just spend more money, and you don't have to do that. Nor do you need to borrow against your house. I think that's another bad move.

Another helpful site/message board is Living Like No One Else. (http://www.livinglikenooneelse.com/forum/index.php)
It's a free board full of people who are working their way out of debt using Dave's methods. Tons of free info there.


If you want to chat about this in more detail, please feel free to pm me.

[*anj*]

Check out www.livinglikenooneelse.com (http://www.livinglikenooneelse.com) for help with the Dave Ramsey plan. People there will look at your budget and give you very very specific advice on what to do. They will definitely tell you to leave your house equity alone. And they will definitely encourage you to NOT sign up with a credit counselor.

HTH

GMTA!!!! :D

[CookieMonster]

This is not a helpful Credit Couseling Service. This is a blood-sucking leach.:mad: A reputable, helpful Credit Couseling Service will do what you mentioned without charging such an outrageous fee - usually none at all. Also, it is absolutely terrible advice to take out a home equity loan to pay off other debt. No sensible money manager would suggest such a thing.

Get a hold of a good Credit Counseling Service and dump this one.:leaving:

Now, onto other ideas:
www.crown.org (http://www.crown.org) has sound financial advice from a Biblical perspective. They have budget counselors they can refer you to in your area who will help you - for free. You can email them with questions. You can call them. They have books and resources if you want them.

Dave Ramsey is mentioned often by the gals here, and his advice sounds good. I don't know anything about him or his advice personally, but what I've gleaned from conversations on this board is that his advice is sound.

[Sunny]

As many as it takes for her to figure out that lots of us have already been there done that, and Dave Ramsey was the RESCUE!
He really does have the answers to her questions. He got them the hard way, being in an even worse condition than any of us have been.
The DR solutions work, but you gotta work the plan.

[Claire]

Can you get a home equity loan to cover the existing credit card debt? Go to your bank and find out. Also find out what the interest rate would be for a home equity loan. It depends on your credit worthiness, but let's say you can get one for 7%.

Find out what the interest rate is on each of your credit cards. My bet is they are in the neighborhood of 18%.

Assuming you can *stop* using credit cards (most of the other posts here are assuming you will not be disciplined enough to do this), my advice would be to take out the home equity loan and use it to pay off the credit cards. Then pay down the home equity loan as fast as you can (no matter if they allow you 15 years!). If you have the discipline to do this, it would be the simplest and fastest way to get out of debt. The lower interest rate on the home equity loan would allow you to pay off more of the principal each month.

The big, big ***IF*** here is whether you can stop using credit cards, whether you can actually pay down the home equity loan (there is always a temptation to take out more when you need it, increasing the home equity loan instead of paying it off), and whether you can make the minimum payments on the home equity loan. Many times people who have gotten into this situation, where they cannot make minimum payments on all of their credit cards, are not disciplined enough to do it this way. Unfortunate, but true.

[Scarlett]

Can you get a home equity loan to cover the existing credit card debt? Go to your bank and find out. Also find out what the interest rate would be for a home equity loan. It depends on your credit worthiness, but let's say you can get one for 7%.

Find out what the interest rate is on each of your credit cards. My bet is they are in the neighborhood of 18%.

Assuming you can *stop* using credit cards (most of the other posts here are assuming you will not be disciplined enough to do this), my advice would be to take out the home equity loan and use it to pay off the credit cards. Then pay down the home equity loan as fast as you can (no matter if they allow you 15 years!). If you have the discipline to do this, it would be the simplest and fastest way to get out of debt. The lower interest rate on the home equity loan would allow you to pay off more of the principal each month.

The big, big ***IF*** here is whether you can stop using credit cards, whether you can actually pay down the home equity loan (there is always a temptation to take out more when you need it, increasing the home equity loan instead of paying it off), and whether you can make the minimum payments on the home equity loan. Many times people who have gotten into this situation, where they cannot make minimum payments on all of their credit cards, are not disciplined enough to do it this way. Unfortunate, but true.

Please please please do not do this. Money is much more about behavior than the math. Yes, mathematically it makes more sense to have a 7% loan than a 18% loan. But behavior wise it doesn't matter much. And in the long run, I would rather owe credit card companies than risk losing my home. You can pay this off without refinancing or without getting a HELOC. Go to Dave Ramsey's site and listen to the archives. Go to the other site livinglikenooneelse.com and get specific help with your situation. Both will motivate you as well as inform you.

[st_claire]

I agree with Claire. *If* you are discipled to stop building more debt, then a home loan is a good idea I think. The lowest interest rate you can find the better. I also agree with previous posters about making a budget and sticking to it.

[Merry]

Yes, Claire, I was thinking of making it be a three year home equity loan, not fifteen year. And, yes, I know I have to figure out along with my dh if we have enough discipline to change our ways and stop using credit cards. We did have emergencies along with some bad habits and now, I think we are ready for the discipline. I just wanted to know if there were any cautions to watch out for other than the fact that we have to change our ways.

[Scarlett]

Yes, Claire, I was thinking of making it be a three year home equity loan, not fifteen year. And, yes, I know I have to figure out along with my dh if we have enough discipline to change our ways and stop using credit cards. We did have emergencies along with some bad habits and now, I think we are ready for the discipline. I just wanted to know if there were any cautions to watch out for other than the fact that we have to change our ways.

Merry, even IF you have changed your habits, this could be a a disastor waiting to happen. Say you get the 3 year loan, and stop using the credit cards. Everything is fine, you make your payments on time. Then 6 months down the road, someone gets sick and your medical bills pile up and then someone gets laid off their job and before you know it you are charging up more debt or your are unable to make that HELOC payment. Then you are in serious jeaporady of losing your home. Happens every day. OTOH, if you go with a plan like DR or similar, and a similar set of circumstances crops up in 6 months, you would probably at the worst just not pay the credit cards. You could not be near as likely to lose your home.

And unless you have alot of equity in your home, you can easily find yourself in a situation where you owe more than your home is worth. That is a huge problem when you find yourself in a situation where you need to sell...for another job in another city or because of other circumstances.

[Claire]

Really, the length of the home equity loan doesn't matter. It could be a 15-year loan, because you can pay off a 15-year loan in 3 years and close out the loan.

Personally, I can't see paying 18% interest if I can consolidate and pay 7% interest. Right now you cannot even pay all of the interest due each month. With a reduced interest rate, you should be able to make the minimum payment *and* pay back some principal each month.

The key is to pay off that home equity loan as fast as possible.

[jail warden]

Merry, even IF you have changed your habits, this could be a a disastor waiting to happen. Say you get the 3 year loan, and stop using the credit cards. Everything is fine, you make your payments on time. Then 6 months down the road, someone gets sick and your medical bills pile up and then someone gets laid off their job and before you know it you are charging up more debt or your are unable to make that HELOC payment. Then you are in serious jeaporady of losing your home. Happens every day. OTOH, if you go with a plan like DR or similar, and a similar set of circumstances crops up in 6 months, you would probably at the worst just not pay the credit cards. You could not be near as likely to lose your home.

And unless you have alot of equity in your home, you can easily find yourself in a situation where you owe more than your home is worth. That is a huge problem when you find yourself in a situation where you need to sell...for another job in another city or because of other circumstances.
:iagree:

Also, I would try and call the cards up and get the interest rates lowered myself. I'm pretty sure they should and if they don't, surf the cards to another lower rate. You get ones in the mail almost daily probably. Transfer the debts to one that will give you a better rate. This way it is on your cc and not on your home, but at a better rate. For 3 years it would be worth it to go through the hassle of surfing cards IMO, better that a HEL which is only one l short of the word it truly means! I know this from experience. Don't do it!!! We're still regretting our decision to be smart with the math. :tongue_smilie:HTH!

[jail warden]

I forgot to add that I'm pretty sure Dave Ramsey says that going to one of those credit counseling services trashes your credit just as badly as if you filed one of the Bankruptsies(sp?), I can't remember if it's Ch 7 or Ch 11.

[PariSarah]

I just wanted to know if there were any cautions to watch out for other than the fact that we have to change our ways.

How much equity do you have, and how much would you borrow? Would you incur things like PMI if you borrowed too much? I've heard of some loans where, if the housing market busts and the owner ends up owing more than the house is worth, the bank can just call the loan, just out of the blue. Would you be putting yourself in a position like that, or would you be able to leave a good cushion of equity in there? I'd ask the lender LOTS of questions when you're looking at the HEL. Make sure you understand everything--all the fine print.

What's your first mortgage like? What about refinancing now--is your credit good enough to get a lower rate? A lower rate plus more time could lower your mortgage payments enough for you to get traction on your CC debt.

If your credit is already in trouble--if you're already several payments behind and that sort of thing--you won't be able to get a good rate. In that case, the 18% credit card is actually better than HEL with bad terms (adjustable rates, prepayment penalties, etc.), because the credit card is unsecured, and you're not imperiling your house. Do you know what your credit score is?

Another idea--what about trying for financial discipline for three months, before moving on the HEL? Get things under control the best you can, sell stuff, live frugally, etc., and try living that way for three months. THEN use the HEL for some of the CC debt. That way, you'll have proved to yourself that you do have the financial discipline to carry it through, before you put your home at risk. If it turns out that even financial discipline isn't helping, you may have to look at more serious solutions like moving, changing jobs, taking on more jobs, etc.

[Liz CA]

I would never use my house to pay off debt. I just feel it's too important where I live to risk it just for credit card debt.

For us I had to start a very minimal part time job to make a dent in our debt. I only pay the minimum on all cards except one I try and pay even a tiny bit more. The tendency it too borrow on your house, pay off the debt and feel such a relief that you don't (or I stupidly didn't) realize you are using the cards again and it add's up. It seems like it's just a little use on this or that credit card that I can pay off and it just builds and builds.

That's was my big mistake and now I am just doing it with patience. It hurts to see them still high, but they will go down. I don't use my credit cards for anything while I am trying to get out of debt, then I am going to budget and use a rewards card for my fixed expenses because it has benefits, but I need to have discipline.

other board members has been a book by Dave Ramsey: The Total Money Makeover.
We got it and it has helpful advice about credit card debt, equity lines (and why they are called HEL, Dave Ramsey thinks the second "L" should be included) and he also outlines other daily-life choices like buying or leasing cars, etc.
Your library may have the book. DH who is not thrilled reading these kinds of books actually read it.

[Danestress]

Merry,

I am no financial guru, but I would negotiate lowering these debts myself if I could. There is no way I would pay someone 25 bucks as month to do it for me.

If you are going to use a equity line, I would negotiate very hard for a substantial reduction in exchange for your agreement to pay them off in full. But I would be wary of turning unsecured debt into debt secured by my home.

[OnTheBrink]

I forgot to add that I'm pretty sure Dave Ramsey says that going to one of those credit counseling services trashes your credit just as badly as if you filed one of the Bankruptsies(sp?), I can't remember if it's Ch 7 or Ch 11.\

Nope nope nope! We went through Consumer Credit Counseling services several years ago. I think it was a $5 a month charge and we got out of debt from 5 CC's my dh failed to mention he'd maxed out. At the end, the credit report showed all the accounts paid satisfactorily. We did have to wait 45 days from the final payment to CCS, (to allow the credit agencies time to report the payments) and we then bought a house, at 5.45% on a conventional loan. Our mortgage lender said they'd MUCH rather see someone working with a reputable place like CCS and getting the credit taken care of than a bankruptcy.

Our credit was NOT trashed, at all, and our credit score jumped significantly once all the creditors were paid. There is nothing even on the credit report that states we were using their services.

Eta: We had not heard of Dave Ramsey, so we didn't use any of his books. I'm not suggesting you don't look into his advice, I'm only relating what our experience was with working with CCCS. And, btw, while on the program, we were able to buy a new car. That interest rate was higher than average, but it was a necessity.

[*anj*]

I don't know how much debt you actually have on your credit cards, but I will say that if you've wracked up a huge amount of debt on them, you probably can't be trusted with credit cards.
I've read many posts from people here who use them as tools successfully--paid off in full every month, never spending money they don't have, getting "rewards." I think that's great. I am not one of those people. Or at least, I have never successfully pulled that off.

I am convinced that some people simply cannot be trusted with cards any more than alcoholics can be trusted with a shot of gin. There are some things that just need to be left alone.

When we decided to start seriously tackling our debt, the first thing we did was take a long, hard look at our things. We identified several things that were worth money and that we could do without. We sold them. Peace of mind and being debt-free was more important to us than those items.

Then we looked at our monthly expenses. We got rid of anything that wasn't essential. We made up a budget, and determined to live according to it. We went to an all cash economy...each month the cash for all of our out of pocket expenses is put in envelopes.

I took a part time job and my dh also took some landscaping jobs on weekends.

We set up a $1000 Emergency Fund even before we started paying off the debt. It's important to have a minimum back up because if there is indeed an emergency, you don't want to fall right back into your old bad habits.

We paid a lot of money every month towards those cards, starting with the one with the lowest balance.

There are other, more specific things that we did, if you're interested, but that's the basic plan.

We started in May of last year and we finished in February. And it was a lot of money.

[jail warden]

Sorry! I thought I had heard that. Must have been mistaken.

Now, I'm really trying to remember what he said. HMMM. This is going to bug me until I figure it out! Sorry for the wrong info though.

[jmgconner]

First of all, do NOT take out a home equity line of credit to pay off credit cards. I don't care if the interest rate is great and you're the most disciplined person in the world. You're taking unsecured debt (the credit cards) and switching them to a secure debt (your home). If anything ever happened and you were unable to pay the HELOC, you would lose your home. Do NOT risk your home over some stupid credit cards! Even Dave Ramsey says that most credit card companies will continue to work with you FOR YEARS in the worst of situations.

If you're not able to make the minimum payments on your credit cards, Dave Ramsey has a plan. In addition to his debt snowball, he also has sample letters that you can copy to send to your creditors, explaining the situation and what you'll be able to pay. Check out the "Pro Rata" plan. I HIGHLY recommend you follow Dave Ramsey. Not only will his plan help you get out of debt, but you'll also learn how to deal with the credit card companies when they start calling, the tricks they use to bait you, the dangers of dealing with credit counselors (and it sounds like you found a bad one - $25/month!!! geesh).

Good luck! You can do this. Many of us have been there. You're not alone!

[Scarlett]

Sorry! I thought I had heard that. Must have been mistaken.

Now, I'm really trying to remember what he said. HMMM. This is going to bug me until I figure it out! Sorry for the wrong info though.

I think that not all credit counseling services are created equal. Some do equal a bad mark on your credit. Not like a chapter 7 or 11 or whatever number, but a ding.

Either way, baaaaad idea to exchange unsecured debt for the secured debt of your home.

[jail warden]

Yes well I went to the daveramsey site and checked it out. This is what he said about credit couseling services, he was telling this to someone who was already in this service.

Read what Dave says:
We run into nightmares with most of these services. It’s not that they’re crooks, they’re just unorganized. If you stay, do two things. Stay on top of them and make sure the bills are paid, and work your debt snowball by sending extra to the smallest debt. The advantage of being in the credit counseling service is you generally get lower interest rates, but the downside is that if you go to purchase a home, you’ll be treated like you’ve filed a Chapter 13 bankruptcy.

[Scarlett]

but the downside is that if you go to purchase a home, you’ll be treated like you’ve filed a Chapter 13 bankruptcy.

Interesting....not SM's experience. Makes one go hmmmmm...?

[JESSICAinMD]

This is not a helpful Credit Couseling Service. This is a blood-sucking leach.:mad: A reputable, helpful Credit Couseling Service will do what you mentioned without charging such an outrageous fee - usually none at all. Also, it is absolutely terrible advice to take out a home equity loan to pay off other debt. No sensible money manager would suggest such a thing.

Get a hold of a good Credit Counseling Service and dump this one.:leaving:

Now, onto other ideas:
www.crown.org (http://www.crown.org) has sound financial advice from a Biblical perspective. They have budget couselors they can refer you to in your area who will help you - for free. You can email them with questions. You can call them. They have books and resources if you want them.

Dave Ramsey is mentioned often by the gals here, and his advice sounds good. I don't know anything about him or his advice personally, but what I've gleaned from conversations on this board is that his advice is sound.

:iagree: Back away. They sound like they are just trying to benefit off of your situation w/o giving you much in return. Sit down and look at where your money is going. See where you can trim off any extra spending. Every little bit helps. Try paying off the card with the highest interest first and then focus on the next highest. Call and try to get your interest rate lowered. There is no fast solution. It takes time and lack of HBO. :) Good luck!

[Eliana]

I would step back from the immediate issue of the credit cards and explore your overall relationship with money.

Do you know where your money has been going? ...and, almost at importantly, do you know why? From our family backgrounds and our experiences we develop our emotional and mental relationship with money, spending, saving, budgeting,.. our instinctive sense of feast or famine.

IMHO, any plan, no matter how logical which goes against your grain will, in the long run, fail. ...just as one can't, in the long-term, maintain a diet which feels like constant deprivation, one cannot maintain a financial diet that
leaves one's core needs feeling unmet.

I would back off from this service (that seems like an enormous amount of money to pay for what they are offering you, but I have never dealt with the situation, so perhaps I am off base!), and take some time to read various financial planning books with your dh and talk them over, to track your money (down to the nickels and dimes) so you know where it is all really going.

From those numbers, you can start to work out a budget - one which takes into account your current patterns and helps you take baby steps towards patterns which better reflect *your* real goals and priorities. ...and that might not look like what anyone else would recommend, but if it is moving you towards your goals, then the rest is irrelevant.

Once you have developed a bigger picture plan about your goals and priorities, and have developed some baby-steps to help move you towards those goals, then I think you can revisit the CC issue with a better sense of perspective.

For me, borrowing from our home is an emotional hot-button - this is not something we would do, even if it made the most financial sense... but that might not be the case for you. (PariSarah has given some great guidelines for getting more info before making a decision, as always, there is much wisdom and insight to be found in the post!)

One book I liked which starts with looking at making financial goals within the larger context of your life, is The Six-Day Financial Makeover (http://www.amazon.com/Six-Day-Financial-Makeover-Transform-Your/dp/0312377746/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1206649082&sr=1-1) (ignore the 6 day gimmick, there is some good information here). There are lots of other good books out there, from a variety of perspectives - I imagine your library has a large selection.

Another book which had a goal-setting process I've found very meaningful: How to Get Out of Debt, Stay Out of Debt, and Live Prosperously (http://www.amazon.com/How-Debt-Stay-Live-Prosperously/dp/0553382020/ref=si3_rdr_bb_product). I like the way it guides you through working from big picture goals down to goals for this month, this week which will move you towards your long-term goals. (I read this a number of years ago, not because we were dealing with debt (we weren't), but as part of our ongoing reading/discussion of our financial goals and priorities... as life changes we keep having new things to explore!)

Good luck, sweetheart!

[*anj*]

I would step back from the immediate issue of the credit cards and explore your overall relationship with money.



I totally agree. It is so very much like going on a diet and making it work. You really do have to examine the reasons that you spend and the ways that you use money.

I was a very spoiled girl, growing up, and I continued to be one as an adult. I have had to change my entire way of dealing with money, my entire relationship with it. This has been very difficult for me, and it is an ongoing challenge, certainly.

My dh and I have learned to live frugally, but as Eliana mentioned, a steady diet of deprivation won't last long. Because we have put in the hard work, we've been able to plan for fun. So we don't get to eat out several times a month anymore, but now we plan for it and getting a pizza once a month is such a treat! It used to be a tool to get through a stressful and busy day, but now it is a treat.

We've been able to do a few nice things for ourselves because we've learned to save money.
We've also been able to bless others with our money because our budget involves setting aside money specifically for that purpose. I have truly never known such freedom.

I know you've had a lot of responses to your question. I know that it's hard to wade through what will work for your family and what won't. But I also know that if you can get this monkey off your back you'll be so grateful, and you'll have a confidence in knowing that you have the ability to make a goal and meet it.

[Jenny in Atl]

I need help with this too. But every time I start to plan our way out, I give-up. It's easier to plan school, curriculum for next year, bks to get at the library...
I'm a wash in medical bills, doctors visits, vet visits, house stuff...

[Tutor]

Someone else mentioned Crown Ministries, and I second that recommendation. There are quite a few similarities in the philosophies of Dave Ramsey and Crown from what I understand. I am not as familiar with Ramsey as I am with Crown. Crown does not charge a fee for their services (which is helpful when you are in debt). :001_smile:

If you would like to read a realistic representation of what climbing out of debt is like (spiritually, emotionally and practically), I highly recommend reading Larry Burkett's Debt-Free Living (Larry Burkett was the head of Crown Ministries until his death a few years ago). It follows three couples as they work to get out of debt, and I found it at least as helpful and encouraging as Crown Ministries' how-to books. It is helpful to read about snowballing and preparing for emergencies, but it is encouraging to read that others have felt just as elated as you when snowballing works and just as discouraged when an emergency does arise.

Peace and strength to you as you embark on this journey. It will be difficult, but it will be worth it!

[OnTheBrink]

Yes well I went to the daveramsey site and checked it out. This is what he said about credit couseling services, he was telling this to someone who was already in this service.

Read what Dave says:
We run into nightmares with most of these services. It’s not that they’re crooks, they’re just unorganized. If you stay, do two things. Stay on top of them and make sure the bills are paid, and work your debt snowball by sending extra to the smallest debt. The advantage of being in the credit counseling service is you generally get lower interest rates, but the downside is that if you go to purchase a home, you’ll be treated like you’ve filed a Chapter 13 bankruptcy.


I hate to argue with Dave, but that simply isn't true. I do know that you should definitely use a Non-Profit consumer credit agency (there are some that are for profit and charge a lot for their "help"), but when we joined with CCCS, we were assured that we'd be able to buy a home later, and they were absolutely right with everything they told us. Maybe we got lucky and found a place that was on the up and up, but we had absolutely NO issues getting a home loan, from a national mortgage company. In fact, they were willing to lend us 3x more than what we actually spent on the home. This was only 3.5 years ago, too.

I don't know if maybe we just got a great guy for a mortgage lender or what, but we had absolutely no problem getting a home after completing the program.

Now, having sung their praises thusly, I will say, after the divorce, it took EX a grand total of 3 months to get himself into about $10K of consumer debt again and he's back on the CCS program. So, the issue is entirely how one uses their credit cards. How going through the program a second time will affect his credit standing, I don't know. (not my problem, la lala la!) And again, I'm not dissing DR or his financial program at all; but he's not completely accurate with his portrayal of consumer credit services.

[jail warden]

I have heard him say that CCS is the best of the counseling services. From what I unstood, it's the others to be wary of. I should have addressed that in my other post, but I forgot!

[Josie]

I haven't read the other posts, but do you know that you don't have to use a company to negotiate with your card companies? I woulnd't pay $25 a month for their service.

Can you get a small p-t job to help for a bit? Maybe something form home? Maybe child care?

[OnTheBrink]

I have heard him say that CCS is the best of the counseling services. From what I unstood, it's the others to be wary of. I should have addressed that in my other post, but I forgot!

Whew! You just saved me from emailing him! :lol:

I've had no other experience with credit counseling places (and don't ever plan to, God willing). I guess there are crooks out to get you in any business and to be treated badly when it's all over is the pits, too.

Thankfully, all the CC were in EX's name, which did come to bite him. In the divorce, he got stuck with all the CC debt. :hurray:

[*anj*]

This is very interesting and pertinent to this discussion. Note the parts that I highlighted in bold print.

March 27, 2008
Equity Loans as Next Round in Credit Crisis

By VIKAS BAJAJ (http://topics.nytimes.com/top/reference/timestopics/people/b/vikas_bajaj/index.html?inline=nyt-per)
Little by little, millions of Americans surrendered equity in their homes in recent years. Lulled by good times, they borrowed — sometimes heavily — against the roofs over their heads.
Now the bill is coming due. As the housing market spirals downward, home equity loans, which turn home sweet home into cash sweet cash, are becoming the next flash point in the mortgage crisis.
Americans owe a staggering $1.1 trillion on home equity loans — and banks are increasingly worried they may not get some of that money back.
To get it, many lenders are taking the extraordinary step of preventing some people from selling their homes or refinancing their mortgages unless they pay off all or part of their home equity loans first. In the past, when home prices were not falling, lenders did not resort to these measures.
Such tactics are impeding efforts by policy makers to help struggling homeowners get easier terms on their mortgages and stem the rising tide of foreclosures. But at a time when each day seems to bring more bad news for the financial industry, lenders defend the hard-nosed maneuvers as a way to keep their own losses from deepening.
It is a remarkable turnabout for the many Americans who have come to regard a home as an A.T.M. with three bedrooms and 1.5 baths. When times were good, they borrowed against their homes to pay for all sorts of things, from new cars to college educations to a home theater.
Lenders also encouraged many aspiring homeowners to take out not one but two mortgages simultaneously — ordinary ones plus “piggyback” loans — to avoid putting any cash down.
The result is a nation that only half-owns its homes. While homeownership climbed to record heights in recent years, home equity — the value of the properties minus the mortgages against them — has fallen below 50 percent for the first time, according to the Federal Reserve.
Lenders holding first mortgages get first dibs on borrowers’ cash or on the homes should people fall behind on their payments. Banks that made home equity loans are second in line. This arrangement sometimes pits one lender against another.
When borrowers default on their mortgages, lenders foreclose and sell the homes to recoup their money. But when homes sell for less than the value of their mortgages and home equity loans — a situation known as a short sale — lenders with first liens must be compensated fully before holders of second or third liens get a dime.
In places like California, Nevada, Arizona and Florida, where home prices have fallen significantly, second-lien holders can be left with little or nothing once first mortgages are paid.
In December, 5.7 percent of home equity lines of credit were delinquent or in default, up from 4.5 percent in 2006, according to Moody’s (http://topics.nytimes.com/top/news/business/companies/moodys_corporation/index.html?inline=nyt-org) Economy.com (http://economy.com/).
Lenders and investors who hold home equity loans are not giving up easily, however. Instead, they are opposing short sales. And some banks holding second liens are also opposing refinancings for first mortgages, a little-used power they have under the law, in an effort to force borrowers to pay down their loans.
“Acknowledging a loss is the most difficult thing to do,” said Micheal Thompson, the executive director of the Iowa Mediation Service, which has been working with delinquent borrowers and lenders. “You have to deal with the reality of what you are facing today.”
While he has been able to strike some deals, Mr. Thompson said that many mortgage companies he talks with refuse to compromise. Holders of second mortgages often agree to short sales and other changes only if first-lien holders pay them a small sum, say $10,000, or 10 percent, on a $100,000 debt.
Disagreements arise when the first and second liens are held by different banks or investors. If one lender holds both debts, it is in their interest to find a solution.
When deals cannot be worked out, second-lien holders can pursue the outstanding balance even after foreclosure, sometimes through collection agencies. The soured home equity debts can linger on credit records and make it harder for people to borrow in the future.
Experts say it is in everyone’s interest to settle these loans, but doing so is not always easy. Consider Randy and Dawn McLain of Phoenix. The couple decided to sell their home after falling behind on their first mortgage from Chase and a home equity line of credit from CitiFinancial last year, after Randy McLain retired because of a back injury. The couple owed $370,000 in total.
After three months, the couple found a buyer willing to pay about $300,000 for their home — a figure representing an 18 percent decline in the value of their home since January 2007, when they took out their home equity credit line. (Single-family home prices in Phoenix have fallen about 18 percent since the summer of 2006, according to the Standard & Poor’s Case-Shiller index.)
CitiFinancial, which was owed $95,500, rejected the offer because it would have paid off the first mortgage in full but would have left it with a mere $1,000, after fees and closing costs, on the credit line. The real estate agents who worked on the sale say that deal is still better than the one the lender would get if the home was foreclosed on and sold at an auction in a few months.
“If it goes into foreclosure, which it is very likely to do anyway, you wouldn’t get anything,” said J. D. Dougherty, a real estate agent who represented the buyer on the transaction.
Mark Rodgers, a spokesman for CitiFinancial, declined to comment on the McLains’ situation, citing privacy considerations.
“We strive to find solutions that are acceptable to the various parties involved,” he said but two lenders can “value the property differently.”
Other lenders like National City, the bank based in Cleveland, have blocked homeowners from refinancing first mortgages unless the borrowers pay off the second lien held by the bank first. But such tactics carry significant risk, said Michael Youngblood, a portfolio manager and analyst at Friedman, Billings, Ramsey, the securities firm. “It might also impel the borrower to file for bankruptcy,” and a judge could write down the value of the second mortgage, he said.
A spokeswoman for National City, Kristen Baird Adams, said the policy applied only to home equity loans originated by mortgage brokers.
Underscoring the difficulties likely to arise from home equity loans, a Democratic proposal in Congress to refinance troubled mortgages and provide them with government backing specifically excludes second liens. Lenders holding a second lien would be required to write off their debts before the first loan could be refinanced. That could leave out a significant number of loans, analysts say.
People with weak, or subprime, credit could be hurt the most. More than a third of all subprime loans made in 2006 had associated second-lien debt, up from 17 percent in 2000, according to Credit Suisse (http://topics.nytimes.com/top/news/business/companies/credit_suisse_group/index.html?inline=nyt-org). And many people added second loans after taking out first mortgages, so it is impossible to say for certain how many homeowners have multiple liens on their properties.
“This is turning out to be a real impediment to solving this problem,” said Mark Zandi, chief economist at Economy.com, “at least, solving it quickly.”

[regidg]

We owe too much and are unable to make the minimum payments on all of the cards each month. We did go for credit counseling and they can set up a three year plan to get all the debts paid and with lower interest rates on all the cards. We will have to pay 25 dollars a month for the service and won't be able to use the cards. The same place also told us that we should consider borrowing against the home equity to pay off the bills as the interest rate is much lower. We don't think we will be moving soon and I would try for a three year loan period. True, we won't be able to borrow against it again if there's an emergency. But other than that, are there other reasons why it's not a good idea to borrow against the equity? Or to use a credit counseling service?

I used to post here as ReginaG, but haven't reintroduced myself.

I battled debt a few years ago, so I just have some practical tips to offer.

Don't spend more money to get out of debt. Credit counseling is an awful robber if you have one of the two of you who is decent with money.

I caught a tidbit from a book at a bookstore where I worked that gave this advice:

Pay off the smallest amount first. If you have 5 cards and the smallest amount you owe is $300, pay that one off first. Pay the minimum on all the others. If you can't even pay the minimum, see about going into forebearance on one or two. Try to free up two to three times the minimum payment of the smallest debt.

Once you pay the smallest off (and try to do a pay-off before the final payment comes due, because they sometimes will reduce the amount left to pay), take the amount you were paying on this one, add it to the next smallest debt's minimum payment and pay that every month until it is gone.

Keep going through these until you are able to pay off the final card. Say all the cards are $25 minimum, you're paying $50 until it's gone. The second card, you will be sending $75, third $100, fourth $125...you get the idea. If you send $75 a month on the first one, it will benefit you more, of course, and you'll only be paying for four months. Then, if your next lowest debt is $500, say, you'll pay 100/month and that will only be a nother 5 months. If the last card is still in forebearance, save the money and send a lump sum. Call before you do and see if the amount will be reduced because of "early pay-off" or whatever. I had that benefit on a couple of our debts.

Call any creditor before you get behind on your plan. Tell them exactly what you need and, if they see that you are acting in good faith, they will work with you. Don't be afraid to call. Usually, they are very patient and willing to work, even the utility company has been for us, though to a lesser degree.

Next, plan your budget for the next few weeks. Know exactly what you will send and where you will send it. Then, send it, on time. I like to plan about four paychecks into the future. However, there usually would occur some bump in the road. At those times, I would just need to reevaluate on new paper.

Nice to meet you, and I hope all this will work out. The main thing is not to get overwhelmed.

RegidG

PS. We did the credit counseling route, too. As soon as we could get out of it, we did. It didn't help at all! It ate up $30 that we could have been sending to a creditor, and I don't recall that it reduced our debt any, which is sad because we also paid a huge amount, up front.

[Merry]

You did confirm what I had been thinking all along and you gave me the push I needed. Thanks. I'll not borrow against against our house for credit cards. It does seem foolish esp. since the same emergencies that caused us problems in the past could still come back and we might yet need the line of equity for that. As for credit counseling, I'll try calling the credit companies first to see about lower interest rates. I did call before with no avail but I'll try again. I also will try asking the CCCS if they would waive the fee or at least lower it before we decide whether to go through with it or not. I appreciate your encouragement and I feel like I can do this! My dh is also more willing to be involved with the finances which should help.

[Mrs. H.]

Please consider the credit counseling service very carefully before you make that choice. My mother and stepfather used one to help them with their credit card situation...and then my mom started getting letters and statements for over-the-limit fees on her cards!

It turned out that she had been paying the CCCS, but they had not been paying her bills, for over six months! She had to hire an attorney (expensive) to get it all straightened out for her. At least if you pay your bills yourself, you know it is done.

I don't like having to rely on any outside company to pay my bills for me, and I even chek on the two drafts we have coming out of our bank account several times each month, because I am so paranoid that something won't go through.

[regidg]

You did confirm what I had been thinking all along and you gave me the push I needed. Thanks. I'll not borrow against against our house for credit cards. It does seem foolish esp. since the same emergencies that caused us problems in the past could still come back and we might yet need the line of equity for that. As for credit counseling, I'll try calling the credit companies first to see about lower interest rates. I did call before with no avail but I'll try again. I also will try asking the CCCS if they would waive the fee or at least lower it before we decide whether to go through with it or not. I appreciate your encouragement and I feel like I can do this! My dh is also more willing to be involved with the finances which should help.

Merry,

Tenacity is key to this endeavor. When you call, you may get a stick-in-the-mud to talk to. No worries, either call back or ask to speak to a supervisor. Tell them you have gotten overwhelmed and behind and really want to work it out. If this is the first debt, tell them that they are your priority and you really want to get back in good faith with them--don't tell them you're going to cancel the card, if you haven't. If you have canceled the card (hooray!), they seem to be a little more helpful.

In fact, if I remember correctly, there are efforts the card companies use, especially if they are a large company. For instance, Citi closed our account already, and we paid so much, then they allowed us to go into forebearance. Be careful with forebearance, though. It's easy to become dependent on it. If you ask, they will tell you their own plan for helping you out in times of difficulty. If they don't, I would consider some way to get out of paying them a dime more, even if it's the bad idea of opening a new card with another company and paying that one off.

Yes, you can do this, especially if your DH is really willing to work on it. However, I had more success with the calls than my husband did, so perhaps you should be the one to make the calls.

[Cricket]

I think that not all credit counseling services are created equal. Some do equal a bad mark on your credit. Not like a chapter 7 or 11 or whatever number, but a ding.

Either way, baaaaad idea to exchange unsecured debt for the secured debt of your home.

There must be some difference in services. Dh sells RVs and he checks peoples credit reports all the time. The ones he has checked, he said when someone has used a credit service, they never qualify for a loan for an RV. I think some services work with the company to close your accounts and then you end up paying a smaller amount than you owed. In a sense, it is like filing bankruptcy. Maybe some services don't close your accounts. I don't know.

[Pam "SFSOM" in TN]

There must be some difference in services. Dh sells RVs and he checks peoples credit reports all the time. The ones he has checked, he said when someone has used a credit service, they never qualify for a loan for an RV. I think some services work with the company to close your accounts and then you end up paying a smaller amount than you owed. In a sense, it is like filing bankruptcy. Maybe some services don't close your accounts. I don't know.

Same way when I sold cars, but it was *while* someone was actively in credit counseling. Once they were done, they could get credit if their FICO was strong enough.

[sarahli]

Just an aside, but if you ever have medical bills, DON'T put them on a credit card, or a home equity loan. Just leave them on the original bill. Even if you only pay 5$ a month on a medical bill, over 7 years, they won't mark it delinquent. This is my experience (though not over 7 years ;)), and the knowledge of another in the medical billing profession. I have a friend who has been paying off her son's birth, he is 5 years old now! It has not affected her credit. There may be exceptions to this rule, I don't know of them.

[Renee in FL]

Just an aside, but if you ever have medical bills, DON'T put them on a credit card, or a home equity loan. Just leave them on the original bill. Even if you only pay 5$ a month on a medical bill, over 7 years, they won't mark it delinquent. This is my experience (though not over 7 years ;)), and the knowledge of another in the medical billing profession. I have a friend who has been paying off her son's birth, he is 5 years old now! It has not affected her credit. There may be exceptions to this rule, I don't know of them.

This is not true for us. I had a baby in 2006 that resulted in about $6K in medical bills. I tried to set up a payment plan with them and they would only accept $500 a month - if I couldn't agree to that, then they went to collections. They were only willing to let me pay over 12 months.

[Happy]

Dave Ramsey, Dave Ramsey, Dave Ramsey....Love what the guy teaches.

I find support during the paying off/living on beans and rice process to be critical. Usually I find it online, but if you can find an FPU class going on locally it would be terrific. You'll find other folks who are struggling to manage their money and learn Dave's principles. Other than that, www.llnoe.com (living like no one else) is a wonderful place to hang out with like minded people. They will help, encourage and inspire you.

[Diane]

You've already received tons of advice, I'll just whisper DAve Ramsey again. :)

I want to encourage you and let you know I'm rooting for you. You can do it.

Sell whatever you can, probably cluttering up your life anyway. Write down every bill you pay, how can you lower all those bills? I would sacrifice as much as you could for at least a year to really get ahead. Times are bad and people tend to live for now, we have to think of the future. Anyhow...you can do it!

[mommybee]

Just an aside, but if you ever have medical bills, DON'T put them on a credit card, or a home equity loan. Just leave them on the original bill. Even if you only pay 5$ a month on a medical bill, over 7 years, they won't mark it delinquent. This is my experience (though not over 7 years ;)), and the knowledge of another in the medical billing profession. I have a friend who has been paying off her son's birth, he is 5 years old now! It has not affected her credit. There may be exceptions to this rule, I don't know of them.

In my experience, while it's true that it doesn't go on to ruin your credit no matter how long it takes you, hospitals can be real pains about this. I set up a plan once and after a year they decided that's enough time and sent it to collections which resulted in harassment like crazy! I was so mad because I had made a real effort to pay them each and every month and we were barely making it back then.

Just thought I'd add another medical bill experience.

[Cadam]

A credit service can ruin your credit report about as badly as bankruptcy and even if you qualified for a loan against your house it is a bad idea to put your house on the line. You could lose the house, bad idea.

Gather your receipts and figure out where your money is going first. Before you get the next pay check write down where every dollar is going, "on paper and on purpose". Give every dollar a name before you spend it, then you will have an accurate picture of your finances. Cut the cards and never. use. them. again. Sell anything you can and pull together 1000$ for an emergency fund(in case the fridge breaks or someone becomes very ill). With any other money you can scrape together offer a deal to the lowest debt or throw the money at the lowest debt so you can start your debt snowball.

[Joanne]

I find support during the paying off/living on beans and rice process to be critical. Usually I find it online, but if you can find an FPU class going on locally it would be terrific. You'll find other folks who are struggling to manage their money and learn Dave's principles. Other than that, www.llnoe.com (living like no one else) is a wonderful place to hang out with like minded people. They will help, encourage and inspire you.

Nodding.

I'm not a complete DR convert; I disagree with him on several issues.

However, I do think and agree that THE KEY to credit issues is to completely change the habits that got you there. Many, many, many people can't handle relvolving credit responsibly, ever.

I'm a member at llnoe.com; it's hard core but helpful.

[Mom2GirlsTX]

Please please please do not do this. Money is much more about behavior than the math. Yes, mathematically it makes more sense to have a 7% loan than a 18% loan. But behavior wise it doesn't matter much. And in the long run, I would rather owe credit card companies than risk losing my home. You can pay this off without refinancing or without getting a HELOC. Go to Dave Ramsey's site and listen to the archives. Go to the other site livinglikenooneelse.com and get specific help with your situation. Both will motivate you as well as inform you.

:iagree:

I only learned of Dave Ramsey off this sight, and read one of his books. He sounded like my dad, lol! Financially, if I were in your shoes, in no way would I do anything against my house unless it were my absolute last resort.

[bookfiend]

Yes, Claire, I was thinking of making it be a three year home equity loan, not fifteen year. And, yes, I know I have to figure out along with my dh if we have enough discipline to change our ways and stop using credit cards. We did have emergencies along with some bad habits and now, I think we are ready for the discipline. I just wanted to know if there were any cautions to watch out for other than the fact that we have to change our ways.

I haven't read through all the reponses; however, I think it is foolish to trade unsecurred debt for securred debt. You don't know what the future brings. What if you have a catastrophic event in the next three years and lose all earning ability? Now your debt is linked to your house! No way.

Call the credit card companies yourself, negotiate, find a place to generate extra income, sell what you can, do the snowball thing, but don't secure the debt - or PAY anyone to manage your solution.

[elfgivas@yahoo.com]

:grouphug:

you can do this!!!!

(personal story: folks kept saying make a budget, find out where your money is going, and i just couldn't force myself to do it. but i could do it the other way round: this is how much i have every two weeks. how am i going to spend it? then i put the money in envelopes labelled "food", "gas", etc. and when the money was gone, it was gone. if there was no money for gas, we stayed home. if there was no money left for food we ate leftovers, cans in the back of the pantry, cereal for dinner.... you quickly learn that buying soda is not a good use of food money! and we quickly cancelled lots and lots of things, including cable, phone plans, etc, etc.... it was brutal, but it really worked. we've been debt free for the last 10+ years, and it feels way better than just about anything else : ). but learning to live within our means was hard initially, too.)

:grouphug:

[gingersmom]

This original post is 2 years old (at least).

[bookfiend]

This original post is 2 years old (at least).

You are right and that is bizarre! Looking at the time/date stamp it would appear that I pulled this out of storage. However, I only ever read/respond to the first 1-2 pages of the board. How would this have been on the front page?

Very sorry and embarassed for whatever I did to ressurect this dead thread. :blush: Although, now I'm wondering if they got out of debt?