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I needed some advice on what I should do to get out of debt ASAP. I am currently around $26,000 in credit card debt. I have 5 credit cards and my APR is 24% on each one of them. My balances are as follows CC 1 $7300, CC2, $7200, CC3 $5600, CC4 $3000 and CC5 $2700. I have been able to make minimium payments for several years but have missed a payment or two on each of them which has skyrocketed my minimium payment and APR. I my monthly minimium payments for all of them averages around $800 per month. i make $1100 net every two weeks from work. My total monthly expenses include rent, cell phone, gas, grocery's, electricity, which average to about 1000 per month. I have 14k in my 401k and I own my car which is worth 2-3k max. My minimium monthly payments on my credit cards have gotten out of control and i want to combine all my cc debt in order have a manageable payment each month along with being able to bring down the balances. I don't know if i would qualify for a personal loan b/c i have not checked with my bank, I have an idea my credit isn't so good because i'm maxed out on all of my cc's. i am considering credit conseling but i heard that it ruins your credit. Any advice on tackling this debt and being able to avoid ruining my credit?
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>> Any advice on tackling this debt and being able to avoid ruining my credit?

Welcome, dvd2r.

My advice is to stop using your cards, and to take the advice of the good folks on this board.

You may not be able to get out of debt fast, but if you do it the right way (which will take some time), you will avoid finding yourself back in debt at a later date. By paying down (and ultimately off) your debt, your credit will improve as each month passes (and no, you don't have to pay an agency -- you can do this yourself). You will need patience though. Do you think you have it in you to be patient with the process?

Sincerely,

Shire
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No. of Recommendations: 24
my monthly minimium payments for all of them averages around $800 per month. i make $1100 net every two weeks from work. My total monthly expenses include rent, cell phone, gas, grocery's, electricity, which average to about 1000 per month.

Average expenses other than credit cards ~$1000
Minimum credit card payments ~$800

Total Monthly Expenses ~$1900

Total Monthly Net Income ~$2383 ($1100 x 26 / 12)

So you should have an extra $483 every month, if your figures are correct.

They aren't......... You are forgetting or missing a lot of other outgo, or you wouldn't have $26k in debt.

My minimium monthly payments on my credit cards have gotten out of control and i want to combine all my cc debt in order have a manageable payment each month along with being able to bring down the balances. I don't know if i would qualify for a personal loan b/c i have not checked with my bank, I have an idea my credit isn't so good because i'm maxed out on all of my cc's. i am considering credit conseling but i heard that it ruins your credit. Any advice on tackling this debt and being able to avoid ruining my credit?

Sorry, but your credit is probably already pretty bad. As you say, you are maxed out on all your cards, and have late payments. So adding credit counseling to the mix probably isn't going to hurt it a lot anyway.

The idea of moving everything to one loan with one 'manageable' payment is a really bad one. You would just be rearranging the deck chairs on the Titantic, by moving one set of debts to another debt. You would not be paying off anything. And you would free up your cards to start charging again.

Until you resolve the behaviors that got you into debt a consolidation loan will only enable you to spend more.

So here's a plan......it won't be fast, and it won't be easy. But it will get you out of debt if you follow it:

First, you need to stop using the credit cards for anything. If you don't have the cash (after making your obligatory payments on everything) you don't buy it.

Then, you need to start tracking every penny that you spend, so you can get the correct figures for your expenses, including irregular expenses and predictable, but non-monthly expenses. Once you figure out how much outgo you have each month, you need to compare that to your income.

You will probably find that your income is less than your outgo (otherwise you wouldn't have built up the debt). So the next step is two-fold: increase your income and decrease your expenses enough so that you can make additional payments on your credit cards.

Increase income - 2nd job, sell stuff that you have accumulated
Decrease expenses - look at everything you spend and determine if it's truly a want or a need. If you don't get it today, will you survive until tomorrow? So, food - a need; anything above the expense level of Ramen noodles, rice and beans - a want; cell phone - need, only if it's your only phone, and even then, anything above the very cheapest plan, or a pre-paid phone is a want; rent - a need, but anything above the cheapest safe place to live - a want; Internet at your apartment - a want; cable TV - a want; alcohol/cigarettes - a want.....

If you want to post your expenses here, you will get a lot of advice on how to cut your expenses. It can be harsh, but it may give you a lot of good ways to cut your expenses.

Once you have increased your income and decreased your expenses enough to make significant payments on your debt, choose a single account as your target. On all the other accounts, pay only the minimum amount. On your target card, pay all of the other money that you have 'freed up'. That's called your snowball. As you pay cards off, you continue to pay the same total amount toward your debt each month, but the amount that you are paying toward your target card gets larger, because you have less to make in minimum payments on the other cards - like a snowball rolling downhill.

Usually, it suggested that you choose the highest interest rate card as your target card. Since all of your cards are at the same rate, you probably would want to choose the lowest balance. If you can come up with an extra $250 a month in addition to your minimum payments, you will be able to pay off the $2700 card in less than a year.

As you are paying down your debt, continue to call your creditors and ask them for rate reductions. As you pay off cards, you may start to get balance transfer offers for the ones you have paid off. If the offers can lower your interest rates significantly without having to pay a lot in fees, they can help you pay down debt faster.

Come back with questions and we will try to help.

AJ
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Taking out a consolidation loan to pay off your cards isn't getting out of debt, but simply moving it around. The ONLY way to get out of debt is to spend LESS than you earn. Period. If credit cards are used to supplement income and pay for everyday items, you'll never get out of debt.

1. Stop using the cards. DON'T close the accounts, however. Doing this (at least right away) will damage your credit, not improve it. Closing an account or two will increase your debt ratio, which is a bad thing. (Debt ratio = amount of actual debt vs. available credit limit.)

2. Track your spending. Every penny. Every day. At the end of the month, scrutinize your spending to find those expenses that are non-essential and can be deleted, so this money can be freed for debt repayment.

3. Attack the credit cards, either by paying off the highest-interest account first, or the smallest balance first. (The highest-balance account will save you more money if it's paid sooner, but the emotional satisfaction of being able to kill off an account with a smaller balance may be more valuable to you.)

4. When the first account is satisfied, (paid in full,) add those now-freed funds to increase the next card on the list. This is called 'snowballing'. Eventually you'll gain momentum as one account after another is paid, and subsequent funds added to the next one, and so on.

5. Realize the debt you carry now didn't accumulate overnight, and it's not going to dissipate overnight either. The most important thing to do right now is STOP DIGGING the hole you're in.

6. Don't be afraid to post a comprehensive report of your expenses; it can be very helpful to share them with others on this board so they can give you their input on whether an expense can be cut, downgraded, or deleted altogether. This of course will depend upon how committed you are to getting out of debt; a half-hearted attempt will get half-hearted results, but working with diligence and a steady pace will reap you great satisfaction and rewards.


MadamHusker 1
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DVD,

First of all, I feel for you, this has got to be tough. My quick math says you have $1200 left over for debt payments at the end of the month...of which about $500. goes to interest. $1200 a month will pay your debt of in 29 months(and that's if you never go out, never get away, never have to repair your car, never buy new clothes, never have a medical bill, never buy anybody a Christmas or birthday present, never.............get the picture?)

Paying off debt is like losing weight. You lose weight when you take in less calories than you burn off; you'll pay off your debt when you spend less than you make and pour everything else into the debt. Its that simple. The hard part is once someone is in a really deep hole, the shovel they're using just isn't big enough to get them out.

29 months isn't the end of the world actually, the real problem is that you apparently want to pay it off quickly and the only way to actually hit the 29 month mark is for ABSOLUTELY nothing else to come up in that time. I just outlined a few things that can and will come up....we could probably make a whole other thread on everything else that could destroy your budget.

I don't know if you can do it, but I'd suggest a second job for a short period of time. I know that sucks, but you need a bigger shovel. I ran your numbers on a debt calculator and came up with these payoff #'s:

$26000 @ 24% interest:
$1200/mnth = 29 months
$1374/mnth = 24 months
$1734/mnth = 18 months
$2458/mnth = 12 months

In other words if you can find another job and try to pull in another grand or so a month, you can kill this puppy in a short period of time. This will increase your confidence, motivate you to not let it happen again, decrease the time Murphy has to visit you (and kill your budget), reduce your own opportunities to spend (no time) and give you a positive cash flow of $1200 a month once its gone. I don't know your age, but $1200 for investing for your future will probably make you a rich person if you're young. Plus, you could keep that second job for just a while longer in order to explode a nice little emergency fund.

I'm just about to wrap up my debt slaying adventure, I've got about 3 months to go....I didn't have to get another job as our incomes didn't demand it. However, if necessary I'd have gotten 3 more to kill it...I'm that serious about it. In fact I'm thinking about getting one now just to build up my efund as quickly as possible so I can start saving some serious cash.

This is all about desire and intensity.

Hope this helps.

John
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I didn't even scrutinize your numbers, but these other posters are sharp.

The budget (a real one, with muscles, teeth and hair and one that has no problem staring up at you and making you cry) is the first place to start.

Obviously no one knows how you got that much debt, but it presumably didn't occur by accident. Get your budget in place, get a nice healthy hatred for all debt, get another job, and get focused.

John
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The only quick way in your situation to get out of debt is to increase your income. A better job or a second job would help. Don't think about touching your 401K.

If you consider credit counseling be careful. They range from good to fraudulent. If they promise to discharge a large amount of your debt, run. They will take you money, stop making payments on your accounts, balances will balloon, then they will claim major savings on the inflated balance and leave you with a nasty tax bill.

Until you have a working budget, adding new credit is a bad idea. To bring you interest rates down, you are going to need to establish a history of on time payments.

Have you obtained your credit report? A free credit report from each of the CRAs is available every year. If you haven't obtained one recently, then get one from at least one of the CRAs (Equifax, TransUnion or Experian). It is likely that all of the credit cards are reporting to all of the CRAs.

Having one of the credit reports should give a record of your late payments. Call each of your credit cards and ask for your interest rate to be reduced. Depending on how recent your late payments were made, they may not be willing to consider it. If they turn you down, ask what is required to lower your interest rate. If it is on time payments for 6 months or a year, note the date to call back.

Debra
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A lot of good advice already, but I just wanted to add that moving the debt around doesn't seem like a bad idea as long as you do the other things first. You should speak with your bank about your loan see what kind of interest rate you can get. If you can get a loan it seems very likely that it would be considerably lower 24%, which you can use to pay off the other loans. As long as you do the other stuff and start managing your expenses more prudently first, switching the debt to a loan with a lower rate would be very helpful.
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Hi DVD,

First off welcome, This board is an great place to learn to kill CC debt and get you going on the path to financial freedom. Me and my Dear Wife (DW) had more than twice the Consumer debt that you have in CC debt. It took us just under 18 months to do it. Your debt is harder, You have very high interest rates and not a great amount of income coming to work it down quickly.

Before I jump in to you debt and give an example of how you might get rid of this debt, let me try to encourage you that getting in control of you finances can happen much quicker. It’s a lot of work and it may sound obvious, but your personal finances are in need of a total overhaul. You are well aware that making minimum pay does not work it merely postpones the CRASH. Some how you and indeed Me and DW accepted that for every $1000 of whatever (Stuff) we would pay around $30/month for….ah.. oh well forever. The first $1000 is nothing 30/month so what. Fast forward multiply by 26 and … ouch right around $800/month at 24% your in a long ride, even if you wake-up tomorrow and are outstanding at managing your money you are going to need a 5 year membership TMF to clear this debt if income and interest rates remain the same.

But DVD, this kind of debt can be paid off much quicker, not through some magic loan or debt consolidation those do not work. They really only give us a feeling of control since maybe the debt is not barring down on us. The habit of spending is still there it will not go away. Poor financial management has to be changed or it will only grow larger. It is a bitter pill to swallow but even if you could empty all the CC’s if there is no change in the way you do personal finance those cards will fill right backup again.

I know that your goal is to get out of CC debt ASAP. IMHO that’s not good enough. Me I would want to learn how to get ride of the CC debt so that the $800/month is free to work for me many years to come.

Stopping the bleeding is the first step. It is very much like drawing a line in the sand – Take every CC out of your wallet or purse and put them away. Keep one locked in your car, if you must, for emergencies but the point is you need get them away for you. (This part is easy)

(This part is hard)
You need a spend plan one that balances.

My spend plan is quite a bit different then others but, I thought I would share how I use it since I get paid biweekly as well and it has been very helpful in boosting debt repayment in the past and kept me LBMM (Living below my means) I have a column for every week every row is the same across the spend plan starts off the same all the weekly recurring expenses first food, gas, spending, then I divide up all monthly expenses as equally as possible into the two pay weeks and put all the categories in there own row. So columns would total something like 150,950,150,950 assuming your weekly expenses are $150. and your monthly and CC are 800 each. Every six month there are three paycheck instead of two so if something like this works for you, every six months you could free up $800 for an emergency fund and CC repayment. But….. I am making a lot of assumption DVD you will need to track all your spending and makes lots of cuts before getting to this stage. This might however, be a bit of a guide to see what categories you have and how much you need, if you can make budget cuts or if you need a second job or so to bring everything into balance.

Its going to take time to get your credit rating up to get better interest rates to not have your month CC payments eaten up by the high interest rates but, even if you can only manage $800/month and keep paying that much never lowering it. It will go down.

Well got to go, good luck DVD and wish you well on controlling spending.

~
Roy
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A lot of good advice already, but I just wanted to add that moving the debt around doesn't seem like a bad idea as long as you do the other things first. You should speak with your bank about your loan see what kind of interest rate you can get. If you can get a loan it seems very likely that it would be considerably lower 24%, which you can use to pay off the other loans. As long as you do the other stuff and start managing your expenses more prudently first, switching the debt to a loan with a lower rate would be very helpful.

Sorry, but this is dangerous advice. Unless you have your spending completely under control, the temptation of those now empty credit cards could prove to be overwhelming, and before you know it, you have the amount due on the loan and the CC's charged back to the max.

Now you owe double the amount. If you think making the payments is tough now, what are you going to if this situation occurs?

Sure you say, I can close all these credit cards, but the temptation to keep one open just in case will be overwhelming. Once that one is charged up, well, look a O% teaser rate on another card. It is the slippery road to perdition.

You need to think long and hard before you take this road - been there and done that.

Jim
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Huh? Maybe we just have different perspectives on the psychology of the whole thing. All I was saying though, was that instead of paying a 24% interest rate try to get a fixed interest rate loan for 7-10%. He's going to be paying off the debt anyway, why not get a lowered interest rate? I'm not talking about a credit card, just a bank loan in the size of the debt, essentially the same as consolidating the debt into one bank at lower rates. Of course, I did mention that this step is secondary to taking care of spending habits that everyone has mentioned.
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Huh? Maybe we just have different perspectives on the psychology of the whole thing.

Or different assumptions.

All I was saying though, was that instead of paying a 24% interest rate try to get a fixed interest rate loan for 7-10%. He's going to be paying off the debt anyway, why not get a lowered interest rate? I'm not talking about a credit card, just a bank loan in the size of the debt, essentially the same as consolidating the debt into one bank at lower rates.

At this point, it is highly unlikely that the OP would qualify for a fixed interest rate loan for 7-10% without any collateral. The OP is a renter with a car worth $2-3k. No collateral there. Plus, by getting the loan, the OP will free up all the available credit on the credit cards, ready to charge up again.

Of course, I did mention that this step is secondary to taking care of spending habits that everyone has mentioned.

You did mention this, but it was somewhat buried in the post, and didn't seem to have the prominence that this step deserves. This needs to be the absolute first step, before even thinking about getting a loan to 'pay off' the credit card debt.

For the OP to be successful with paying down debt by getting an unsecured fixed rate loan (if they are even available), a lot of other stuff needs to occur first. But you seemed to skim over all that, and lead with the idea that getting a loan to 'pay off' the credit card debt was a good idea. That's where the danger in your post lies.

AJ
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Thank you all for this information. I will keep you guys informed with my progress! Wish me luck!
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