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A friend suggested I come here to seek advice. Here is my scenario:

After losing my job two years ago and moving to L.A., I fell behind on two major credit cards. I signed up for payment programs to help lower payments and defer interest charges for a year. Everything worked out fine once I found a job. I kept up with the payments, even though my rent went up $500. I was (and still am) living paycheck to paycheck. I even got a second job that basically pays for groceries.

Now, I have been working at my main job for a year, it's secure and stable (as much as can be presumed in this day and age), those payment programs have ended, the interest rates are going back up and I am finding myself unable to keep up with regular minimum monthly payments. Neither credit card company is willing to work with me any further. They say I don't qualify for any other payment programs and if I don't keep up with payments, my account will be turned over to some third party collector and my credit will be ruined. I'm assuming my credit is not the greatest anyway due to just being on these payment programs, but I certainly don't want it "ruined."

In addition to those two credit cards (which are closed,) I have a car payment, a third credit card, which is open, and a student loan. I have kept up with payments with each of those. My total debt totals approximately $52,000. I have already cut out cable, unnecessary expenses, and cut down grocery bill. I don't have any items worth selling. I have no savings and no money tucked away anywhere. And, thousands of dollars in dental work soon to be a necessity because I keep putting it off (that why I haven't cut up the third credit card yet.)

So, that's the back story. Basically, I'm looking to get everything down to the lowest monthly payment with the lowest interest rate I can get.

Contemplating these following solutions:

1) Take out personal loan at fixed rate through a credit union or loan company (From what I've heard, maximum on a personal loan is $20,000, so I still would only be paying half my debt and not sure that their monthly payment would fit into monthly budget.)

2) Go to a debt consolidation place (Very skeptical about these types of companies and not sure that monthly payments and service fees to them would fit into my monthly budget.)

3) Finding another credit card with lower APR so I can transfer the balance (Again, I still would only be paying off a portion of debt and not sure that the monthly payment would fit into my monthly budget.)

4) Continue just to pay what I've been paying on these plans, ignoring rising interest rates, dodging phone calls and hope one day, I'll win the lottery and/or one or both of these companies will cut me a break!


Please let me know if there are other solutions to consider that I am overlooking.

Thank you in advance for any assistance or advice.


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I'm sure others will chime in but this is what jumped out at me initially: I'm assuming my credit is not the greatest anyway due to just being on these payment programs. Bolding is my emphasis.

My advice is to get your free credit report (I believe the website to get them for free is www.annualcreditreport.com) to see exactly what is on your credit report, since options 1 & 3 require applying for new credit & they will check your report.

Michele
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gentility,

Welcome. You've come to the right place. And you are overlooking another solution. In fact, its *the* only solution, which I'll get to in a minute.

Actually, none of the 4 things you've suggested are a solution at all. #1 and #3 are moving debt around, they are not paying it off. Your debt moves or shifts, but it is still there. They *can* be strategies within a greater plan if used properly, but they are not solutions.

#2 can only help you do what you can do just fine on your own, and that's only if they're legit. And #4, as you well know, is no solution at all.


You've build up debt, and there's only one reason for that. You've spent more than you make. Period. Now, there may be many reasons, or situations, or things that you may have spent on, but nonetheless, its the simplest of math. Your spend more money than you make.

So the only solution, which may be obvious by now, if you need to spend less than you make. Period. Thats it. That's all there is to it. You can do it by making more, or spending less, or some combination of the two. But that's the only way to get out of debt.

You didn't get into debt overnight, and you won't get out of it overnight. But you need to start.


First thing you need to do is stop using the credit cards. Period. Put them away, lock them up. Many people recommend freezing them in a block of ice (no, not kidding) - that way you have them, but they're so darn hard to get that you're not doing to use them in an impulse. But whatever you do, stop using them? Why? As is often said around here, the first rule of getting out of a hole is to stop digging.

Second, is you need to figure out what you're spending money on. How much on rent, how much on groceries, how much on food, how much on gas, how much on clothes, how much on insurance, how much on utilities, how much on coffee, how much tv, internet, how much on entertainment, electronics, etc. You need to track every penny (or at least as close as you can).

When you know how much you're spending, you can compare that to what you make, and decide where you need to cut back. $40K may seem like a lot - and, indeed, it is - but people here have dug out of a lot.


Oh, and if you're willing, you need to share these numbers with us. Your bills, your minimums, and your list of expenditures. No one can dig into those numbers like some of the people around here. And once you're willing to follow some of the suggestions to give yourself a more secure life going forward, you'll be on your way.

I hope this helps, and I hope you follow through. We're here for you.
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Hi gentility and welcome - Deltaone has given you a lot of info and asked a lot of very important questions, but I have one additional one. You say your rent went up $500? First off, you need to get a roommate if you don't already have one and you might want to consider that you need to move.
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Listen to Deltaone, thats good advice.

I'm a lender on Prosper.com and many, many of the folks who I've seen there who are in debt trouble spell debt C-A-R. If there is a gap between your car and your income, you need to eliminate that gap. Are you upside-down on the car loan or not? (Upside-down means "the payoff quote for my car loan is more than the probable resale value of my car"). If not, sell the car and buy a beater. A $2,000 used car will still get you from point A to point B, and it will drop hundreds from your strained monthly budget (and cut probably $10k+ off your $46k debt -- am I guessing right?).

If absolutely necessary, and you are upside-down on the car, you can sell the car, buy a beater, and get a loan for the credit union from the difference. They aren't going to be maximally happy with this, because you will likely not have sufficient equity in the beater to secure the car loan, but even this gets you much closer to positive cash flow.

So now you've got positive cash flow, what are you going to do with it? The first thing is to establish an emergency fund. It sounds like your cupboard is bare, and one setback will send you running for the cards. So get together $1,000 for life's little mishaps ASAP. Then, I would personally split the free cash flow between paying down your credit cards (highest APR first) and increasing your savings so that you'll be able to have some freedom for the more important things in life (see below regarding some important things). The minimum payments look high now, I know, but even if you think you can't afford to pay them you can't afford to pay ONLY them! Thats a recipe for continued indebtedness for decades, at the cost of probably close to $100,000.

This being said: debt management is important. Money is important. Credit is important. Your health is MORE important than any of these. After you've fixed your "I spend more money than I make" problem, you can buy your way out of debt, you can buy your way out of having no savings, you can even buy your way out of poor credit. You can't buy your way out of having no teeth! If dental work is a need rather than a want *get it done*. If its a want (I *want* to get braces again because my smile is crooked -- not doing it at the moment because I've got a major expense coming down the pike that gets priority), then you can put it off a little while longer.
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Hey there, welcome to the board.

Where in LA, may I ask, do you live? Is it at all possible to move to the outlying suburbs of LA where rent might be cheaper? You mentioned that your rent just went up $500, which isn't a small amount.

I'm in the LA area myself, but live in one of the outlying suburbs. I also commute to work in West LA every day, though I take the bus about 2 to 3 times a week, which cuts my gas in 1/2. Yes, it takes about 20 minutes longer each way, but it still cuts down on my gas and I'm not the one behind the wheel.

Where in LA do you live? And is it possible that you could move somewhere much, much cheaper? You say that you don't own much, so I get the feeling that you could pick up and move fairly easily...

-acidspit
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I don't have any items worth selling.

What about your car? You live in a city, they have public transit, right?
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People have already given you great advice on how to begin attacking your debt. The one thing I will add is that when you're ready to contemplate your dental work, I would look into Smile Saver dental insurance. It has very inexpensive plans that provide really good coverage. It could save you thousands if you have major dental work coming up.

DEG
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I also wanted to second the recommendation that you get a roommate or move.

DEG
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<<I also wanted to second the recommendation that you get a roommate or move.

DEG

>>



Consider being a roommate rather than getting one.


It is essential that you cut expenses and start paying down that debt. Defrring expenses like dental care just indicates things are worse than they are on paper. You really need to add the cost of the dental care you haven't had onto your existing debt load.


What kind of job do you have, and do you have any prospects for improving your job to one with better pay and benefits (like dental insurance)?



Seattle Pioneer
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Gentility,

To add to all the other great responses here:

1) It is true, true, true, that you cannot borrow your way out of debt. Stop digging, stop borrowing from Peter to pay Paul, etc. etc. etc.

HOWEVER -- once you understand that (and I'm hoping by now you do) you are absolutely correct in that you need to reduce the amount of interest you're paying. I've been in the same "closed CC account" situation that you mention, and I recall getting socked for 19% or 20% interest. This is sucking you dry, and you are right in looking for interest-rate relief. Just please do that *after* you pare all your finances to the bone. Don't go running for consolidation loans as a silver-bullet quick-fix. If you talk to anyone about debt relief, make sure it is a non-profit CCCS. The organization has a Web page at http://www.nfcc.org and a national hotline ([800] 388-2227) that will hook consumers up with their local CCCS office. See what they have to say.

2) For the dental work, look for a school of dentistry in the L.A. area. I'm sure there are several. These places are often looking for patients, and sometimes they pay *you* to get worked on at their school. You might get your dental work done for free.

Best of luck, and stay with this board. You will get out of this much faster with the help of Fools.

~dswing
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Gentility,
I'm nowhere near the finance guru that some of the others on this board are, but I just want to put my 2¢ in-


bingocards-
I'm a lender on Prosper.com and many, many of the folks who I've seen there who are in debt trouble spell debt C-A-R.


I can't tell you how true this is. Every person I know that is in debt has one thing in common - they all have nice cars. I have a friend who will come over for a visit, spend the time griping about having trouble making ends meet, then drive home in his leased Audi A6.
I happen to earn more than most of my friends, carry 0 debt, and hands-down drive the cheapest, least-luxurious car of them all. You must, in fact, cut all "vanity" expenses out of your budget. It's just that auto is usually the biggest one by far - so it's the most crucial.

PS - you haven't actually replied saying what your auto expenses are, so you may very well be doing the right thing anyway. I was just expanding on bingocards' point.

Good luck to you!
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2) For the dental work, look for a school of dentistry in the L.A. area. I'm sure there are several. These places are often looking for patients, and sometimes they pay *you* to get worked on at their school. You might get your dental work done for free.

Gentility,

I work for USC in their School of Dentistry, and we do indeed have a dental clinic at our dental school. There is also a good one at UCLA. At least at USC, I know that they book way in advance for regular patient care, but if you need urgent care (i.e. are in pain) you can walk in and get seen even as a new patient. I would give both of these places a call as they are certainly cheaper than a dentist in private practice, and do good work.
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