I have a friend who has Perfect credit but he's way over his head. He can make his payments and he pays 700 more than his minimums (total) but with all the interest it's just not going down much. All debt in unsecured: 25K in Amex consolidation at 14.9, 16K at MBNA at 19.98, and 17K at Citibank at 15.9. All this on only 42K a year salary. He's been advised to file a BK but he really doesn't want to file. He tried to reduce his interest rates w/his current creditors but all said no (MBNA told him if he's over his head to file the BK) Does anyone have any suggestions about debt consolidation/ or cards with better rates? His MBNA goes up in balance every month even w/his payment... He's currently looking for a higher paying job so he can pay more monthly but now he's getting soaked on interest. Oh, CCCS told him Amex won't reduce/negotiate so don't bother with their program. Any suggestions?
RE: Reducing interest rates/co Make sure the extra 700 over the minimum is going towards the MBNA card, if he does this for a few months they will offer him a better rate, then use that teaser rate to payoff the next highest card. Take a part-time job and apply all the income towards debt. http://www.creditsense.com
RE: Reducing interest rates/co Wow! I calculate $9625 per year in interest alone. That's 22.9% of his annual income of $42,000. Any payments to principal would take even more of his income. What lessons can we learn from this? (1) Never accumulate $58,000 in credit card debt, even with prime creditors. (2) Never accumulate credit card debt equal to 138% of your annual income. Sorry I can't suggest any immediate solution, but I hope this helps by further defining what the problem is.
RE: Reducing interest rates/co Great suggestion! Seriously, the problem with MBNA must be that he's still charging purchases on the card. Otherwise, his balance wouldn't keep increasing, unless he's over his limit or paying late every month. Marie, what are the limits on those cards?
RE: Reducing interest rates/co Is he a homeowner? A home equity line of credit would work wonders. Low interest rate, one monthly payment and he may even be able to claim some of the interest on his taxes at year end. Or, with rates as low as they are, he could do a cash-out refi (provided that he has equity) and pay everything off. What kind of fool racks up almost $60,000 in credit card debt? What the heck does he have to show for $60K?? I'd advise him to start selling whatever he purchased and get back on track.
RE: Reducing interest rates/co If he has a 401k, he might want to look into borrowing from it to knock this debt down in one fell swoop. But there are some rules about 401k loans, and he should be aware of them. pros: 1.interest rates can be much lower. 2. paying interest to himself instead of CCC. 3.he can choose repayment terms. Cons: 1. If he leaves the job, the loan becomes due and payable immediately, if it is not repaid, the amount is subject to a 10% tax penalty in the same year, *and* is taxable as regular income in the same year. 2. If his 401k is invested in stocks or mutual funds, and the market takes off again, he would lose out on the gains. 3. He might have to reduce his contribution in order to make the payments, thus affecting his retirement plans.
RE: Reducing interest rates/co Great suggestions!!! Thanks! When he drove to Atlanta to talk with me about it I almost fell over hearing how much interest he pays! He's got more debt than I did when I filed BK.. he just can pay his payments. He may try to do intro low rates and balance transfer MBNA... and he is withdrawing 10K in investments to put towards MBNA (good move). I was most surprised to find out that he pays higher interest rates than I do and he's perfect for 15 years.. and I have a BK 2 years ago. Strange system. The other option in the wings may be to transfer debt to parents intro rate cards (or borrow money from inlaws with low interest rate). Funny, the emotional interest scares him so much he'd rather file a BK than borrow from his future inlaws. Seems to me the options are basic: reduce interest/increase payments, or file BK. I've just been watching the Prime lenders be bigger jerks with him than I ever thought they would be. Guess if they think they've got you between a rock and a hard place they even squeeze the Prime borrowers. I really like the idea of making the bigger payments to MBNA to not only reduce the higher interest but to maybe also trigger the computer system into thinking he's not totally dependent on them! If the company thinks you have options: they negotiate. Thanks!
RE: Reducing interest rates/co I honestly don't know if they work with balances this high, but may I suggest that your friend speak with one of the debt consolidation organizations. They are non-profit organizations who don't offer loans. They will speak with your creditors to reduce your interest rates and payments and you pay them lump sum per month and they dispense it to your creditors. I did this and my bills are almost gone. But my total debt was around $20K, not $60K. Good luck. Ryanne http://www.geocities.com/creditassist
RE: Reducing interest rates/co Why is everyone's first thought after racking up extreme credit card debt is to claim bankruptcy? Bankruptcy should only be used in the direst of circumstances - a medical illness or a loss of income (one party is laid off, etc.) I admire someone alot more who works toward reducing that debt then claiming the easy way out. I don't mean to sound bitter - but I have a sister in law who is on her 2nd bankruptcy because she cannot stop spending. It infuriates me that I have to pay in the form of higher interest rates and fees because she has a problem. Marie, I agree with Sam and Creditworks to close the accounts and get a part time job and put that additional money to reducing his debt. Good luck and let us know how it turns out. I wish him the best. Dani
RE: Reducing interest rates/co Thanks! I just emailed him to get more info. The MBNA is at it's limit and the interest is giving him the over the limit charges... I told him about changing his extra payments to MBNA and it was as though he hadn't even thought of it! I think he's so in the middle of it he can't see clearly right now. Oh, He did meet w/CCCS, of course. His fiance' had just found out how in debt he was and she made him go (and she postponed the wedding: which was to be in April). CCCS said since 25K is with Amex Consolidation they won't budge on interest they'd rather see him file Bk and take the writeoff. CCCS told him their system wasn't really the best course of action for him and the advisor was amazed he'd been able to keep paying on time with this huge debtload. The only thing that's really been saving him is the fact that his fiance' owns her house and they only pay utilities. If he had a house/rent payment he'd wouldn't have been able to even maintain his minimums. I admire his tenacity too! I tried the same thing for 4 years after a 10 year relationship left me with 100% of all our debts on my income... then my company went bellyup and I still tried.. let my credit get screwed up... still paid off... then Macys and Wachovia were so intent on not negotiating that I finally filed a Bk. Probably should've done it 4 years before... which is probably why my friend is so frustrated with himself. Neither path is fun.. but I ultimately do think he can avoid the BK and he should. Of course, the BK attys say "FILE FILE FILE". I'll tell him about closing the accounts. they're maxed so he can't charge (which protects him from himself). I do believe he had a real spending problem and I also think that's why he's trying to pay it all off. regain his self-esteem
RE: Reducing interest rates/co Since Amex and Citibank give him a much lower interest rate maybe he can get one or both of them to raise his limit so he can transfer the MBNA balance and CLOSE the MBNA card. That extra few % interest rate makes a BIG difference. Also, if he can qualify there are plenty of card issuers out there who might offer a low intro APR so he can transfer the balances to get lower interest. The key is to CLOSE the ones he transfers from. I don't recommend bankruptcy because if he really has a spending problem then soon other banks would start sending him new cards after the bankruptcy and he'd end up in the same situation. He needs to get counseling to control his spending and pay his debt. His fiance sounds very sensible, so he should let her handle the finances
