I don't have a ton of experience of dealing with credit card companies, but recently worked with a couple and I recommended they contact the CC companies. The companies all said they would not negotiate with them as long as they were current on their payments. They said they would have to get 3 months behind before the would negotiate. In this case, the couple had no choice but to stop paying on them as they simply did not have enough money to pay even the minimums. They had to cut off the bleeding.
What I did was take their last 12 bank statements (this is what you need to do). Create a spreadsheet. Down the first column (Column A) list all your fixed expenses (ie. house payment, car payment, auto insurance, life insurance, health insurance, cable, Phone, electric, etc.) Don't put the credit card payments in there yet.
In Col B, C, D, etc. list the month of the bank statement. It is important to have all 12 statements. So, if your last statement was in April, then Col B would be May 2008, then C would be June 2008, etc. until you get to April 2009, then the last column should be "BUDGET".
Now, one bank statement at a time, enter in the fixed expenses. Don't worry about the discretionary expenses because we already know you can't afford to spend as much as you were. But if you want an eye opening experience add up all the checks/debits/withdrawals on those 12 statements and subtract your fixed expenses (after you do my exercise) to see how much you spent on discretionary expenses. Prepare to be sick!
Once you enter the fixed expenses for the 12 months, then the next step is the most critical. In the BUDGET column I want you to go one expense at a time. Pick an amount that would have been enough to pay that expense 10 out of 12 months. This is important. Do NOT add up the 12 months and divide by 12 to get an average. You will surely fail. Do this for each of the different expense categories.
Now total the BUDGET column. Subtract that total from your Monthly Income. Assuming you don't write a check for taxes each year and you either pay in the right amount in withholding or you get a refund each year, then take your NET paycheck after all deductions as your income for this purpose. Hopefully, you have more net income than the total BUDGET column. If not, you really need to seek professional help.
Assuming there is some left after subtracting your Fixed expenses from your net income, divide that remainder by 52. This is how much you can afford to spend on discretionary expenses (ie. haircuts, groceries, gas for cars, clothes, etc.). Discretionary expenses are generally anything paid away from the house.
Here comes the big question...out of that weekly amount, how much can you afford to use toward debt reduction? Whatever you determine you can afford, see if you even have enough to pay the minimums on your credit cards. If the answer is "NO" then you have to call the companies and negotiate. You can't do that until you stop paying on your credit cards.
Not paying on credit cards will hurt your credit, but I'm one that believes that is not always a bad thing because then you won't be able to get any more debt. You don't need any more debt. If you can't pay your debts, you will have to do something and all the solutions (ie. bankruptcy, etc.) will most likely negatively affect your credit scores too.
Assuming you have enough to pay your minimums and then sum, then you do as others have said and each month pay the minimums on all cards except the highest interest rate card. Take your debt reduction budget minus the minimums on the other cards and the result is what you send to the highest interest rate card. Do this until that card is paid off. Then, using the same budget amount, repeat the procedure with the next highest interest rate card.
Do some projections and if it is going to take you more than 4 years to pay off the debt, then you have a very serious problem. Increasing income and reducing all unnecessary expenses will help. Get rid of cell phones, cable, satellite, and anything else. We think of cell phones as a must have, but they aren't if you are broke.
The key to this plan is also to provide yourself with a weekly cash amount that pays for all discretionary spending. When you are out of cash, you are out of money ....for that week. Don't cheat. This is going to be a drastic change in your life, but you have no choice.
Hope this helps.
|