$18K on one card and the interest is tripling

[addicted.to.music]

Hello, this is my first time posting to this forum or any forum at all for that matter, but I need some help. Here is the debt I currently have:

Citi - $18,000 @ 11.24%
HSBC - $2,800.00 @ promotional 0.00% until 02/2011
BofA - $1,300.00 @ 4.25%

Monthly Net Income - $1,800.00

I just got a letter yesterday telling me that Citi is raising it's interest rates to 29.99% on my card. So, now I'm freaking out. I've been wanting to get this card down for quite some time and now it looks like they've given me a reason to. Anyone know of ways to get this debt down without hurting my credit too much? Am I too deep? Any help or advice at all would be greatly appreciated.

[happygirl]

Wow, it sounds like you've gotten yourself into a bad situation. Not knowing what your other monthly bills are, what your lifestyle is or how old you are, a quick answer that comes to mind is that you should consider picking up another job and cut out all non essential expenses, then put every extra penny you can towards that debt.

And obviously, quit using credit cards until all this debt is paid off. Good luck.

[disneysteve]

Originally Posted by addicted.to.music

Anyone know of ways to get this debt down without hurting my credit too much?

Certainly, the way to get it down without hurting your credit is to accelerate your payments. Put more toward the debt each month. Every spare penny should be going to the Citi card.

What does your budget look like? Have you cut out everything you possibly can? Are you able to work more hours at your current job or take on a second job to boost income? Are you single and living alone? If so, could you take in a roommate or move to a cheaper place?

What is the source of all of that debt? Was any of that money spent on tangible items that can be sold to raise cash?

[arthurb999]

You can opt out and they freeze your rate and don't let you use the card anymore... it's worth a shot...

[addicted.to.music]

Thanks for the quick response. Well here are the other bills:

Rent - $800
Utilities - $200
Insurance - $50

Not sure, but I know I'm leaving something off. As it is right now, I'm paying $400 a month on Citi, which leaves enough to make the minimum payment on B of A and HSBC and a little left over to eat and put gas in the car. Not sure what you mean by lifestyle, but I don't spend any money on anything. I don't go out to eat or party and I don't have spending money to play with. I'm not able to take on extra hours at my current job and haven't had any luck finding another job in the past 7 months. I have a girlfriend that I live with, but she was recently laid off and has been unemployed for three months. We get about $300 a month for her unemployment. I don;t really have any tangible items to show for all of that debt. As incredible as it sounds, most of it was accumulated when I was in my teens, when I did all the partying and eating out and road trips. I've sold what few items we could do without but it didn't really put a dent. Is debt consolidation a viable option? Does that hurt more than help? Thanks again for the help.

[happygirl]

When I mentioned your lifestyle, I was thinking along the lines of "Do you own a home, do you have children, still live with your parents etc.".

Honestly, even if you were only able to get a side job at a fast food place it would help. I'm guessing you are young (and hopefully healthy). I've heard of people working long hours seven days a week for months or more just to repay some of the debt they earned. I've also heard of people joining the service just so they wouldn't have to worry about housing, food etc. Then they were able to put all their income toward their debt. That may be extreme for your situation, but I figured I'd throw that out there. I really don't know how realistic that is though.

I hope someone can give you better advice. If nothing else, remember that if you have changed your spending habits, someday you really will look back on this time and be glad you worked your way through it.

[disneysteve]

You are spending 55% of your income on housing which is way too much and not something you can sustain. If you and she are not able to substantially boost income, you need to find cheaper housing. Perhaps you can find another couple who you can share a larger place with. A 2-bedroom is generally cheaper than two 1-bedroom apartments.

The rule of thumb is to keep housing to about 30% of income. If you can't lower that bill, I'm afraid you will find it very difficult if not impossible to get yourself out of this hole. Spending almost 60% of income on housing can't be sustained.

It would still be helpful to see a full budget. You mention a car but don't list any related expenses. You don't list food or clothing. You haven't accounted for the whole $1,800 you bring in or the $300 she collects. Given your situation, I think it is critical that you know exactly where every dollar is going. I always recommend that folks keep a written spending log for a month. Write down absolutely everything down to the penny. Then, add in any recurring costs that don't get paid monthly (like auto registration, insurance premiums, etc.). That should give you a pretty accurate idea of where the money is actually going as well as if there is anything that could be trimmed further.

[BTC]

If it's an option, you might consider consolidating the debt onto a lower interest card, or bank loan.

[sofocused978]

Originally Posted by arthurb999

You can opt out and they freeze your rate and don't let you use the card anymore... it's worth a shot...

I happened to opt out of a rate jack from citi and can still use my card until it expires in 2 years. I get balance transfer checks weekly from citi. Also by opting out my interest rate is actually down 2%. I was in your spot OP and was confused as to what to do. I had carried a large balance on my card and was shocked when the increase letter came in. I made a number of calls to citi to talk them out of the increase and finally happened upon a very nice customer service rep who suggested to me that I opt out of the increase and to call them before the card expires and negotiate new terms at that time since I have 2 years to go. She said they will most definitely work with me cuz if they didn't they would lose all of their good customers and wouldn't have much of a business if they just went ahead and closed everyones accounts. That's just my experience and word on this matter.

[wincrasher]

I love the advice to get a second job. Ever watch the news? Millions layed off and millions more working part-time if they can find it.

Obviously your rent is too high for your income. You may not have cheaper alternatives - where I live that is cheap rent. The roomate may be a good idea if you can find someone reliable that's not a lunatic.

Definately opt out of the increase.

Paying down your debt helps your credit score. Paying on time, utilization rate (amount you owe compared to the limit) and age of account effects your score the most. Negotiating your rate won't effect your score. Neither will an opt out. When your account is closed, it may eventually effect your score because the age of your accounts will slowly start to change. But that is nothing to worry about. Write downs and charge offs will hammer your score. Always pay what is agreed to. The trick is to get the agreement.

Another idea - check your exemptions on your w-4. Do you get a big refund each year? Change your exemptions and get back more money each week. At 1800 a month, you should not be paying much, if anything, in taxes.

Good luck.

[paymydebt]

You do need to get rid of the citi card...what a bunch of crooks. I can't believe they can get away with increasing their interest rate by a whopping 19%. If you have any balance available on the lower interest cards move it there. Otherwise the option to consolidate may be best in your situation. If you have any other skills where you could add income on the side, like something you could do from home or online that would help.

[disneysteve]

Originally Posted by wincrasher

I love the advice to get a second job. Ever watch the news? Millions layed off and millions more working part-time if they can find it.

I think the media really blows some of this out of proportion. I also think the national stats can be very deceiving because they get skewed by a few geographic areas resulting in an average that doesn't really reflect what is going on nationwide. From experience, I also know that many people who are collecting unemployment, and thus are part of those statistics, are hard at work at jobs getting paid cash off the books. When times are tough, employers are more willing to bend the rules because it saves them money in taxes and benefits.

Certainly there are places where work is nearly impossible to find. Detroit comes to mind. In many places, though, a hard worker with a good work ethic can find work. It may not pay as much as you'd like to earn, but if it is a second job, that isn't so important. Even minimum wage for 10-20 hours/week could bring in as much as $7,500/year in extra income (before taxes) that could all go directly to debt repayment. And most jobs pay more than minimum wage.

[Inkstain82]

Originally Posted by paymydebt

You do need to get rid of the citi card...what a bunch of crooks. I can't believe they can get away with increasing their interest rate by a whopping 19%.

I hear this sentiment quite a bit, and it's completely unfair.

Unsecured debt is priced to risk, and the risk in bad economic times is enormous. Roughly 1 in 8 credit-card accounts are delinquent or in default, and many of those accounts carry the a larger than average percentage of the companies' loans paid out.

And not all of those people in default now were people with bad credit before. If you have no savings (as most Americans don't) and you could lose your job at any moment (as most Americans could right now), you are never far from defaulting on unsecured debt.

Unsecured debt is priced at a variable rate. That means instead of a nice, steady price, it will be extremely cheap in good times and very expensive in bad times. Nobody said a word when times were good and they benefited from the cheaper rates. But now the flip-side of the coin isn't as much fun, and the credit-card companies are accused of doing something morally wrong. (Not that they are saints by any means.)

Anyone who thinks they can do better should start their own company and start offering unsecured debt at rates they feel is fair, and see how long they last.

[EconoMutt]

Have you tried to consolidate your debt by using prosper.com?
I haven't used it personally, but I see a lot of people using it to consolidate their credit card debt.

[paymydebt]

Originally Posted by Inkstain82

I hear this sentiment quite a bit, and it's completely unfair.

Unsecured debt is priced to risk, and the risk in bad economic times is enormous. Roughly 1 in 8 credit-card accounts are delinquent or in default, and many of those accounts carry the a larger than average percentage of the companies' loans paid out.

And not all of those people in default now were people with bad credit before. If you have no savings (as most Americans don't) and you could lose your job at any moment (as most Americans could right now), you are never far from defaulting on unsecured debt.

Unsecured debt is priced at a variable rate. That means instead of a nice, steady price, it will be extremely cheap in good times and very expensive in bad times. Nobody said a word when times were good and they benefited from the cheaper rates. But now the flip-side of the coin isn't as much fun, and the credit-card companies are accused of doing something morally wrong. (Not that they are saints by any means.)

Anyone who thinks they can do better should start their own company and start offering unsecured debt at rates they feel is fair, and see how long they last.

You really think a jump by almost 19% to 29.9% is fair? 1 delinquent credit card in 8 no way justifies this. These people are not losing money if you do the calculations. There needs to be laws in place for this. Even at 11% is not a low interest either that they cannot make money from and recoup any losses due to any delinquent accounts. Just saying because it is "unsecured debt" shouldn't mean an open door to charge whatever you want.

[Inkstain82]

Originally Posted by paymydebt

You really think a jump by almost 19% to 29.9% is fair? 1 delinquent credit card in 8 no way justifies this. These people are not losing money if you do the calculations. There needs to be laws in place for this. Even at 11% is not a low interest either that they cannot make money from and recoup any losses due to any delinquent accounts. Just saying because it is "unsecured debt" shouldn't mean an open door to charge whatever you want.

Yes, I think it's absolutely fair.

If anyone disagrees, they can start their own credit-card company and offer better rates, thus sweeping up all the customers and making a killing.

The fact that no one seems interested in doing that should tell you I'm right.

[disneysteve]

Originally Posted by Inkstain82

I hear this sentiment quite a bit, and it's completely unfair.

Unsecured debt is priced to risk, and the risk in bad economic times is enormous.

I think there are two different issues that get lumped together here.

1. Credit card user has his rate hiked because he, personally, did something wrong or saw a change in his circumstances. Perhaps he made a late payment, overdrew his account or did something else that caused a significant drop in his FICO score.

2. Credit card user has his rate hiked despite doing absolutely nothing wrong. He makes every payment on time. He has never been late. He never charges over his limit and he maintains a decent credit score. His rate gets hiked because of things other borrowers have done because the company feels they need to pass on the losses from other customers to the customers who are still in good standing.

In scenario one, the rate increase makes sense. In scenario two, it doesn't. How can you argue that it is fair to user #2 to penalize him and jack up his rate based on what others have done? I have to disagree with that being fair or appropriate and I don't even think it should be legal.

I've also said before that there is a big difference between raising the rate on new purchases and raising the rate on existing balances.

[Inkstain82]

#2 is fair to me because the user knows (or at least should know) is that credit cards aren't based on individual underwriting. They are based on actuarial risk assessment.

It sure seems as if people want all the benefits of variable-rate debts (low rates when times are good), but none of the risk.

If you don't want the chance that the rate will rise without you being at fault, ask for a fixed rate on the debt when you open the account. You'll pay more in good times, but you won't have to worry about this happening.

I don't have a problem with it being outlawed. Variable rates on unsecured debt is risky stuff, and we are a country that has proven most of us can't handle debt. But I don't think it's wrong of the credit card companies to offer it until then.

[disneysteve]

Originally Posted by Inkstain82

But I don't think it's wrong of the credit card companies to offer it until then.

Legally, it isn't wrong for them to do it. That's my problem. It should be illegal. Or it should be more like a HELOC where the rate is variable but there is an annual cap on rate increases so that nobody will ever see a 20% rate jump at one time.

[paymydebt]

I agree there should be an annual cap on the rate so no one sees big jumps all at once. Why causing further hardships for people which will result in more delinquent accounts. And I definitely don't believe citi is justified in raising their interest rate by a whopping 19% at once and if enough people complain maybe can get a law in place to prevent this in the future.