Fixing My Debt Mess

**skydivingchic** · 01-06-2011, 07:10 PM

Well the first thing everyone is going to say, including me, is that you haven't given us near enough information. If you want solid advice on your particular situation we need to see the following:
Complete list of debts with balances, interest rates, and minimum payments
Complete list of income and monthly expenses
Do you get a tax refund each year? If so, approximately how much?

The second thing I'm going to point out is a flaw in your logic. You say by taking a home equity line it "does pay everything off." No, it does not. It transfers the debt from the CCs and car loan to your equity loan. You cannot borrow your way out of debt. Most on this forum would be extremely cautious/leery about taking unsecured debt like CCs and putting it onto a home equity line where you risk your house. It may lower the interest rate and you may be successful, but that ONLY works when you are absolutely committed to changing your lifestyle and paying off the debt. Otherwise you will just end up in a few years with a whole new pile of CC debt AND and home equity loan and no way to pay it all. I speak from experience - that is a hard lesson learned after years of finally paying off a few thousand worth of CC debt with my "emergency fund", then racking it back up and wondering in a year or two why I have a revolving balance of a few thousand dollars again.

So, my recommendation would be to first supply the above information. My second recommendation is to take a good, hard look at your lifestyle. Why do you have nearly $30k of CC debt? What got you there? Identify the problem areas - is it going out with friends, electronic toys, funding an expensive hobby, etc? You need to identify the problem areas and then figure out how you are going to address them. That will probably involve setting a budget and sticking with it. Unless and until you have demonstrated that you are willing and able to address the lifestyle problem that got you here, I would NOT recommend taking out a home equity loan or even transferring money around to lower rate cards. Eventually, after you've spent 6+ months sticking to a budget that is within your means and aggressively paying off debt, looking for lower interest rates may serve a very good purpose.

I don't mean to sound harsh, but personal finance is all about habits and lifestyle. You didn't get into this debt over night and you won't get out of it immediately either. It can be done and it is well worth the effort. You have come to the right place for solid advice - lots of smart, helpful people here.

**maat55** · 01-06-2011, 07:55 PM

I agree with skydivingchic, one thing I would personally do is sell the car and buy a beater. This would get rid of alot of the debt up front provided your not massively upside down.

As mentioned above, HEL's are dangerous. It is very easy to end up with much more debt. I would go 3 to 6 months reducing the debts without a loan to prove you are on track, first.

**splais** · 01-06-2011, 07:59 PM

I probably should have provided a little more information. I didn't really get in this mess from being careless or wasteful. I got into it because I got in a situation mentoring and helping a young man on the other side of the country. It took longer than expected and just got out of hand. I run a STRICK budget and have for years. I know were every penny comes from and will go at the beginning of each month. I'm retired and on a gov't pension. While I've managed the debt and not missed any payments I've just managed to let more and more of my disposable income get sucked up with credit card debt. I reached the bottom of the barrel. Currently there is no savings and no way to cover anything unexpeted except with more credit card debt. With a consolidation I've already worked out a budget that pays a new single paymnet that will eventually pay off the debt, at the same time puts money away in an account to pay all those once a year bills like property tax, insurance, etc, and still leaves money to put in regular savings. Even after doing all this, I still have about $1000 a month I'm spending on living costs for the young man mentioned above. BUT he is finally working in a job and I hope to reduce my help to him over the next several months. I'm taking another step - selling a debt free motorcycle I have to put a nest egg away to get started. I plan to never buy with a credit card again. I'm now 67 so I think the temptations are less than when I was younger.

Under all this senario I'm just trying to balance the pros and cons of my two options. I have thought about another option that involves paying miniums on all cards except one, paying it off, etc, etc, moving threw the cards one at a time. But the problem is, right now I have no excess income, all income is programed against some expense. I need to do something that gets me some wiggle room even if it means making payments a little longer. and yes I realize there can be no backsliding, or it will just start all over. But I am going to run some numbers on the one-at-a-time option.

PS: I can see no real difference between having the debt on one card or five. I too have always been told to never endanger your home covering unsecured debt. One thing I like about the single credit card plan is I will know very quickly if I can stick to my new budget.

**splais** · 01-06-2011, 08:02 PM

sorry, couble post

**jpg7n16** · 01-06-2011, 08:15 PM

Splais,

I appreciate you replying, but you never posted your income.

And although you likely FELT like you were on a very strict budget. That budget pressure was likely caused by too much house and too much car for your income.

Your housing payment should be no more than 28% of your income. And the value of your car should be less than 30% of your income.

How much is your government pension?

If it's less than $60,000/year your car is too expensive. And I'm willing to bet your house is too expensive as well.

So you are trying to free up cash by reducing the payments towards the debt, when you should instead be trying to INCREASE the payments to the debt by freeing up cash elsewhere.

**maat55** · 01-07-2011, 04:58 AM

Are you able to get a job and knock out the debt? 67 may be to early to retire in your position.

**disneysteve** · 01-07-2011, 05:50 AM

Originally posted by splais View Post

have come up with two options, well three, if you count cutting up the credit cards.

Cutting up the cards isn't an "option" but rather a requirement. If you haven't already done that, take them out right now and destroy them.

Option One: take out a fixed rate home equity loan

No. Do not covert unsecured debt to secured debt. If something happens and you aren't able to repay the credit cards, it wrecks your credit rating but that's it. If something happens and you can't pay your HEL, you could lose your home. Don't take that chance.

Option Two: does pretty much the same thing and results in the same overall monthly payment. consolidate all credit cards on my NFCU card with about a 7.9% interest rate

This is okay to do if it reduces your overall interest rate since that will save you money in the long run, but it doesn't really do anything to fix the problem in the big picture.
[/QUOTE]

I got in a situation mentoring and helping a young man on the other side of the country.

While that may have been a wonderful thing to do, it is clearly something that you can't afford to continue. You need to let this person know that you are very sorry but can no longer continue the support that you've been providing.

I run a STRICK budget and have for years. I know were every penny comes from and will go at the beginning of each month.
I've just managed to let more and more of my disposable income get sucked up with credit card debt.

These two statements are contradictory. If you truly ran a strict budget, you wouldn't have ended up with 47K in debt. A budget isn't a budget if the income and outgo don't balance (unless you're in Congress). You've been living with a deficit budget that has left you 47K in the hole.

selling a debt free motorcycle I have to put a nest egg away to get started.

Kudos for selling the motorcycle but that money shouldn't go for a nest egg. It should go to pay down your debt. Also, sell anything else you possibly can to raise extra cash. And if you are physically able to work, find yourself a job. You are only 67. My 80-year-old mother was working part-time until just a year or two ago. My 71-year-old MIL is still working a full-time job.

right now I have no excess income, all income is programed against some expense. I need to do something that gets me some wiggle room even if it means making payments a little longer.

I think I've already addressed this. Stop sending $1,000/month to this person you mentored, sell your stuff and get a job.

One thing I like about the single credit card plan is I will know very quickly if I can stick to my new budget.

I don't understand this statement. Why will having one credit card vs. five affect whether or not you stick to your budget? It shouldn't matter either way.

Fixing My Debt Mess