Financial advice welcomed (LONG)

[Pixilated]

So here's my dilemma: to use or not to use a debt counselling program ...

I owe about $4,000 to two credit cards. I am WAY behind. It is my fault only; I could've been making at least some payments but ... I didn't. Partly because when I started to fall behind, for some reason I thought I could no longer make online payments and I just never got to the bank. Yes, it is a stupid excuse.

With, of course, the usual results: the endless letters and phone calls.

I have looked into a debt counselling program. For those who don't know, when you sign up with one of these, they run interference with your creditors. You, on the other hand, sign a promise to pay a minimum payment each month. Screw up, without a good excuse, and you are toast, but as long as you pay faithfully, they will keep the collection hellhounds off your back.

I'm told they can also negotiate a lower balance to be paid off, but honestly, I don't care about that. I know I can pay this off, but the last time I talked to one of the collection agencies, I promised to get back on track and pay $50 a month ... and his response was, "Well, my clients might decide to take further action." I panicked and promised $100 a month, which is not possible ... not when I owe a second company too. I realized afterwards that at that point I should've said, "You know, I don't like being bullied and threatened" and hung up the phone.

The reason this is a dilemma is that I still have a year of school to go, and I still need student loans to get through it. The debt counsellor I spoke to said that as far as he knew, there would not be a problem ... he usually gets notifications from the Ministry of Education about how such programs affect students' ability to get loans, and he's had nothing, but he recommended I speak to somebody at the college's Financial Aid Office anyway.

So I did. She had no clue. Said she'd never run into this situation before.

However, we had a brief meeting and I took the printouts the guy had given me and she contacted the Ministry of Education. They also indicated it "shouldn't" be a problem, although signing up for this program means I will have to "self-declare" that I am in a "bankruptcy-related program" (I don't get this as I am NOT filing for bankruptcy and am indeed trying to pay off my debts, but whatever). There are other criteria (I don't change my program -- no problem there -- and so on) but they are not an issue.

Now, my credit rating at this point is in the toilet. No, I haven't checked but I don't see how it could be anywhere else. And I still got a student loan this year (and yes, they do credit checks). The Ministry also said I would not be getting another another credit check for next year as they only apparently do credit checks every other year.

So why is this a dilemma? The word "should" worries me ... where the Ministry indicates it "shouldn't" be a problem. I absolutely cannot afford to sign up for this program and then have the Ministry go, "Oh, we've changed our minds; now we won't give you OSAP." If this were my second year, I'd sign up no problem.

The other concern is that this will likely still be on my record when I leave school and go looking for work. OTOH, my currently lousy credit rating is not likely to do me a lot of good, either.

So I'm wondering: should I just tough it out with my $50 a month payments for the next 6 months (making sure, of course, that I don't fall behind again), and then, once I've been approved for OSAP, sign up for the debt counselling program? Or sign up now and just hope that the advice I've gotten so far is correct and it won't affect my student loans? Or not sign up at all?

[Aethian]

Your going to be paying a lot of money to do something you can do. And then they might never fulfill their obligations.

What's your budget looking like right now. Get a sheet of paper and list what you having coming in up at the top.

1. Income
2. Rent/mortgage
3. Electricity/Hydro/
4. Car payment/Gas
5. Food
6. Cell/landline
------------------
Largest to smallest here so that you can get some wins, even if they are small ones they feel soooooooo good.

What I did when I had debt everywhere was I would get to my last 50 and stop. Made another line and then those were first in the list BELOW the line to get paid. Did it take awhile? Hell yes. Did I have to endure crazy people? Hell yes. Did I just get into a habit of saying "Money's gone for the month, you'll be seeing some next month, if you leave me alone." Hell yes. Were people upset? Most likely. Did I care? NOPE. And those that didn't leave me alone were told that put themselves on the bottom of the list and not get paid the next month. Took Cap1 four months of no payments before they learned to leave me the eff alone and they got paid. Was it a amount they wanted? No but it's what I could afford. BTW, the list was a printed out real list.

The point is money only gets stretched so far and you don't need to pay anyone to tell you that. You just got it from me for free.

[42_42_42]

Do NOT use one of these services! Most of them are scams! My friend ended up in bankruptcy and all the payments she'd sent to the company for them to send to the credit card companies did not go to the credit card companies but into the pockets of the counseling service.

$4,000 might seem like a lot of money to you, but considering all the people out there with 10 times that amount owed on credit cards, it really isn't. Just start paying on them, whatever you can and don't charge anything new. Any time you get some extra cash, use it to pay down more on the cards.

[Pixilated]

Okay, guys, thanks ... you've definitely given me something to think about ... especially the scam part.

[Gerrinson]

What I found useful was to open a 2nd bank account for the sole purpose of making my credit card payments. I then had my employer deposit $X into my 'living money' account and $Y into my 'pay the credit cards' account.

Every pay day, I verify the $Y had hit the bank and them immediately make a payment. At this point, my $Y is actually more than I owe on my cards most months, so it now doubles as a snowflaking account with the overage.

And I've learned to live on the $X that I get each pay day, instead of the whole paycheck. I paid off $4.5K in credit card debt that way. It took a couple years, but I got it done.

[mathnerd]

I would also advise to research the laws or consult a lawyer regarding fair debt collection practices. I've resorted to using the US laws in my favor when collectors got abusive (refusal to take a payment can invalidate a debt...I got recording of an collector refusing to take what I offered, took it to a lawyer and the debt disappeared entirely). Of course, I have no clue what the laws are outside of the US, but I still think it would be something worth looking into. You might be able to at least get a little relief from harassing phone calls.

[Rosakala]

I actually work in collections, and a few tips I can offer you.

Now I handle collections on car loans so its a bit different than credit card debt, its a secured debt because the car is a collateral while credit card debt is unsecured. That makes it very hard to collect on credit cards. Unless the company wants to take you to court, which while they can, otherwise there really isn't piddly crap they can do to you. At 4k in debit I can assure you its not worth the company time to take you to court for a garnishment. Or highly unlikely anyway.

First off, if the company is following fair debt practices, they may not threaten or harass you. They can try to intimidate you without harassing you which is what he appears to have done. For some its a good collectors tactic, personally I can't stand it. Where I work the phrase is ' Its not what you say but how you say it.' For example I can not say 'pay this or your car will be repossessed'. That is a threat, unless I am actually going to be putting it up for repossession in the very near future.

Also this might sound strange but depending on what state you live in, you may have extra rights. Mass for example has it written into state law that a bill collector may only call twice in a seven day period. Federal law does not limit how many calls a day a collector can bother you, but if you are getting more than six calls day that's getting a bit disruptive. Most good credit collecting places limit their calling to 4 or less.

[CaptainJaneway]

If you are looking to pay down debt this is what I have done in the past. Take the 4000.00 that you owe and divide that by 12 (12 months). Roughly that breaks down to 333.33 dollars a month. Now break that down to 4 (this equals 4 weeks) is it roughly 84.00 dollars each week.

Provided you work and get paid weekly this could work for you. You could do it for 24 months also.

I also paid those credit card bills directly to the credit card company avoiding the collection agency because they will find ways to screw you.

Years ago I was in bad debt so this is what I did. As long as you pay a little above the minimum due and pay weekly they can't say anything to you. Also by paying weekly it starts to build your credit score back up.

If you can get hold of financial software like quicken you can make budgets and what not. It really helps to see where your money goes. You can download all your banking info into it then create catergories like dining, entertainment and so forth. It is like a big electronic check book.

When I was looking to buy a house I found out I was spending to much money on dining and car insurance. There were a few other things but I stopped eating out and shopped around for cheaper insurance.

[Seshat]

Do a thorough budget, and find out what you can realistically live on. If you're not sure how to do this, there are many good websites with info; or I'm sure we can help you.

Take a good long look at the budget. Can you eat a healthy diet with less expensive meat? Is there an entertainment option that's cheaper but just as de-stressing? Etc etc.

Now that you have the adjusted budget, add 10% slack. This is your minimum desirable living-money. Desirable ... because Toth and I have learned to live without some things we used to think essential. We simply cannot afford them. And I'm talking about things like dental care, not true luxuries.

Anyway.

Now take a look at your debts. Add up the minimum payments, add 10% to make sure you're paying off a healthy amount of premium. This is your desired minimum payment.


If your net income is equal to (or greater than) your desired living money + desired payment ... cheer. Add any extra money to the debts, so you pay them out faster. It'll be worth it when you're debt-free.


If your net income is less than that, you need to do one of two things; probably both.

First: go through your budget. Find things you can live without. DO NOT slash 'entertainment' 'family gifts' and the like to zero - you'll go crazy and you'll not be able to stick to the budget. Just cut them down to less.
Find necessities that you can survive without, for a time. (EG: we don't have full car insurance - just third party, fire and theft.)

Second: get up some courage. After you do some calculations, you're going to be calling companies and negotiating a reduced payment.


Okay. The calculations for if you can't make your desired payment even after cutting the budget to the bone....

Take the debt with the highest interest rate (or overall costs, if some have extra costs). Add 10% to its minimum payment: more if you can. Divide the remaining debt-payment money among the other debts; your choice of proportionally to their payments, or highest cost first, lowest last.

Now call the companies you're shorting, and tell them what you'll be paying them. Use your best skills - you know how it feels to be yelled at or intimidated, instead be the good customer who's in a financial bind and is providing the best option available.
But brickwall them when they try to get you to pay more. You simply can't, not yet.

If you luck out, you'll get a customer service rep who's so delighted to have someone who's both polite AND doing their best to dig themselves out of a hole - honestly - that she'll bend time and space to give you as much of a break as she and her supervisor have the authority to do.

Once the first debt is paid out, divide its money - pay out the second costliest at higher-than-minimum-payment, while bringing the others up as close to their minimums as you can. Then the third, and so on until you're done.


As others have said; become familiar with the debt repayment and collection laws where you are.

If you have to pay less than the minimum, the debts you're not paying down may become larger. We're doing the costliest first to reduce the amount they get larger by: but compound interest may well mean that the one with the highest interest is, long-term, more expensive than the one with higher fees.
If you need to do a comparison like that, we have members in this forum who calculate compound interest thirty or fifty or a hundred times a day. Ask.

[stormtreader]

Just to add to the excellent post above, theres a thread on moneysavingexpert about getting started on paying down debts
http://forums.moneysavingexpert.com/...d.php?t=562271

The site/advice is UK but the tools and strategies are pretty universal, money is money everywhere!

The thread has a link to a State Of Affairs overview tool which all the forum members seem to swear by as a good place to start.

The other site id recommend is http://www.whatsthecost.com/snowball.aspx , it just allows you to put all your debts in, what you can afford to pay, and will give you an overview on how the amounts go up/down based on what you can pay each one taking into account the interest charged, and its free of course

[Seshat]

Just to add to the excellent post above

Awww. Thank you.

[Sapphire Silk]

Do NOT use one of these services! Most of them are scams! My friend ended up in bankruptcy and all the payments she'd sent to the company for them to send to the credit card companies did not go to the credit card companies but into the pockets of the counseling service.

Not all of them are scams; some are non-profits and really do try to help their customers. The clue is how much they charge you to manage your account; the fee should be very nominal.

However, you should still be careful. I used one of these companies that had a good reputation, and was paying a monthly payment I could afford on my debts. Problem was, Bank of America screwed it up. They wrote off my account, even though I was paying on it, and sold it off to a vulture collection agency. They returned my checks to the service, but the service never notified me and could not account for what happened to the money. I was inexperienced in dealing with these kinds of issues at the time, and never did get my money back (at the time I was flat broke and couldn't afford a lawyer).

$4,000 might seem like a lot of money to you, but considering all the people out there with 10 times that amount owed on credit cards, it really isn't.

$4000 is a lot of money if you don't have it. Still, you're right, it could be far worse.

As long as you are paying SOMETHING, no collection agency will take you to court; a judge would immediately throw the case out and might invalidate the debt.

You need to consider whether or not interest can be charged on the debt. I don't know about the UK or Australia, but in some US states (California) these vulture collectors can charge interest. But even so, take charge of the situation and pay what you can afford; these people will take your last nickel if you let them.