Technologic80
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| In debt - need advice! |
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Im a 25 year old guy and most people would say Im ahead of most people my age. I bought my first house at 23, have a boat, have a nice vehicle. However along the way I accrued some pretty ugly debt. My yearly salary, with my bonus is $50k. (well 2005 was $52,xxx, but you get the idea).
At first it wasnt all "credit card debt". When I first bought my house my debt was minimal. However, soon my expenses overpowered my income and I was living beyond my means. When I was 23 my outstanding debt (revolving accounts) was $4,000. Now, 2 1/2 years later Im struggling with $26,000 in revolving accounts.
So far I have pulled my HELOC and refinanced it to a better rate. I was able to get $5500 out of that and applied it right to my highest rate credit card (4.9% by the way, ive always played "the game" with balance transfer rates and got locked into 4.9% for the life of the balance transfer).
This year with my annual bonus, of which I usually spend, I ended up spending all but $1000 and applied it towards my credit cards.
Ive been successful in paying over $ 9,000 in the past 3 months towards my outstanding debt. But that still brings me to $26k throughout 3 credit cards.
My truck note is $496 a month. I know, its high but at the time I had little/almost no debt and it wasnt all that bad. I cannot sell it because I am upside down in the loan.
Im selling my boat. By the way, most of the debt I've accrued is because of the boat. The engine went bad ($1000) then the outdrive ($2000) and I bought the boat on a 1.9% convenience check. 1.9% for 3 years (2 more years left on that). I figure I can get $5,000 for the boat.
2006 is my year to get out of debt. I feel Ive made some good headway thus far, i mean I dropped $9k towards my bills. Im really focused and have already made lifestyle changes for 2006 (not eating out, driving the saturn instead of the envoy, etc).
What else can I do??? Are there any banks out there that will give a personal loan to borrowers with higher than normal debt to income ratios?
Is my debt uncommon? How long does it usually take to get out of debt like this?
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Tue Jan 10, 2006 1:48 am |
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efflandt
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Location: Elgin, IL USA
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I was in your situation within the past 10 years. Although, I had bought a couple of plots of woods in WI earlier, instead of a home like I should have. With 4 yrs of payments for a car I could not quite afford in 1994, I did not realize what I was racking up on multiple credit cards until I totalled them up, to $25k. It was quite depressing.
Don't expect to get a personal loan for a favorable rate. I answered an ad from my bank for a personal loan, and they gave me one for $500 with a $25 annual fee. I told them they must be joking and cancelled it. They said I had too much credit (I think they meant using too much).
Fortunately I sold one of my WI properties for $10k and inherited $10k, so that got me back on track. I have since paid off my debts, bought a home in 2002, the car I overextended myself for is still in fine shape, I paid cash for a used 2001 Pathfinder, and my retirement contributions are on track.
I hope you get caught up. Living within your means is certainly less stressful than being strung out.
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Tue Jan 10, 2006 3:26 am |
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Technologic80
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Thanks for the hope. Like I said, and I mean it, 2005 was my year for losing weight (lost 30lbs) and kept it off all year, 2006 is my year to get out of debt.
I figure Im going to send in $2000 this month to my largest credit card balance. Then Im going to sell my boat, and send in the $5000 I get for that.
After that my outstanding revolving debt will be down to around $19,000 which, to me, is much more manageable. I can apply my 2006 Christmas bonus to that and after I make my payments all year (always pay alittle extra) I should be in fantastic shape for 2007. But this can be very stressful and depressing. If only I had paid cash. If only I had waited to get a boat. If only I had the boat inspected before I bought it and had to pay for all of the problems. Too bad "what ifs" dont pay bills!
Is there any advice out there for me to take?? Ive thought of getting a part-time job (paper route?) and sending that money right the the lenders. Any ideas?
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Tue Jan 10, 2006 3:40 am |
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Jaszbo
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you have to change the way you spend and think. Most people who get into credit card debt get out and end right back there a few years later. It's a fact, so you need to educate yourself more about money.
Your car payments are too high for your salary and you should never ever ever spend money you don't have as charging on a credit card and not paying in full.
Do you know how much you can spend say for a car? Say for a house? How about how often should you eat out? Does this depend on your salary? How much should you save? I would recommend since you are young, reading the book all your worth. It will help you get a balance on how much you make versus how much you should spend on your must have's a house, your wants a car, eating out..etc and your savings for future wants/needs and retirement. This book should help you.
Also you might want to look at dave ramsey's book. He has a book about debt and that's all the book is about and some people like him and some don't, but his book is all dedicated to debt. He was in debt and he is kind of extreme, but you can learn a lot from the book if you are in debt. I wouldn't recommend the book unless you are in debt, in which is your case.
You need to change the way you think as from your sentence you wrote your age and the materials you own, which is not necessarly postive. Owning a car, which depreciates is not a great investment, owning a boat is also something else that depreciates. You said you do own a house, but even at your age they qualify people for intrest only loans and when getting a house you can put down even golf clubs, your 401k plan anything you want as the lender wants you to borrow money and wants you to buy the house.
Your age and what you have done shows you take risk, but not succesful. Having these things completely debt free, being on a 30 year fixed or 15 year (much better) is a postive thing.
I know a couple that both make minimum wage in FL, but saved a lot of money and bought a 2,000 sq ft house and they are leasing a car and if you went to their house, you would think they are living really good. What appears to be a good life is not the same. They are struggling paycheck to paycheck and the debt is almost causing a divorce. Yes, they own a house, but so what if you can't enjoy it. I would rather be in a trailer than be a slave to a mortgage payment.
One advice I can give you is that don't listen to other people. You do not need to borrow money for one single thing in your life and be happy. The only thing you should borrow money for is your house. Your house is going to go up in value if not now at least in the long term. You don't want to do any borrowing for things that are going down in value and paying somebody, becuase you failed to save to borrow.
Take your car, say it was worth 20k, well you paid 20k no matter what. Why can't you save 20k, yet you can make monthly payments that at the end will equal 28k. Actually if you would have saved for 4 years in a savings account earning say 4% safely you could have gotten the car for maybe the equivalent of 17k. The numbers are exaggerated, but the point is that most people think that they can only afford a car with a loan, yet if I told you save 20k and then buy a car, you might laugh. Yet you are willing at the end to pay 28k. Even if inflation is 3%, what are they making on you 4.9%?
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Tue Jan 10, 2006 8:09 pm |
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Technologic80
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Location: Michigan
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Thanks for the reply Jas. To answer a few of your questions, I purchased my home on an 80% (fixed 30 year) and 20% (adjustable HELOC 15 year) mortgage. My loan officer figured that way I wouldnt have to pay all the extra money for mortgage insurance. So that saved me $$ right there. I just refinanced my HELOC to another HELOC with a lower rate. However in March Im going to put it into a fixed mortgage, because obviously, the rates are rising. Thats where I might be possibly losing $. The rate went up to 10.25% at one point on the 20% adjustable HELOC.
I dont see how spending $496 a month for my truck is too much for my salary? I bring home over $3000/mo before taxes $2300 after taxes. Can you elaborate? I knew before I bought my truck and my boat that neither was an investment. And I bought my truck way before I had any revolving debt.
I should also add that I live with my partner of 8 years and he contributes 1/2 towards everything (house payment, utilities, groceries, etc). I just had a talk with him a few weeks ago and since most of the debt accumlated was mutually ours, he agreed to pay towards it too. Score!
I really think the problem was about 2 1/2 years ago when I bought my house I wasnt making as much as I did in 2005. My salary signifcantly jumped because I took a new management position. But it was too little too late, I had already been struggling before that. Now its like im playing "catch up" with all of the debt I made during those struggling years.
Either way I am 100% devoted and dedicated and completely hard-headed about getting out of the $26k debt this year. Im not kidding. I already told you, im selling the boat. Somebody looked at it today and wants to come back and look at it again. Im selling a generator I bought ($300), I just sold a stove ($400). Im going straight to the store and getting a money order and sending it in as an "extra payment" that the credit card companies give you those slips for.
Im not a frivilous spender, I swear. The stuff I put on my credit cards were relatively large sticker purchases (boat, then the boat engine after it went bad, then the boat outdrive. Total right there alone over $12k). Before that it was stuff when I first bought my house (appliances, some furniture). I have NEVER been a person to charge dinner or gas or clothes - i always pay cash or check for that.
My goals are this year im going to pay off those cards like a madman. Im putting a whole bunch of stuff on ebay that i dont use (extra lawnmower, car parts, boat parts, presents ive gotten that i dont use) and working extra at work. Plus selling stuff to family/friends.
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Wed Jan 11, 2006 1:24 am |
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Jaszbo
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When it comes to your car, well that depends on what you think is important. With your salary of 3k a month you might think 496...we'll call it 500 a month for a car is good, but let me ask you, if you made 6k a month would you have a more expensive car payment? What if you made 9k a month?
You might want to read the popular book called millionaire next door. I readi t years and years ago. The book goes on and on about what characters the average millionaire has, becuase the author back in the day rounded up I think a few hundred millionaires. Most of them were older men when they became millionaires, most were college educated and most lived in middle class neighborhood and drove USED cars that they paid in full.
It just depends what makes you happy in life and if that 500 dollar payment makes you happy than so be it. My suggestion is that you already have the car and you already make the payments, I would stick with it personally. Once it's over what is your plan? Are you going to just put that 500 dollars towards something else? Then when you need a new car you get a new loan? How about instead of borrowing 5% a year, why not make 5%. Do the math when it comes to making 5% versus borrowing 5%. If you are only paying 2.9% like at my lender, then still do the math of borrowing versus making.
I'm a big advocate of paying for your car in full. Lets say that after 5 years your car is paid off, you are used to paying 400 dollars a month, so why not just put it in a savings account that's making 4.25% each month.
Why not control your money, instead of being controlled by a contact? The car owns you and the lenders own you, just like the credit cards and anything else. I think a life of you controlling your money is a better life than being tied.
Say you are making 4.25% intrest each money in a bank like hsbc and each month you are putting in the same 400 dollars. One month you say........hum.............. my grandfather is sick and in another city, I need that money. Can you stop contributing to a saving account? Yes
Can you stop your car payments............No
The point is that you control your money and just becuase everybody is borrowing, doesn't mean you should borrow money also. Americans are bad with money and they are living in a time that they will pay for it in the future.
The only debt you should have is your house. You did a good choice of 80/20 loan if you did not have the 20%. Your 80% fixed is being paid off and your house is going up in value, wait until the difference is 20% and then lump it all together for a 30 year fixed and if you can a 15 year fixed.
With credit card debt you can do the credit card shuffle. Get a credit card that the first year is zero intrest and no intrest on transfers. Transfer everything to that one credit card and no you have zero intrest for 1 year. Pay it off in a year and if not do the game all over again. There's a few ways of doing this. Make sure you read carefully as some of them will say something like zero intrest for a year and zero intrest for transfers. They say something about zero transfers, but once it gets there they word it strange that it is like a 28% for what's really transfered. It's screwed up, but just read carefully.
Once you get your credit in check you need you pay your credit cards in full each and every month. You need 3 to 6 months of your salary saved. You need to never evere ever ever ever use your credit card unless you are going to pay it in full. That's what the emergency money is for. Open up a Roth IRA for another tap for emergency fund and not just that for your retirement also.
Instead of paying so much for your credit cards you can start making money. Each year I'm pulling in 300 dollars that's tax free, but I never miss a payment. If you have trouble though using a credit card period, you shoudl go to just debit card. I'm against debit cards, but for some people it's the way to go.
good luck with your efforts and congradulations on making a change.
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Wed Jan 11, 2006 3:37 am |
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UrCredit5
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| Taking control of debt! |
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It seems like you are doing pretty well for yourself. I'm assuming that all of your possessions are solely owned by you and no one else. Living on your own is not an easy task if you have no one that you split the bills with (girlfriend, roommate, etc). So if this is the case, I would suggest that you seriously look into taking out a debt consolidation loan. With outstanding balances on more than one credit card, you are really spending a lot of money towards finance charges and interest rates. A smart thing to do is take out a loan to pay them off and just pay one interest rate on the loan itself. This would save you a lot of money in the long run and have your debt paid off much quicker. Be sure not to dig yourself a deeper hole. When it comes to acquiring a loan, remeber that they are granted to us by other individuals. So presenting some type of proposal when you apply for a loan is always helpful. This way the loan officers see that you are truly focussed on reaching a goal and not just any old loan applicant. Keep the proposal to the point. State what happened, and the terms you are looking for to repay the loan. You might even want to mention that you are closing an account with one of your creditors. Good Luck!
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Wed Jan 18, 2006 4:21 am |
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Technologic80
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Thanks for replying. I do have a roomate, he splits the house payment and utilities with me. Everything I own is solely in my name. Ive tried to get a debt consolidation loan and here is the problem:
My 20% HELOC (home equity line of credit) shows up as "revolving credit" on my credit report JUST like a credit card. So when I call in for a credit line increase (to transfer balances) or to get a fixed loan I have been denied because it would "appear" that I have $62,000 in credit card debt because of the HELOC pushing it up $32,800!!!!!! This is frustrating, ive gotten myself into a pickle this time.
Ive already played the balance transfer games and they arent letting me get away with it anymore. Now my one credit card says I have to wait 6 months for new offers. 
My co-worker just recently filed for chapter 13 bankruptcy and was trying to convince me to do the same thing.
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Thu Jan 19, 2006 1:42 am |
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Jaszbo
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DO NOT LISTEN TO HIM.
Let me tell you bankruptcy is not the way to go what so ever. Especially if you can pull out, listen even if it's 10 years it's really for life. You could apply for a job that is going to ask you if you have ever claimed it before. I would do anything to avoid bankruptcy. I know it's becoming more common and it's starting to get harder, but don't follow in the path of your coworker.
The only way I can see claiming bankruptcy is if it would take you 10 years to break even, then I'd go for it. A friend of mine claimed bankruptcy over 5k when he was in college, becuase his dad talked him into it. He was telling me that he was filling out a form to get a loan at a credit union and it asked if he had "ever" claimed bankruptcy before.
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Thu Jan 19, 2006 2:22 pm |
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shirsc2
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Have you ever considered going the debt settlement route? Debt settlement isn't for everyone though. It is meant for people who are burdened with overwhelming unsecured debt who are going through a legitimate financial hardship (loss of job, medical, etc). It's not meant for people who just dont feel like paying off their bills.
Debt settlement is the process of negotiating with creditors to actually reduce the balances that you owe. Let's say you are 20K in debt. With debt settlement, you may only pay back around 10K to get out of debt. There are companies out there who specialize in debt settlement.
I actually work for a company that does this type of work. If you want some more information, PM me. I'm not going to give out the company name because that could be considered spam. Debt settlement is just one option you have that I thought i should bring to your attention.
Let me know if you have any questions.
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Thu Jan 19, 2006 7:41 pm |
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Technologic80
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Great news!!!!!!!!!!!
Since December, I have paid over $10,000 towards my debt (I refinanced my HELOC and put most of my x-mas bonus towards my debt). Today I called my mortgage company and guess what?  Im signing for a 30 year fixed mortgage and getting rid of my existing HELOC (9.75% and rising!) The new rate will drop to 7% fixed. No points, no appraisal necessary. My 15 year HELOC will be converted to a fixed mortgage, I will save $150/month in interest. The mortgage guy said my debt to income ratio is 39%, which isnt exactly grade A but since my credit score is 740, 734, and 722 respectively, Im good to go. Also a few things hadnt reported as paid off yet. So I know my debt-to-income is lower than 39%. Mind you, I have never in my life been late on a payment and since I was a co-applicant on my parents credit card when I was 14, my credit score was pretty good by the time I was 20 (because i had established credit in excellent standing for so long).
Also, I have saved up a lot of $$ from selling stuff I dont need on ebay or to my family. Im going to send in that money to the credit cards.
I think im on the road to debt recovery. Today's news was the best. I'll be so happy to put that stupid adjustable rate HELOC behind me. 
Besides that I realize the chapter 13 thing is a bad choice. Im a responsible person and I take 101% responsibility for my credit card debt. Albeit, some of it was for other people (medical care for my mother with alzheimers, medical care for myself who has crappy medical insurance) but i still take responsibility. I got into this myself, I can get out of it myself.
In the meantime, does anybody want to buy my boat? lol
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Sat Jan 21, 2006 12:49 am |
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rockhound
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Architecture isn't a bad analogy for personal finances because in both cases, you're trying to build something long-lasting. Let's think about two kinds of buildings. You have the pyramid and the house of cards. I think you can already see where this is going. The pyramid has a wide, solid base that distributes the load of the structure evenly. The house of cards is made of individual elements that depend on each other in order for the structure to remain standing, but one perturbation brings the whole thing down. At age 23, a salary of $50,000 sounds like a lot of money, and it really is (unless you live in LA, NYC, Seattle, etc.). However, it's not enough to go crazy buying big-ticket items. Rather than building that wide solid base, in other words accumulating an emergency fund, fully funding your retirement plan, and building up a cash reserve, you became overextended on financing things before getting a feel for how much money $50,000 really is. Not to mention, you never actually see your salary of $50,000 by the time taxes etc. are taken out. After two years, you've come to the realization that your lifestyle was not sustainable. So it begs the question, are you truly ahead of most other people your age now that you are loaded with this debt? You are doing the right thing by selling the boat and other unneccesary items and paying off the credit cards. I would tend to agree that a $496 truck payment is a lot under any circumstances, especially for someone trying to pay off $19,000 in credit card bills. The $496 is just the beginning; then you also add the higher insurance that your bank requires you to carry on their investment, etc. You also mentioned another car? Sell that thing. You might also sell the truck if you can get what you owe on it (which is doubtful) and buy a beater until you kill off the credit card debt. The other question: in your rush to accumulate the trappings of wealth, have you saved any cash in the bank, or funded a retirement plan? If not, then simply paying off the credit card bills, which will be difficult in itself, is only the first step. That will get you out of the hole, but then you still have to climb the ladder. It would also be a good idea to cancel your credit cards after you get them paid off, because nobody runs up $26,000 on credit cards simply through the innocent course of everyday living. You may have to come to terms with the fact that credit cards in your hands is like playing with a loaded gun that has a broken safety.
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Sat Feb 04, 2006 12:33 pm |
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Jaszbo
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glad to hear the good news
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Sun Feb 05, 2006 7:31 pm |
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Technologic80
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Thanks for the replies, folks. I cannot sell my truck and as you are correct- the bank note is "upside down". Now I can get a chrysler discount through my father and roll my neg. eq. into a 2 year lease on a chrysler product, with no $ down. That way, my payment would be cheaper ($350) and in 2 years I would be scott - free. I cannot sell the 2nd car. Its my mother, who has alzheimers and I use it to drive her back and forth to doctors. She refuses to drive in my car.
My salary of $50,000 is after taxes were taken out, according to my W-2 statement.
I do have a Roth IRA that I contribute to every month since I was about 19. My work gives me a set amount of $ each year to put towards whatever retirement I want, they use fidelity regular IRA's but I choose to do a ROTH.
Ive kept up an Excel spreadsheet since November with my outstanding debts. Thank goodness, its only amongst 2 credit cards, at this point. Im very happy about that. I have already paid off and cancelled 4 credit cards (small stores- kohls, sears, etc) and I dont carry any credit on me. I pay cash for absolutely everything.
I know the debt sounds oustanding and crazy but my salary wasnt always over $50k. I just was promoted 3 1/2 years ago to bookeeper and assistant to the executive director. Before that I was really making peanuts. I was good at it too. I think when I got my first substantial raise, I got crazy and bought my house, a new vehicle, etc. Thats when I accumulated credit card debt. Appliances, furniture, fixtures, landscaping for the house, etc etc. It was so easy to just charge it and worry about it later. Well, now its the worry time!
Nonetheless, Ive been looking into dumping the vehicle im paying $496 a month for. Its a 2002 Envoy SLT and the market value is around $16k with my low mileage and all the options and condition of the truck. I owe $22000 on it. Im pretty sure Chrysler financing can roll the $6k into the lease and every $2k brings your payment up $40, so Jeep Grand Cherokees are leasing out for $179/mo for employees. $179+$120=Alot LESS than im paying now, and in 2 years that debt will be gone.
I dont need anybody to tell me im moving in the right direction to be debt free. Ive sought advice from people, places, banks, and this site (which im thankful for!).
Is there any thing Im missing though that I can do to cut costs? Ive already cancelled my home telephone service for a savings of $60/mo. I dont need it anyways, I have a cell phone with roll over minutes and I hate talking on the phone too. Ive already been a big miser on heating bills this winter. Ive been cooking at home and eating out 90% less in the past few months. Any other suggestions?
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Sun Feb 05, 2006 10:21 pm |
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Jaszbo
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Personally I'm against borrow money (car loan), but I'm even more against renting a car (lease).
If you are only thinking about your current payments and that you'll be debt free in two years, what will you do when the lease is up? What will you drive or be driving. You are going to pay $8,400 in a two year period to rent a car that doesn't go towards the principle of anything and then if you do too many miles you get charged even more.
I personally think it's a mistake to lease a car. I don't know how much longer you have on your payments, but you might consider sticking it out or you can refiance a lot of times with a better intrest rate, which might come out to a similar payment that you are paying now with less time.
The one thing I can say is I've heard people say how great a lease is and I've meet a few people who have had a lease, probably about 20 people in my life, and only one person I know actually went back to lease again.
If you start associating words with what they really are, you'll plan differntly
lease = rent, social security = welfair
Also I was looking at the math and you are willing to rent for 2 years for around 8,400 and you are upside down about 6k. Well I would assume that in another two years that you won't be upside down as much. In that two years you'll be pretty close to even if not come up a little bit. I'm sure you have some paperwork or you can call and find out what your principle will be in two years and then compare your option to rent versus what you are doing. These questions come up a lot on talk shows about cars people have purchased and they are upside down and they want to get out of the car, almost always the best thing to do is hold out on the car, becuase you'll loose more by selling it while you are upside down.
As far as your retirment is concerned I would go with both a pretaxed and after taxed dollars in your retirement investment. You want the benefit of both. I didn't think the IRS allowed employer matching contribution to a Roth IRA though. Eitherway say you don't get a match at all, I would suggest to max out your Roth IRA first and then put money into a 401k or traditional IRA, which ever fits your situation.
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Sun Feb 05, 2006 10:58 pm |
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