Scared of starting to "fix things"?

[teppuM]

Hiyas everyone,

I'm new to the forums, but I've read the Nerd Fitness blog for a while (mostly because I was excited that someone else wanted to go to Angkor Wat =p usually when I mention it, or mention that I want to go there because I was fascinated by it in Illusion of Gaia, no one knows what I'm talking about =p)

ANYWAY, so...

I didn't start out on very good financial ground, and over the years, things have just gotten worse. I let someone use my credit who didn't take the best care of it (mistake mistake), but it's not all that person's fault because I just didn't really know much about financial anything or credit anything. I grew up in a rural place where people got by on handshakes and such...

The big city is a different sorta place.

So... I imagine everyone who has taken steps on these issues has dealt with the fear of "oh geez, what's going to happen now? how can i afford to make all these payments?"

Does consolidation help?

What are some things you might suggest to a person who is terrified by this whole process, but who knows that it must be done?

[Blueberries]

Have you heard anything about Dave Ramsey? He's got a book called The Total Money Makeover that is all about walking you through the process of getting out of debt. There's also a program you can do with a leader called Financial Peace University (FPU). I haven't done the FPU program, but I did read the book and have structured our budget on his steps. It has really changed our lives!

Check your local library for a copy of the book, then you can see if it's a system you like without having to buy it first.

[muadib]

TeppuM,

I was in the same place a couple of years ago. Mine was so bad that the creditors were calling my work and my relatives. Nothing more embarrassing that having your Grandmother call you mom about your student load debt. I was going to do credit consolation and I got a nudge from the universe.

I was half listening to Dave Ramsey, a buddy of mine loaned the tape, and while I was on the phone setting up my credit counseling appointment Dave said this…”If you go to credit counseling you are working on the symptom and NOT the problem. It’s like trying to build muscle by having someone else do pushups for you. You have to learn to handle your money!”

I put the phone down and finished listening to the Total Money Make Over. It took my 3 years to clean up all my mistakes but as I look back I am glad that I did it. Now I have 8 months of living expenses in the bank and I got a HUGE raise last year all due to listening to Dave Ramsey.

People will talk smack about Dave but I am living proof that his plan works. Just like working out it sucks while you are doing it but once you see the results it’s well worth it.

If you EVER have any questions please do not hesitate to ask.

Mike

[Raincloak]

Consolidating your debt may help, IF you can gather it into a bundle with a low interest rate, and IF you are careful not to change an "unsecured debt" into a "secured debt." In other words, if you owe money on a bunch of credit cards, you should not take out a mortgage on your house to pay them off, because then you've laid some personal property on the line, which wasn't at risk before. The good news is, interest rates have never been lower; the bad news is, if your credit history is rotten, you may not qualify for good interest rates. You're going to have to do some research and make some phone calls. The other good news is, your creditors are usually willing to work with you, because they'd rather get a little money out of you than none at all. Sometimes you can get a reduced interest rate just by asking.

I do think you should consult an expert. There is no shame in asking for advice from people who know more than you, and an Internet forum is not going to get you the best personalized advice for your situation. It's good that you have asked for info, because that is the first step to solving the problem (congratulations!), but you need to go further. So I suggest you make an appointment with an advisor.

You should also check to make sure your identity has not been stolen, as that could make things worse. In the meantime, you need to cut your expenses down to the absolute minimum, and start paying off your debts as fast as possible. Here's how: pay the minimum monthly balance on all your debts, and pour the rest of your money into the debt with the highest interest rate. This will keep things from getting worse. When that first debt is all paid, go on to the next one (again, choose the card with the highest interest rate; if it's a tie, pay down the biggest balance first). Repeat until they're all done. Any debts that don't have a specified interest rate or late fees (such as a doctor's bill), call the office to work out a payment plan. Give them just a little each month (even $5 or $10 might do), and they won't sic the collectors on you.

If you aren't on a long-term lease, move back in with your parents or a friend; if that's not an option, consider getting a roommate to cut down living costs. If you have a car that you can survive without, consider whether to sell it, or keep it and stop driving (this choice depends on the market value of the vehicle and how much you owe on it). If you have a smartphone or home cable/Internet service, get rid of them. If you own any other assets, consider selling them (if they are invested, ask your advisor whether this is a good idea). And if you have any extra time, see if you can get a second job. The less you spend and the more you earn, the faster this debt will go away.

You can get out of this mess, but it's going to take time, and you have a lot of learning to do so that it does not happen again. Don't panic. You can do it. We're cheering for you.

p.s. If you have co-signed for anybody else's loans, you're stuck with them, but don't do it again. If you have a spouse, watch out, because you're on the hook for their debts as well as your own.

[Kristen]

First, don't panic! I've been there. It sucks, but if you avoid it or freak out it's not helping. You're on the right page by wanting to attack this beast right away. Start by finding out how much you owe, what your past due amounts are, and go from there.

Second, harassing phone calls are awful, but you have to talk to them eventually. Often there are options that you may have for payment plans, forbearance, deferral, but you won't know until you ask. They may reduce your payments, your interest rates, waive fees or entire payments if you can agree to a payment plan or put down enough money to get the account current. Some programs can be applied retroactively to bring your account current without even making a payment right away. Just ask!

Third, ask about policies. When do they report to credit agencies? When does the account get written off and sold? What is considered "late" or "delinquent"? It may be 30 days, 60 days, 90 days. If you can hold off those events, even by giving them $5 or $10 at a time, do that. If you can pay off the balance that's 90 days overdue, but not the 60 day, pay just enough to get you to that next level. Whatever it takes to stay current on your payments, try to make that happen. I've even gone so far as to ask, "How much money do you need to stop calling me for two more weeks?" It works. Just ask!

And now, some personal stories. Here are a few things that worked for me. I'm not recommending any of them in your particular situation; I don't know enough details. I'm just throwing them out there as options to consider. PLEASE don't take my word though, and do your research before deciding what to do.

I paid one of my credit cards off in an installment plan. I had the bank close the account and set up a fixed rate for a certain number of months. They dropped both my interest rate and minimum payments. Once I was financially more secure, I paid it off early. This is a great option, especially if you use it with the snowball method.

I paid off my other credit card in a settlement. This is only advisable if it is your LAST resort. It doesn't reflect well on your credit report. I called them every few weeks, asked for a settlement offer. When they gave me one that I could afford, I made the payment and it was done. The offer will be different every time, but keep at it and eventually a good one will come across. Let them know you're serious about making good on the debt. Sometimes they'll offer, and you can counter-offer. You have to see what they can do at the time. I ended up paying just over 1/2 of what I owed, they closed the account and went on my credit record as "paid in settlement." It is important to stress that you WILL take a substantial credit score hit for this, but in my case it was a decent choice because my credit was so damaged already, and it immediately freed up the cash I would have spent on monthly payments so I could start to rebuild my credit on other accounts. Something to consider, but exhaust ALL other options before taking a settlement.

If you see a credit counselor, be sure that it's a not for profit company. There are some others out there that are scams. They can come up with several different solutions, as simple as helping you write a budget, or as far as working out a payment plan with your creditors. This isn't consolidation; they negotiate individually with each creditor and work out a plan that will eventually have your debts paid off. You make payments to the counseling company, they pay the creditors. They will take a small cut (it should be very small, a few percent) of your monthly payments if you choose that route but the consultation is free. I tried this and I was so hard up that I couldn't even afford the adjusted payments, so it didn't work for me. And it's a longer term solution--often with a bit of discipline and self-ass-kicking you can make faster progress on your own. If you're really far behind though, it will buy you a few months to become more financially stable before making those big, aggressive payments.

Raincloak gave some good advice about consolidation, so I won't go there. I consolidated my student loans (though it's not clear that's the kind of debt you have, it's not the same as consumer debt) and it worked out fabulously.

I worked two jobs for about half a year. It was awful, but it was the only way I could make enough money to make noticeable progress on the debt. I also sold my record collection, which brought in some much-needed extra income. Save where you can, but also look into alternate sources of income. If you have a skill, sell it to friends and family for barter or cash. I've hemmed pants for $10, babysat for haircuts, cooked dinner to get my oil changed, anywhere you can save, it helps.

Once you have been caught up for a few months, start to consider options to rebuild your credit. Secured credit cards, installment loans, even utilities accounts--phone, gas, electric--will help to gradually raise your score again. Don't take on too much, only what you can afford, keep current, and eventually you'll gain back your good credit.

Of course, none of these options will mean anything unless you actually have a plan of attack for paying down those loans. Definitely consider using some of these tools to get back on track, but ultimately you need to sit down and make a plan. If it takes a guru's book like Dave Ramsey or Suze Orman, by all means, use them. I know a lot of people that have had great success with them. It took me 2 years to get where I am now--I have all my consumer debt paid off, a small emergency fund in savings, a small line of credit that I don't even use, and only student loans left for debt.

Sorry to be so long winded, but this subject is near and dear to me. If there's any other information or advice I can give that may help, please ask! Good luck! It gets better!

[IrishNinja15]

Wow I came to this site for fitness info, and gained some awesome real world advice too.

[Morrigainz]

I also had some troubles in my younger days. On top of being irresponsible with money and credit cards, I ended up having my gallbladder removed - with no insurance. Ouch! Basically everything went wrong at once.

 

I ended up declaring bankruptcy.

 

Now, if you have any other option, I would NOT recommend it. However, I haven't had any *terrible* repercussions because of it. I have been lucky though - I was young, so I have plenty of time to build my credit back up, plus it will be off my record in a couple of years. I didn't have any assets. My boyfriend at the time (now husband) already owned a house, so I haven't had to worry about trying to buy a house. It's a last resort, but...it saved me.

 

Now, as for recovery: for a long time, I had piles of money. Instead of keeping a bank account, I kept track of every penny that I spent in a notebook. Then I would put my money for rent, utilities, phone, etc in a pile. As soon as I used that pile of money, I would replace it for the next month. This was actually a really good way to save.

 

Maybe these suggestions aren't practical for you, but maybe it will serve as a jumping-off point to something better for you.

 

FWIW, I currently use mint.com to track my finances.

 

Good luck!

[joshmartell]

My wife and I read Dave Ramsey's Total Money Makeover and after that we took the Financial Peace University (FPU) class at our church. It's really been life changing! Now every time our church offers the class, we go back during the final week as panel members and talk about our experiences with the new "graduates".

 

We're still working at becoming debt-free, but the end is in sight for us now. We've eliminated all our consumer debts (4 credit cards, and 2 cars) and just have a bunch of student loans left.

 

I also use Mint.com to keep track of our budgets. It's very helpful and I like the text messaging reminders when I get close to over-spending on a certain category.

 

 "oh geez, what's going to happen now? how can i afford to make all these payments?"

 

Yes, we definitely had those exact same questions before we started reading Dave's books! Especially after my wife graduated and her large student loan payments came into repayment status. FPU really did give us peace on handling our budget fears and problems. The biggest problem for us being not having a budget at all.

 

You're definitely on the right track because regardless of whatever method you decide to use to regain control over your finances, looking for advice and collecting as much knowledge about finances as possible to make informed decisions is the best course of action you could take.

 

Best of luck to you on your financial journey!

[samanmoran]

Hi! It's been a while since you posted this, but curious... Did you start? How is it going?

 

So... I imagine everyone who has taken steps on these issues has dealt with the fear of "oh geez, what's going to happen now? how can i afford to make all these payments?"

Does consolidation help?
What are some things you might suggest to a person who is terrified by this whole process, but who knows that it must be done?