Reader Elaine wrote me the following:
I have a lot of debt. I'm a crazy spender. I love purses mostly. Lately
I've been trying to control my spending. I have $35k credit card/loans, and $51k student loans.
Needless to say I hate life. I feel overwhelmed with by debts. I've been holding off paying on my student loans (deferment), but that will end in December 2010. I am no good with credit cards. Should I close out the credit card when I pay off a card? I know it will hurt my FICO score, but that's messed up anyway.
Any guidance you could offer would be appreciated.
I don't know if the following will help advise you or guide you, but the following is what I have done and am still continuing to do for my debts and for me, it seems to be working out for me ok.
I know EXACTLY how you feel and have been right where you have been, and to a degree still am. BUT it does get better as time goes on, even though you may think it very frustrating. If you can keep at it, your debt will go down. May take awhile, but the results in the end will be awesome for you when you see that big light at the end of the tunnel. I kept at it, and believe me it was frustrating and stressful, but I now see a good light at the end of my tunnel.
As far as closing out your credit cards and it hurting your FICO score, it does hurt your score, but temporarily. It usually adjusts back within a few months to a year. Mine did. I have closed out all my credit cards for stores and major credit cards EXCEPT for three. I have two major credit cards for emergency use only such as major medical, air fare, or car repair if needed, and a Dept Store card. And I dropped the limit at my request to where I can better control that limit. (They thought I was a little crazy or something, but they did it for me.) I use that once a year for Xmas gifts. They are all paid in full and I have them in my ice tray in the frig' frozen in ice so I can not get tempted and get them so easily. And I always try to pay cash for things first. I have found out that is all that I really need in cc's. For me, that is very easily handled and controlled. AND also, I still am working on my other cc's and loans that I still have, but it is now controllable and I shred those cards and close those accounts as they are paid off EXCEPT the three I have kept and are in the ice.
And as for your student loans, when the deferment ends, you can set up with them an automatic payment system where it will come out of either your savings account or checking account each month, and won't have to worry about it. And I am sure that you could do that with your other loans and credit cards as well, so this way all will be easily controlled. The best option is to talk to your bank, and see if you can set up where they can send your payments for your cc payments and loans each month. I would advise going in and talking to them about that since your cc and loan debt is $35K and your student loan is $51K. And also, your bank more than likely can offer you counseling and advice about your debts.
Last, IF you are still a crazy spender, please try to get counseling as to why you spend so much and help to control that spending. In the end, you will have much more peace inside yourself and be much happier in the long run, finding that you do not need those purses or other crazy expenditures, but instead finding yourself putting money into your savings and letting it grow. Even if you put a couple of dollars or so in your savings each payday, it adds up. That in itself, will give you a bit of a satisfaction and help you to want to continue to work on your debts, and as you continue, you will see that go down. It won't happen overnight, but you will see an improvement. When you see that, you will feel better about yourself too.
Here are some sites that you may wish to check out to further help you:
Debtor's Anonymous
Credit Info Center
I Just Can’t Live Within My Means!
PFBlog.org - Find blogs about debt reduction
Also check with your bank for financial budget help.
Photo courtesy flickr/cc: Amy Loves Yah
Readers: If you have suggestions, please pass them along. Thank you.
"I have a lot of debt. I'm a crazy spender. I love purses mostly."
It seems you already identified and admitted to your problem. That's a good start. I'd suggest that if you have a hard time exercising self-control when it comes to shopping, then getting rid of all your credit cards and start using only cash(debit card)is the way to go. You will know instantly how much money is left in your account and that you can't afford to spend more. Meanwhile, have you considered selling your purses to pay off your debts? Best of luck.
Sammy
I would NOT close the accounts. I would, however, stop using them. Lock them in a safety deposit box, give them to a trusted (responsible) friend/family member for safekeeping, etc. The only exceptions I would make are the cards that have an annual/monthly fee attached. I would call the company and try to get that permanently removed. If they refuse, I would say, "If you don't remove the fees permanently, I will close my account." If they still refuse, I would close the account. Keep one revolving account open, even if it has a fee attached...it will help boost the credit score eventually, and help her get a better card/rate later. Another tactic to boosting the credit score is to call the cards and request an increase in credit line. Try to swap things around so that the cards all have less than 30% of available credit used.
I would actually go so far as to recommend Kevin Trudeau's book "Debt Cures they don't want you to know about." Some of it reads like an ad for the book, but there is also a ton of good info in there. It's a fairly easy read, and he explains things pretty well. Some people think he's a crook, some people think he's a genius...I don't care about any of that. That specific book has some helpful info.
The reader has to make a choice, RIGHT NOW. Does she want to live this way, feel this way for the rest of her life? Or does she really want to fix it? By the sounds of it, she'll need to make some significant (to her) sacrifices in order to get back on top of things. She needs to picture herself standing on a fence. On one side of the fence is a river--running fast, a few rocks sticking up, etc. On the other side of the river is a beautiful meadow. On the other side of the fence is a huge chasm...and on the other side of the chasm is a desolate piece of dried dirt land. Which will she choose? Obviously the river represents the struggle to get out of debt, with the meadow representing freedom and peace. The chasm and desolation represents debt and the type of life that will bring us. Ultimately, her future comes down to a choice. And then she has to stick to that choice.
If she chooses to get out of debt, she needs a circle (can be a very small one even) to hold her accountable. That seems to be key. Before she makes a purchase of...let's say $10 or more...she must get permission from a majority of the circle. Or if she has a significant other, the SO has to okay it. Can sometimes feel like a large game of "mother may I" but the accountability seems to be key in getting out of debt. We all have that little imp that sits on our shoulder, whispering in our ear, "go ahead, buy it. you deserve it. no one will know. and then you can get right back to getting out of debt." The problem, of course, is that we cannot take commercial breaks from getting out of debt.
Hopefully I said something helpful. :-)
Just a follow-up so you don't think I am being judgemental.
I and my SO had, at the beginning of January 2010: $143,292 in debt. So far this year we have paid off $11,580 of it. (That number is about to take a $5000 hit since we are refinancing our house.) Still...considering our financial picture (bleak) and that we just spend $4600 to put in a new furnace and AC... think it's a pretty good start.
Not a pleasure situation to be in but its true that many of us are in it already. This article is a helpful resource to some extent. I do not owe that mush amount of debt but still I found it motivating.
Personal finance
First, I lookup the name Larry Winget, find his web site, read the materials there, and watch some of the videos or catch some of his TV shows on cable. Then if you are still serious about getting out of debt, you have to stop your excessive spending immediately. Either shred your credit cards or put them some place where you can't get to them. You need to go on an austerity program and start directing the money you don't need for the basics like food, shelter, transportation to work, etc. toward paying off your debts. It is going to be a painful change in lifestyle, but the other choice is not pretty either. Responsible adults spend less than they make, and you either have to become one of the those responsible adults or continue your slow descent in bankruptcy. With the situation you're in, I would concentrate on becoming debt free and don't worry about your FICO score. It's going to be in the toilet sooner or later anyway, and the last thing you need right now is the borrow more money. FICO will heal itself as you start paying off debts. I'd also recommend contacting the credit card companies and see if they will reduce any of the amounts you owe. But you have to stop the bleeding immediately.
I tell women to picture their lives at 77. The overwhelming majority of empoverished people in the U.S. are elderly women, because they haven't saved for themselves-for retirement. We don't want you to become one a member of this group. If you believe you have a spending problem because of another issue go to DebtorsAnon, or speak to a counselor. If you think you have the willpower but just need budget and debt management guidance then contact a nonprofit credit couseling agency through NFCC.org. Obviously whittle down the cc debt (and stop buying purses) as much as possible before the student loans kick in. I don't know what interest rates you have on those but you can call the lender and ask for a lower rate consolidation if you haven't already. If you have lots of cc's it probably makes sense to close some and only have 1-2 emergency cards. It will affect your credit score but having a heavy debt load is weighing on your score anyway. If you decide to close some cards that have high interest rates, call the issuers and ask for lower interest payment plan in exchange for closing the cards.
I think many of those of us who read this have been in similar shape. Getting out of grad school I had about 10,000 in credit card debt and a bit over 100,000 in school loans. Many of the school loans were from the Ronald Reagan era when interest rates peaked at 10%...insane.
My first job paid about 32,000/year. That was 13 years ago. Now I'm debt free. I just kept living like I was in college (low rent, sometimes a roommate, and etc) and started paying. After about 5 years I was in a position to over pay on the loans so I did that, especially the credit card. Once that was gone I rolled the payment to the school loans. When I HAD to buy a car because the old one was completely unsafe, I chose a used toyota. Ugly but reliable. There were a few windfalls that helped. The toyota got hit with major hail about a month after I bought it. The insurance company paid 3500$ for that and I put it against the loan and paid the rest off in 2 months (total cost 6000$ minus 1000$ trade in).
Then I did manage to buy a house and had to sell it 4 years ago to relocate for a new job. That netted 8,000$ which paid off the remaining school loans.
NOW I continue to live debt free and build up savings and spend money on travel. It was tough at first to see my fellow graduates and young professors (I was a professor) living the high life, but NOW they are still wallowing in debt and saying it's "not fair" that I can go to Paris for christmas. It is fair...I've scrimped for 13 years for that and for my debt free status.
it can be done. Good luck!