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Getting out of an absurd amount of debt

DeebaserDeebaser Alpha TeemoRegistered User regular
edited November 2010 in Help / Advice Forum
I just got off the phone with a friend of mine and she apparently has $60,000 in credit card debt, but she only makes about $50,000 a year.

How the bleeding hell does she go about calling her credit card companies and suggesting to them that she may as well declare bankruptcy and that they should lower her goddamn interest rates?

Is a debt consolodation loan even an option in this market with no collateral to attach?

Deebaser on

Posts

  • NargorothRiPNargorothRiP Registered User
    edited November 2010
    firstly she wont get a debt consolidation loan in this market for that much. I got one for 13k made 50k and had to have a friend who made 140k cosign to get approved.

  • a5ehrena5ehren AtlantaRegistered User regular
    edited November 2010
    Deebaser wrote: »
    I just got off the phone with a friend of mine and she apparently has $60,000 in credit card debt, but she only makes about $50,000 a year.

    How the bleeding hell does she go about calling her credit card companies and suggesting to them that she may as well declare bankruptcy and that they should lower her goddamn interest rates?

    Is a debt consolodation loan even an option in this market with no collateral to attach?

    I'm not a lawyer or an accountant, but this is pretty much what bankruptcy is for, isn't it? It'll destroy her credit score for awhile, but with that kind of debt it's probably already really really bad anyway.

    Even if she did magically get her rates lowered, she doesn't really have any hope of ever paying this off - if her APR is only 20% (it's probably quite a bit higher with that much debt) she's paying $12000+/year in interest alone (yeah I know it'd actually be way more than that because it compounds monthly, but the point still stands).

  • MagicToasterMagicToaster Registered User regular
    edited November 2010
    Well, what is this debt composed of? One big debt, or several smaller debts? It is not impossible to be free from that burden, though it requires some serious readjustments in lifestyles.

    If it's several small debts, I suggest paying off the smallest one first, then, when that one is paid off use the money from that now dead debt to pay off the next smallest one.

    There are also several alternatives to explore before jumping on the bankrupcy boat. Talk to the lenders and explain the situation, a payment agreement can be reached.

    tostadas.png
  • JasconiusJasconius sword criminal Flo-ridaRegistered User regular
    edited November 2010
    I don't think 60k debt making 50k/yr is a call for bankruptcy depending on her living situation.

    Step 1: Cancel the cards, duh

    Step 2: Lower your cost of living

    Step 3: Hit the negotiation table with the inevitable collections agency that is brought in to handle the account, you can talk down the balance in exchange for agreeing to a payment plan

    Step 4: Make the payments, it will take years, but not as long as it will take for a bankruptcy to come off your record.

    Hopefully whatever stupid shit she bought with 60k of credit can last her the years it will take to pay it off.

    *edit* the interest problem is a fair point, but I don't know what her interest rate is.

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  • SaammielSaammiel Registered User regular
    edited November 2010
    Bankruptcy isn't some panacea and depending on where she lives she may not even be eligable for Chapter 7, which is the one that allows you to discharge most of your debts in exchange for most of your assets. Chapter 7 is means tested based on the median income in your state. 50k/year is going to pass that in a lot of states.

    If she cannot file 7, she gets shunted into 13, which is a reorg. She wouldn't be able to just void her previous contracts, instead the bankruptcy court would force mediation between her and her creditors to modify loan terms. If that fails the court can cram down changes to the terms to enable repayment.

    I'd advise her to start attending credit counseling, liquidate anything she doesn't need, and begin a debt repayment schedule. Either highest interest rate first, or smallest loan amount first depending on her preferences.

  • KyouguKyougu Registered User regular
    edited November 2010
    I agree with Jasconius. 60k at a 50k salary is no call for BK. She's going to need to cut expenses and force collections/debitors to work with her, but she can do it.

    scale3nk0.png
  • SpazHappySpazHappy Registered User
    edited November 2010
    If this is the same friend I think you're talking about she is almost certainly fucked, and will not be able to get a chapter 7

  • ceresceres Humming hallelujah in the dark Lost with a compass in the fogSuper Moderator, Moderator mod
    edited November 2010
    I think Jasconius has it. If she can make payments, that's what she should be doing. She may need to rearrange her lifestyle a bit to do so, and it will take a really long time, but unless 9/10 of that 60k is interest I don't really think the credit card companies are entirely to blame here, and they're unlikely to see it that way either.

    Bankruptcy should always be considered a last resort.

    It'll be just as quiet when I leave as it was when I first got here
    I don't expect anything.

    The avalanche has already started; it is too late for the pebbles to vote.
  • DeebaserDeebaser Alpha Teemo Registered User regular
    edited November 2010
    Oh she could easily get a Chapter 7 bankruptcy. This is NY, the means test is ridiculous. It would just be a lousy road to take.

    Really just looking for pro-tips regarding negotiating with banks. Well aware that it's her fuck up and trying to dig out.

    I haven't seen the statements, but it's like 6 cards with about 10,000 a piece and all of them are 15%-25% APR.

  • a5ehrena5ehren AtlantaRegistered User regular
    edited November 2010
    ceres wrote: »
    I think Jasconius has it. If she can make payments, that's what she should be doing. She may need to rearrange her lifestyle a bit to do so, and it will take a really long time, but unless 9/10 of that 60k is interest I don't really think the credit card companies are entirely to blame here, and they're unlikely to see it that way either.

    Bankruptcy should always be considered a last resort.

    Right. I guess I just assumed a person with that much CC debt had already looked in to other options if they intended to repay. I'm not even sure why I bothered to post since I don't know anything about it :oops:

    As far as calling the CC companies and trying to negotiate, I assume you just call the 800 # on the card and start talking to people until you find someone who can help? As far as the nitty-gritty of negotiation, I really have no idea.

  • bowenbowen Registered User regular
    edited November 2010
    Yeah median income in NYS is something like $56,000. Good ol' NYC.

  • ceresceres Humming hallelujah in the dark Lost with a compass in the fogSuper Moderator, Moderator mod
    edited November 2010
    She's pretty much going to have to call them and see what they're willing to do. Each company will probably have a different policy, so she'll need to call all of them and explain the situation.

    It'll be just as quiet when I leave as it was when I first got here
    I don't expect anything.

    The avalanche has already started; it is too late for the pebbles to vote.
  • SaammielSaammiel Registered User regular
    edited November 2010
    bowen wrote: »
    Yeah median income in NYS is something like $56,000. Good ol' NYC.

    Median household income may be that. Median 1 earner income in New York state is 43k. The gov't has a table here. But it sounds like you aren't looking for bankruptcy, so that is just to remind people that the median income is often less than they think and sometimes it matters.

    I'd still advise to attend credit counseling. There are a lot of free programs out there and they will likely have more state-specific advice for dealing with creditors.

  • ApogeeApogee Lancks In Every Game Ever TorontoRegistered User regular
    edited November 2010
    Coming from a banker, she should cancel all but the lowest balance card. Call each of the companies and negotiate an installment loan - probably get somethign stupid like 12% interest, but it's a sight better than the standard 20%, or 25% if she's missed payments. She should keep the one card if she's got the willpower to not abuse it; it'll be nearly impossible for her to get credit for a long while, and occasionally a credit card is neccessary (like for online transactions).

    For 60,000 over 5 years amortization, at 12% interest, she's looking at roughly $1,400 a month in installments. About $20,000 in interest paid over the whole loan if it isn't paid off early. This probably exceeds her total income, when you add on rent and food. Perhaps she can get better rates, but I woudln't bet on it.

    8R7BtLw.png
  • SarcastroSarcastro Registered User regular
    edited November 2010
    Buy a house?

    IANA finance guy, but essentially the way to make 60K no big deal is to establish potential equity in which that amount is substantially less than the value of the collateral.

    So grab a mortgage in the 180K range, buy a house in 120K range, use the difference to pay off the card, and owe the bank the much, much lower rate you will get on a house. If she already has a house, shes looking for a home equity loan or Line of Credit.

    The banks, they want the mohnays, and will gleefully fuck over the credit card company to get it. Since they own the house untill its paid off, they have thier collateral for the loan. Your friend gets a shittier house than she would otherwise have coming, but gets the ability to work off crushing debt at a fraction of the interest.

    Edcrab wrote: »
    "See," said Lucifer, "God's an asshole."
  • AiouaAioua Novus Ordo Seclorum Lord of the ForumRegistered User regular
    edited November 2010
    Sarcastro wrote: »
    Buy a house?

    IANA finance guy, but essentially the way to make 60K no big deal is to establish potential equity in which that amount is substantially less than the value of the collateral.

    So grab a mortgage in the 180K range, buy a house in 120K range, use the difference to pay off the card, and owe the bank the much, much lower rate you will get on a house. If she already has a house, shes looking for a home equity loan or Line of Credit.

    The banks, they want the mohnays, and will gleefully fuck over the credit card company to get it. Since they own the house untill its paid off, they have thier collateral for the loan. Your friend gets a shittier house than she would otherwise have coming, but gets the ability to work off crushing debt at a fraction of the interest.

    Uh... no one will give you 180k to buy a house worth 120k. The entire point of having collateral is that the collateral is worth at least as much as the loan.

    life's a game that you're bound to lose / like using a hammer to pound in screws
    fuck up once and you break your thumb / if you're happy at all then you're god damn dumb
    that's right we're on a fucked up cruise / God is dead but at least we got booze
    bad things happen, no one knows why / the sun burns out and everyone dies
  • JasconiusJasconius sword criminal Flo-ridaRegistered User regular
    edited November 2010
    Aioua wrote: »
    Sarcastro wrote: »
    Buy a house?

    IANA finance guy, but essentially the way to make 60K no big deal is to establish potential equity in which that amount is substantially less than the value of the collateral.

    So grab a mortgage in the 180K range, buy a house in 120K range, use the difference to pay off the card, and owe the bank the much, much lower rate you will get on a house. If she already has a house, shes looking for a home equity loan or Line of Credit.

    The banks, they want the mohnays, and will gleefully fuck over the credit card company to get it. Since they own the house untill its paid off, they have thier collateral for the loan. Your friend gets a shittier house than she would otherwise have coming, but gets the ability to work off crushing debt at a fraction of the interest.

    Uh... no one will give you 180k to buy a house worth 120k. The entire point of having collateral is that the collateral is worth at least as much as the loan.

    You're kinda wrong. What do you think home equity loans are? They give those to people who still have mortgages, but only if you have good credit.

    Now, with that being said, it's not a good idea, for reasons up to and including she probably couldn't do it anyway with a dozen collections on her credit report.

    My company is looking for a remote short term (3-6 mo) contractor with remarkable JS and CSS experience who has worked in a team environment at least once before. If you are or know someone who is, PM me for details.
  • AiouaAioua Novus Ordo Seclorum Lord of the ForumRegistered User regular
    edited November 2010
    Jasconius wrote: »
    Aioua wrote: »
    Sarcastro wrote: »
    Buy a house?

    IANA finance guy, but essentially the way to make 60K no big deal is to establish potential equity in which that amount is substantially less than the value of the collateral.

    So grab a mortgage in the 180K range, buy a house in 120K range, use the difference to pay off the card, and owe the bank the much, much lower rate you will get on a house. If she already has a house, shes looking for a home equity loan or Line of Credit.

    The banks, they want the mohnays, and will gleefully fuck over the credit card company to get it. Since they own the house untill its paid off, they have thier collateral for the loan. Your friend gets a shittier house than she would otherwise have coming, but gets the ability to work off crushing debt at a fraction of the interest.

    Uh... no one will give you 180k to buy a house worth 120k. The entire point of having collateral is that the collateral is worth at least as much as the loan.

    You're kinda wrong. What do you think home equity loans are? They give those to people who still have mortgages, but only if you have good credit.

    Now, with that being said, it's not a good idea, for reasons up to and including she probably couldn't do it anyway with a dozen collections on her credit report.

    What. No.
    Your equity in you home is (amount house is worth) - (amount of loans against home). If you have no equity, you can't get a home equity loan.

    life's a game that you're bound to lose / like using a hammer to pound in screws
    fuck up once and you break your thumb / if you're happy at all then you're god damn dumb
    that's right we're on a fucked up cruise / God is dead but at least we got booze
    bad things happen, no one knows why / the sun burns out and everyone dies
  • DaenrisDaenris Registered User regular
    edited November 2010
    Jasconius wrote: »
    Aioua wrote: »
    Sarcastro wrote: »
    Buy a house?

    IANA finance guy, but essentially the way to make 60K no big deal is to establish potential equity in which that amount is substantially less than the value of the collateral.

    So grab a mortgage in the 180K range, buy a house in 120K range, use the difference to pay off the card, and owe the bank the much, much lower rate you will get on a house. If she already has a house, shes looking for a home equity loan or Line of Credit.

    The banks, they want the mohnays, and will gleefully fuck over the credit card company to get it. Since they own the house untill its paid off, they have thier collateral for the loan. Your friend gets a shittier house than she would otherwise have coming, but gets the ability to work off crushing debt at a fraction of the interest.

    Uh... no one will give you 180k to buy a house worth 120k. The entire point of having collateral is that the collateral is worth at least as much as the loan.

    You're kinda wrong. What do you think home equity loans are? They give those to people who still have mortgages, but only if you have good credit.

    Now, with that being said, it's not a good idea, for reasons up to and including she probably couldn't do it anyway with a dozen collections on her credit report.

    Yes, they give them to people who have equity in their home -- as in, they owe less on it than it's worth, so they borrow against the difference. If you owe 120k on a home that's only worth 120k, no one will give you a home equity loan because you don't have any equity in the house.

    In general a bank will not approve a mortgage for more than the appraised value of a home, except in specific circumstances (such as some mortgages that allow additional value to be added in order to renovate the home being purchased).

    Though, I agree with your point, even if it were possible it's a silly idea to go even deeper in debt to pay off existing debt.

  • DeebaserDeebaser Alpha Teemo Registered User regular
    edited November 2010
    Sarcastro wrote: »
    Buy a house?

    IANA finance guy, but essentially the way to make 60K no big deal is to establish potential equity in which that amount is substantially less than the value of the collateral.

    So grab a mortgage in the 180K range, buy a house in 120K range, use the difference to pay off the card, and owe the bank the much, much lower rate you will get on a house. If she already has a house, shes looking for a home equity loan or Line of Credit.

    The banks, they want the mohnays, and will gleefully fuck over the credit card company to get it. Since they own the house untill its paid off, they have thier collateral for the loan. Your friend gets a shittier house than she would otherwise have coming, but gets the ability to work off crushing debt at a fraction of the interest.

    Thanks, but I don't think she wants to go to jail for mortgage fraud. ;-)

    I'm sure that wasn't your intent but that is literally what you are describing.

  • DeebaserDeebaser Alpha Teemo Registered User regular
    edited November 2010
    Thanks all. I think I have a pretty good starting point here.

  • SarcastroSarcastro Registered User regular
    edited November 2010
    Just a thought really. I have banks crawling up my ass to take over my credit card debt. And at home loan interest rates (here thats about 3-4 %) too, not retarded 'oh so I see you are fucked, lets twist the knife by raising your rates' rates.

    The amount they want to cover is substantially more than what I've put into my house so far, so clearly its not the collateral they care about. That being said, my credit rating is quite decent, and I have a long record of paying what I owe on time. Without that record, they would likely be far less generous.

    Theres probably a few good ways to move from high interest to low interest, home ownership is the only thing that comes to my mind, but perhaps there are others.

    Edcrab wrote: »
    "See," said Lucifer, "God's an asshole."
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