Money Troubles

Button5807

Don't worry, it's not me, I know you were concerned.

I've never really had money troubles, the worst it's ever gotten was a little credit card issue a few years back that was easily fixed by a few months of eating ramen. So this is not my area of expertise. I know a lot of you have careers in this field or just more life experience to go off of so I'm looking to get some ideas that I can pass along.

A friend of mine has finally decided to become a responsible adult. Her credit is pretty much shot and she's nervous that over the next few years her plans of buying a car, paying for her wedding and eventually getting a house are going to go up in smoke.

She has 2 outstanding school loans that she makes monthly payments on. 1 credit card that she defaulted on so badly that they cancelled it. She ended up getting a loan from a friend so she could pay them the $1000 she owed without racking up anymore fees, but she's currently pay that guy back. On top of that she has 2 other credit cards that are nearly maxed out totaling about $6000 in debt.

She seems to be off to a good start, she stopped smoking, buying random crap all of the time, cancelled accounts she paid for on video game websites, netflix, ect. But now she's lost, she gets that these things take time but she's wondering if there are other avenues she can take.

I'm way out of my league here because google comes up with a bunch of scammy looking stuff.

Any tips, tricks, advice?

paintgirl

Yep. Tell her to get Quicken or some other tracking program, set a budget, and stick to it. She might have other places to cut spending that she doesn't know of quite yet.

I'd also recommend some of Suze Orman's stuff. I don't agree with her 100% right now (she says you need 8 month emergency fund, 6 is probably ok - she says to pay off student loans first in case of bankruptcy, the credti card, and I think it depends on the individual situation). I also like Liz Pulliam Weston. She disagrees with some of Suze's stuff right now and provides a different perspective.

I used to be a giant CF (rather irresponsible youth that I've finally paid off) so I know how difficult it can be. You're a good friend! Keep being supportive.

noelle24

If it's so bad that she's defaulted, she needs to stop using her credit cards...period. Cut them up, freeze them in her freezer, what have you.  She should NOT cancel the accounts though, as that will make her credit score drop. Then buy everything with cash or debit card.  If the money's not there, she can't spend it (duh).

Then, she needs to make a budget based on how much she can spend each month based solely on what she earns.  As far as paying debt back, she needs to pay off the highest interest stuff first, and then work her way down. She should also squirrel away a small amount of money each month into savings.  A lot of people recommend a cushion of at least $500 for emergencies.  Other people recommend a savings account cushion amounting to 3-6 months of expenses, just in case of lay-offs/illness/etc.  It's easiest if she sets this up as an automatic deposit, so that she doesn't have to remember/miss it.

Additionally, I'd recommend that she tracks every single purchase she makes in a month, so that she's accountable to herself.

Ana_2985

I'm not sure if this is the type of advice you're looking for but I think she should focus on paying off the credit card debt first.  Student loans are not considered "bad" debt (*I think*) so they won't affect her credit the way the credit card debt will.  She should just keep up the monthly payments on the student loans and worry about the principal after the cards are paid off.

desertsun

Something that has helped me is to have a small amount of my paycheck direct deposited into a savings account instead of all of it into my checking. Just a simple thing like that can make saving easier.

Also, tell her to stop eating out and buying clothes. Cook at home. Get a haircut every 8 weeks instead of 4-6. No manis or pedis. Cut out the little luxuries like that, and it will make a big difference in how much money she has available to pay down her debt. It doesn't seem like much when you spend it, but it adds up fast.

loopy82

She could try to find a second job and put all that money to help pay of her debt.

hetshup

OK since I am not at work, I can now answer this. 

1-- She needs to pull her credit. You can get it at least one time a year for free from each of the three credit bureus. She needs to know what is on there and make sure there are no other accounts that are in default. 

2- As mentioned, she needs to pay off the highest interest rate card first and then GET RID OF THE CARD. The account should stay open unless there are fees to do so. Once one card is paid off, the amount that is used for payments on that card goes in addition to the next highest interest rate CC. 

3-- Have her put together a 90 day budget. Everything goes into the budget, gas starbucks, whatever. She should be able to track it down to pennies. Ok, really that should be step 2. 

4-- She should not apply for new credit for at least 6 mo, more if possible. 

5-- Once the budget is done, I normally recommend that of the amount which is going to be saved, she use 10-20% to start building her savings. If she's looking to buy a house, she should have a 20% down payment.

Student loans can be considered "good" debt if they're subsidized, the unsubsidized ones are where people get into trouble. Oh yeah, and that cancelled card? She still needs to pay it back.

ekathleen684

Everyone has pretty good advice. One thing to stress is not to cancel the cards since this would lower her outstanding credit/available. But I would cut up the cards or put them somewhere other than her wallet!

 My other advice would be to try debtgoal dot com, you don't have to put any personal account intomation in other than whatever the account is to help identify with which one is which, how much is owed, interest rate, etc..but not account numbers or real personal information. It gives you a goal of being debt free and can calculate recommended monthly payments for each card based on how much of her monthly budget would go towards her debts. I'll admit that I got into a bit of credit card problems (working at Macy's wasn't a good idea when you spend more than you make) and this website helped me alot. Even if she doesn't go by the recommended plan, you can still have all your debts in one place and can keep track of it you have paid them or not this month and how far you have left to pay off...best of all it's FREE!

babybchbum

Exactly What Hetsup said. 

Banks these days can often combine debt to a lower intrest rate. So what she is ultimately doing is paying off all her "BAD" debt on CC and what not with a personal loan. If she has her cards maxed out more than likely she is going over the credit limit due to monthly intrest which is driving up her intrest rate.

She needs to make WELL OVER the minimum payment each month and when she gets a bonus from work, put that whole lump sum towards paying of her debt.

If you set your mind to paying it off it will happen sooner than you think.