Credit card trouble

[AlP]

I'm trying to help a couple of friends of mine. They're engaged and they want me to be their best man. That's not the problem though. They're in serious credit card debt. Between them they have 6 credit cards. The worst one is maxed out and at 22%. I don't know how much they owe in total but I could ask if it's important. Apparently they talked to a financial advisor who told them to pay off the lower amount, lower interest rate cards first. I think this advise is crap and I really want to help them. I told them I think they should make the minimum payment on every card and put as much as they can into the highest interest rate one first. I think making the minimum payment is important because the credit card company is less likely to increase the interest rate. I also suggested that the two of them look into refinancing their cars (both ~5 year old Honda Civics) to pay off the credit cards and get a better interest rate on the loan. They have no other significant assets that could secure debt. Did I get this wrong?

That's the financial problem. Now the psychological one... Any suggestions on how to persuade people to not buy worthless crap they don't need? I recognized that they were about to land in a shitload of debt long before they actually did and I tried to tell them. Unfortunately I was unsuccessful in persuading them. For example, they asked me to just not talk about how they couldn't afford furnishing their apartment and buying their 60" wide screen TV and home theater system when they had no income. How can I prevent this from happening to my friends in the future?

Actually, In the future I will seek more rational friends. But I'm not going to abandon these two just yet. I'm attached to them.

[LoneMateria]

I have 2 friends that are exactly like that.  They are married (now) and they got new Italian Leather furniture, a 80 inch TV, buy concert tickets, go out to eat 3+ times a week and Steve typically plays poker once a week, and when a big boxing match is about to be shown he buys it.  And half the time I go over to hang out they just got their power turned back on, or their water, or cable or they just got a new car because the one they had got repo'd.  Things weren't as bad when they were both working, but now Steve is working 60+ hours a week and Jodi is unemployed and pregnant.

I've given up feeling bad for them.  I've talked with them about their frivolous spending but it doesn't phase Jodi (who admits she refuses to spend on a budget even when Steve tries to set one).  Some people will just be this way in their lives.  I know nothing I can say or do will change these habits.  It sucks but you just got to accept it.

[i_am_i]

It's not impossible to get out of the credit card debacle but you have to play their game. I did it. What you have to do is get down to their level and basically have more bullshit than they do. And you have to spend a lot of time on the telephone, I mean a lot of time. Most people aren't willing to do all this because it's somewhat, well, unscrupulous, but then so are the bastards who sell you the damn credit cards in the first place.

I don't want to go into how I did it, for obvious reasons. But it worked! Actually it was kind of fun. And no, I didn't go to a credit counselor. Eventually I settled my accounts for a fraction of what I owed and I'll never, ever, have another credit card. All I carry now is a debit card and I do just fine.  

Remember that credit card companies sell accounts that aren't getting paid off to collection agencies. That's the key. And I won't say any more than that.

Now, how do you convince people to stop spending beyond their means? You might as well try to convince a Baptist that Jesus is just a myth.

[Whitney]

I would think it makes more sense to pay off the high interest card first.

[AlP]

Thanks everyone! This is all useful info.

[elliebean]

I would think it makes more sense to pay off the high interest card first.

I would too, but when I thought of it again it made sense that if you pay off the lowest balances first, it frees up more of your monthly income to pay more on the rest, whereas if you try to pay off the highest interest rates first, less of it goes toward the principal and you'll be forever making minimum payments on a ton of cards....right?  

[Whitney]

I would think it makes more sense to pay off the high interest card first.

I would too, but when I thought of it again it made sense that if you pay off the lowest balances first, it frees up more of your monthly income to pay more on the rest, whereas if you try to pay off the highest interest rates first, less of it goes toward the principal and you'll be forever making minimum payments on a ton of cards....right?  

Unless the plan is to pay off the low interest card in order to move the high interest debt to the low interest cards then if you didn't pay off the high interest card first (while making min payments on the low interest cards) you'd be paying more interest overall...I think.  

But, I guess it all depends on if you can afford to pay off enough on the high interest card in order to make any headway.

[notself]

Just paying off the cards won't help long term.  I have friends who took a financial course given by the Dave Ramsey organization.  Not only did the get excellent financial advice, they left the class speaking the same financial language and having the same financial goals.  I think a course like this should be a requirement before people get married.  Check out this site.
http://www.daveramsey.com/

They could buy videos or Cd's but I recommend they take the course.  Interacting with other people in their situation will really help.  They won't feel like losers.  The course has a tinge of theism, but no one will choke on it.

[curiosityandthecat]

As always, Lifehacker to the rescue: http://lifehacker.com/search/debt/

Dozens of methods, tips, suggestions and warnings. Get them a book by Suze Orman. And tell them to grow the fuck up.

[Will]

Apparently they talked to a financial advisor who told them to pay off the lower amount, lower interest rate cards first.

Sounds like this "advisor" works for the credit card companies.

I told them I think they should make the minimum payment on every card and put as much as they can into the highest interest rate one first.

That's a bingo!

The main goal should be making the most efficient payments possible and that means reducing the debt on highest interest cards first and foremost. Once the 22% cards are taken care of, they can move to the lower interest cards.

Any suggestions on how to persuade people to not buy worthless crap they don't need?

Yes! Find someone that has had to declare bankruptcy recently (after the laws changed) and introduce this person to your friends. At the same time, find the most absurd thing they've bought on credit and have it in the room as the bankrupt person explains how being financially irresponsible can ruin your entire life. Every time this person explains something bad that happened, point to the extravagant crap, as if to indicate "you're going to suffer greatly for this stupid piece of crap."

The parents of a friend did this with my friend when we were back in college and it worked like a charm. You need to connect real world consequences to debt, because credit card companies go out of their way to use psychology to disconnect your debt from real world consequences until it's too late.

Good luck!

[notself]

Cutting up credit cars helps as well.

[AlP]

Okay cool I figured my way to pay the debt was more effective. From the links above it seems to be called "snowballing". The buzzword might help me sell the idea to them. I just wanted to be sure because I've only ever had a student loan and an auto loan and the one credit card I pay off monthly. Their debt's in a whole other league. Now I have to explain to them why they can't afford to spend 20K on a wedding. Jeez.

[Whitney]

Now I have to explain to them why they can't afford to spend 20K on a wedding. Jeez.

Oh my...

Our wedding cost around 3k (maybe closer to 4 after the restaurant made it open bar on accident an my mom paid them anyway) and was very nice.  No one really notices if you spent a ton of money on custom napkins and m&ms with your names printed on them.

[AlP]

Our wedding cost around 3k (maybe closer to 4 after the restaurant made it open bar on accident an my mom paid them anyway) and was very nice.  No one really notices if you spent a ton of money on custom napkins and m&ms with your names printed on them.

Yeah it's way too much. I went to a 38K wedding once. It was a couple with very wealthy parents on her side who could actually afford it. I can't say I was particularly impressed though. I seem to remember the photographer charged 3K  

I want them to either defer getting married or do it without a wedding. Unfortunately that won't work. There's also the issue that I'm pretty sure the marriage wouldn't work for more than a few years anyway and divorces are expensive. People...

[LoneMateria]

Okay cool I figured my way to pay the debt was more effective. From the links above it seems to be called "snowballing". The buzzword might help me sell the idea to them. I just wanted to be sure because I've only ever had a student loan and an auto loan and the one credit card I pay off monthly. Their debt's in a whole other league. Now I have to explain to them why they can't afford to spend 20K on a wedding. Jeez.

Well you can always ask them what is more important, being unmarried living under a nice roof, or married and on the street