Happy Atheist Forum

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.

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.

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.

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

Thanks everyone! This is all useful info.

Quote from: "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?  

Quote from: "elliebean"

Quote from: "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.

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/ (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.

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.

Quote from: "AlP"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.

Quote from: "AlP"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!
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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.

Quote from: "AlP"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!

Cutting up credit cars helps as well.

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.

Quote from: "AlP"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.

Quote from: "Whitney"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...

Quote from: "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.

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

I sometimes catch myself falling into this type of spending..It's an addiction like anything else, I paid off my credit cards and closed them all. ..Now I pay all my bills first out of my checks and treat myself last..I usually have  less then 200 bucks in the bank at all times, but I'm not in debt anymore. My girlfriend and I just got a 50inch HD tv, but we paid for it out of our tax return money.

This is actually an area I consider myself to be quite knowledgeable in.  I have been a Debt Analyst for a debt settlement company, and trained to be a Financial Advisor, including getting my Group 1 Texas Insurance license and Series 63 license.  AlP, I actually have a wealth of information for you to share with your friends, but there is no way it would work in a single forum post.  I'll try my best to summarize below, but PLEASE PM me and we can set up a way I can help better if you'd like.

Regarding High/Low Interest rate cards and the snowball method: This is getting really into a single method of paying off your credit cards, which is paying them off as agreed, on the cards they are currently on.  This method works, but by getting into this you are automatically ruling out several other options for paying off debt.  Wait until you've made the decision to just pay the debt as-is before getting into the finer points of what to pay how much and when. To settle the debate though: yes you should pay highest interest, but also lowest balance first.  There is obviously some grey area here depending on the situation, and the best plan of action can only be determined by actually amortizing your debts out in an amortization table to figure out what will get everything paid off the fastest.   i know

Regarding what i_am_i said about them selling off accounts: there's a good reason i_am_i said "I'm won't say any more than that." there is a method of paying your debts that involves using the system to your advantage in a way that some people say is unethical. there is a lot of debate over this issue. i personally believe that this method has it's rightful place in debt management, but this is NOT something I'm going to go into in a post that can be read by anyone.  this method involves extremely careful consideration of your entire situation, not just the debts you owe. PM me if you really want to know more.

Regarding securing your unsecured debts to get a lower interest rate: STUPID STUPID STUPID STUPID STUPID STUPID STUPID STUPID ok sorry i got a little carried away.  clearly, there are some situations where this might work, but in most cases it makes no sense to risk your assets by putting them up for collateral on a new loan that you probably won't pay off anyway and BOOM repo men in theaters march 19th.

Regarding refinancing cars to pay off credit cards: This is incredibly dangerous as you put assets at additional risk, you could easily get screwed on the new loan, it doesn't really fix the problem (new payments won't be that much better), and it is also illegal in some states but banks don't care. Also, see above.

Regarding Dave Ramsey/Suze Orman: Don't even get me started. They do not give you any advice you cannot get on your own.  That and Suze Orman's show is owned by a bank.

Gah this is getting really long. Sorry for raping everyone's eyes with a giant wall of text.

TOO LONG DIDN'T READ: There are just as many dangers and pitfalls getting out of debt as there are getting in, especially if you don't do your research. AND ESPECIALLY if you read advice that was given in a blanket manner (this includes my own). The only real, good advice will be custom brewed to your situation. Cookie-cutter is how you get into debt in the first place.

P.S. Consumer Credit Counseling Services (i.e. debt consolidation in some places) is viewed the same as a Ch 13 BK on your credit report to many lenders.

P.P.S. If you don't live in the U.S. disregard everything I just said.

Interesting, theTwiz. I can really only talk in generalities because I don't know the full details of their debt situation, just that they have 6 cards, one of which is 22% and that they have enough income after other expenses now to start paying them off. These friends are not a hypothetical me by the way. My finances are fine.

Can you give me an example of a scenario in which it would make more sense to pay off the lowest balance cards first? I can't make the arithmetic work. Is it maybe the psychological benefits of closing those accounts? Or there being less temptation to put more debt on lower interest rate cards?

Is it possible to transfer debt from a higher interest rate card to a lower interest rate card? Does that make sense?

I think I found the unethical approach to lowering one's debt. It's a search away. I won't say what it is because others don't seem to want to talk about it.

Quote from: "AlP"Interesting, theTwiz. I can really only talk in generalities because I don't know the full details of their debt situation, just that they have 6 cards, one of which is 22% and that they have enough income after other expenses now to start paying them off. These friends are not a hypothetical me by the way. My finances are fine.

Only two things here: 22% seriously sounds like a default rate, which if that's the case then it may not be long until other cards start spiking in interest rates,too.  Also, I believe you when you say it isn't you Google search away. I won't say what it is because others don't seem to want to talk about it.[/quote]

Yeah it's pretty easy to find. Not as easy to pull off.  The reason I won't talk about it is because the last thing I want is some looney going to her local news station about an "Internet Scam" that offered her "Financial Advice" about how to get rid of credit card debt, but this "Advisor" was nothing more than a "Satan-Worshipping Atheist Community" ;)