Help for Debt Problem

Updated on September 28, 2007
N.K. asks from Chicago, IL
16 answers

Can anyone recommend the best way to get out of debt? A close friend of mine is looking for a way to start paying off her many debts. She frequently receives letters and phone calls from collection agencies. The problem is that she also is paying back student loans and doesn't make very much money. Thanks for any advice you can give!
N.

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G.T.

answers from Chicago on

I would recommend AAA Cook County Consolidation. My husband used them and has had a very good working experience with them.

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A.W.

answers from Chicago on

Hi, N.. I'm a financial planner so maybe I can help.

The first thing she needs to do is call the collection agencies and work out some sort of payment plan that she can afford. They're normally willing to do this so they can get their money. Also, for any medical bills, if she can show hardship at the time she received care, some places will wave the fees. So she would need to contact those places.

Second, if she doesn't have enough money to pay off her debt, then she needs to look for a job with better pay (if possible) or take on a part time job until things get a little better. The fact that she has student loans leads me to believe that she has a college education. There's plenty of employment agenicies in Chicago. Maybe one of them can place her in a better position.

Third, if she has credit cards, she should call her credit card companies and negotiate a lower interest rate.

Fourth, create and stick to a budget, getting rid of nonessentias for the time being. Does she have cable? Internet? Does she get a capaccino every once in a while? The occassional pedicure? Does she eat out? These are all things that can be cut. Once she has a budget, she'll know how much money she has to play with.

Fifth, here's an intersting thing about interest that most people in the money industry don't tell you. The rule of 72. Basically, this is the rule. You take the interest (hypothetically, let's say 18%, typical credit card interest, with a $10,000 balance) and divide it into 72. The resulting number is how long it will take your debt to double. So

72 divided by 18 = 4

So that's 4 years for your $10,000 debt to turn into $20,000.

It also works in a positive way. Take a normal bank savings account. We'll be generous and say they give you an interst rate of 3%.

72 divided by 3 = 24

So that's 24 years for your $10,000 to turn into $20,000.

The reason I'm explaining all of this is so she can understand the line of attack.

Sixth is the line of attack. I'm going to through out some more hypothetical numbers to illustrate what I'm going to advise her to do.

Student Loan......$25,0000............7% interest
Visa..............$8,000..............18% interest
Discover..........$10,000.............12% interest
Medical...........$12,000..............0% interest

Remember, these are hypothetical.

So here's what she does. She make the minimum payments on all of them except one. The debt with the lowest balance with the highest interest rate. That would be the Visa. Whatever extra money she has after she's done her budget and put something away in the bank (you should always save, even if it's only $25 a month), whatever she has left should all go to visa. So after everything, if she has an extra $75 a month, the minimum plus the $75 should all go to Visa.

Once the Visa is paid off, she moves on to the next debt. That would be the Discover. So what she would do is pay the Discover minimum + the Visa minimum + the $75.

Once the Discover is paid off, she would go to the Student Loan. So she would pay the student loan minimum + discover minimum + the Visa minimum + the $75.

The last would be the medical bills. Medical bill minimum + student loan minimum + Discover minimum + Visa minimum + the $75.

As you can see, each subsequent debt will be paid off faster and faster.

Also, if she would like, she could always sit down with a colleague on mine that lives in Chicago. She's licensed for IL (I'm not) and all of our consultations are free. It's always an option. Email me if she's interested. We could probably really help her.

But either way, tell her I said good luck.

EDIT: This is a very basic plan. It's very difficult to give any more advice not knowing the exact situation that N.'s friend is in.

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N.C.

answers from Chicago on

Hi N.,

My husband and I had an issue last year as he was laid off and we lived on our credit cards. We used a service called Credit Solutions. We've since paid off all our debt in just over a year and it included 5 credit cards and I'll just tell you the lowest one was $1000 and the highest was $4500. They work with the creditors to help them understand the situation and work on agreeable settlements. They have a website www.creditsolutions.com.

Otherwise, if she owns a house maybe think about taking a home equity loan to consolidate into one lower percentage rate loan??

Debt is a tough thing and I know now after going through all of this that I will NEVER let it happen to me again. It's just entirely to stressful!!!

I wish your friend the best of luck!!

Take care,

N.

2 moms found this helpful
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J.L.

answers from Chicago on

Check out www.daveramsey.com. See if she can find a Financial Peace Universtiy class nearby. It is SOOOO worth it . We took the class and is has changed our life.

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T.K.

answers from Chicago on

My husband and I used AAA Cook County Consolidation. So far so good. The only thing is that we couldn't put all of our debt in it because then we couldn't afford the monthly payments, but it did take care of almost $10,000 of our debt and we are taking care of the rest. I wish I could tell you that there was an easier way but it isn't like Ed McMahan is really going to show up at our door (ha ha ha)-of course I dream of that happening. I got letters and phone calls daily, I cried and still do everyday over the mess that we got ourselves into of course now I don't get any phone calls and not too many letters which helped with the depression. We had the baby and didn't realize just how much daycare was going to cost us. If we didn't have to pay that outragous daycare fee every week, we would be cmompletly out of debt now, I don't regret having our son, but wish that we had made better choices way before he came along. Good luck to your friend and I really hope that she too can get out of this debt and that the best thing to come of this is that you learn, not to buy things unless you have the money and to never rely on credit cards again (that is what we have learned and in now way should be taken as if I was putting your friend down or her situation). If you need more information about the company we used please let me know, I will answer any questions you may have.

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J.G.

answers from Chicago on

I am actually in the process of paying off old debt. I went through a non-for-profit agency. GreenPath Debt Solutions. They charge me a fee of $20 per month. They lowered all my interest rates. Two times I was out of work for short-term disability, and I called them and told them that I wasn't going to be receiving a check and they called my creditors and was able to reduce my payment drastically during that time. Also I was having a hard time making my car payment on time, and it's not really a debt, but they added it to my account so now my car payment is never late, and I don't have to worry about it at all. I really like this company, it has helped me a lot.

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M.H.

answers from Chicago on

N.,
If your friend has multiple student loans, she may be able to consolidate them. There are several options. She can lower her payments, and extend them over 20 years vs. 10. Then when she is clear of debt can make extra or double payments on the student loan to pay it off sooner than 20 years. There are also qualifications for deferment, like job loss, or new baby...
An acquaintance of mine manages student loans and a comment that sticks with me is that tomorrows $ will be worth more than today's... which could mean a few things I suppose, the market or a better paying job down the line.
Wish her luck, it won't be this way forever.

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S.K.

answers from Chicago on

You have gotten some really great answers here but I wanted to throw out a financial author who I really like that she could use by itself or in conjunction with a debt consolidation. His name is Dave Ramsey. He is NOT a get rich kind of author or if you give me $5 I will turn it into a million. He goes off of some of the philosophies that Amy W was describing. He has 6 steps to financial freedom. THey are logical and make sense. His philosophy is "Live like no one is living so you can live like no one is living." WHat he means is sacrifice now to pay off debt and set up your financial freedom so that when you need it...you can live it up and not worry about anything. I read the "Total Money Makeover" by him and we followed it. In about 2 years we paid off my undergrad and grad school loans, 2 cars, credit card debt, a time share and we just paid cash for our new car. It was hard and tough sometimes but well worth it. Good luck to your friend.

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M.P.

answers from Chicago on

All I can say whatever she does, make sure she doesn't use Debt Settlement America (DSA). It's not a consolidation but they try to settel your debt. Only thing is they will tell you not pay your min. payments on credit cards while they start trying to settle the debt. Well I got screwed, I got sued by the credit card companies and the DSA couldn't do anything about it. They made a lot of $$$ off of the fees. I ended up declaring bankruptcy anyway. I also have lots of student loans.

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A.S.

answers from Chicago on

We went through Consumer Credit Couseling of Elgin. They don't do anything with student debt, car loans or house payments, but they basically negiotaiated lower rates on everything and also a lower monthly payment. Every 2 weeks we get the same amount debited out of our account and they divy it up. Once one account gets paid off, more goes towards another. By next year, we will be almost debt free. It has not been easy, and I know there are probably better ways to go about it that won't affect your credit as much, but our credit was in the pooper anyway and now we are much much better off. They do charge a very slight fee for the initial consultation and then a few bucks with each debit, but it is sooooo worth it. Good luck...I know what it is like to be in over your head.

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K.

answers from Chicago on

There are lots of agencies and non-profits that can help with this (my ex went through this after a major injury and no health insurance put him out of work and into debt for several months). They will consolidate your debt, get you a payment plan, and negotiate a low and reasonable interest rate. Ultimately, companies want to know that you are making a good faith effort to pay it back (vs. declaring bankruptcy). Going through an agency like this doesn't do wonders for your credit rating, but it beats getting calls from collection agencies - and a few years down the line it all fixes itself.

I don't know the name of the one my ex went through, but you want to look for one that is legitimate - maybe even government sponsored - and be sure to check the Better Business Bureau record on it, because there are also a lot of scam services.

There are also some student loan forgiveness programs - especially for jobs that just don't pay well (like social workers). I know that a social worker at the hospital negotiated to have many thousands of dollars dropped from my ex's bill because there was no way he could pay.

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N.S.

answers from Chicago on

I wish I had answers for her cause I could use the answers too. I am swimming, or should I say drowning in debt between mine and my husband's debt since we got married around 5 years ago. It is very straining on the marriage and we are also trying to get help without filing bankrupcy of some sort. If you get any good agencies or refinance programs that will work with very high debt compare to income I would also be interested in it. We tried to refinance but we don't have enough income to be eligable for the refinance we need to get the credit cards paid off. I don't envy her since I know how bad it can get. We have almost 1/2 million in debt due to major health issues, my husband being laid off twice in 2 yrs. and so many other crisis we did not plan on after we moved into our house. Its been a financial nightmare ever since then. Please share any resources you get. We could use all the help we can get as well. Thanks!

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V.G.

answers from Chicago on

My Hubby is a VP and does the debt consolidation and he works for citigroup.

If your friend refer my name, the analysis can be done free. And you can decide your next course of action. SEnd me your friends detail.

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M.T.

answers from Chicago on

Hi N.-

I recently met a lady who does financial planning that doesn't charge to sit down with anyone. She always stresses that you don't have to have lots of $ to work with to get a financial plan in order. Please let me know if you would like more information. I have some friends who are in a financial bind that are planning to meet with her as well.

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P.P.

answers from Chicago on

I had the same issues several years ago. I can't remember who told me about this place, but I called Profina Debt Solutions and they handled everything. It was WONDERFUL. They asked me all about my income, my debts, if I rented or owned, etc. Then they calculated what I could actually afford to pay each month. They contacted all of my creditors and arranged payment plans with them. All but one credit card (Discover - which I will NEVER use again because of it) stopped everything where it was at - meaning they didn't keep tacking interest on to my balance while I was slowly paying them off. I sent one payment to Profina each month, they handled the distribution to all the creditors (they do keep I think $5/month for themselves, but I was paying more than that in interest each month so it was worth it to me). It was awesome. I could never have been debt free without them. You just have to know that you can not keep using your credit cards, you can't apply for any additional credit cards while you're working with them, etc. They are trying to help free you from debt, so you have to agree to work with them on that. The negative things I heard about a program like this is that it ruins your credit. Not so. I was able to buy a car on my own a few years ago. And my husband and I just bought a house and I know that my credit score is great - even higher than my husband's! I highly recommend going this route. I told my sister-in-law about this place, as well. She contacted them (Note: They are now called InCharge Debt Solutions) and she has also had the same great experience with them. She will be debt-free by this time next year. Good luck! It's no fun having money troubles hanging over your head! This is a great way to take charge of that!

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S.C.

answers from Chicago on

Hi,

My name is Lauren C., I am a Paralegal and i also assist individuals like your friend with debt consolidation. Please contact me via email at [email protected]____.com with more detail.

Best Regards,

S. Lauren C.

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