How to get out of debt?

[dgorila1]

I am looking for real world, proven ways to get out of debt (over $40k worth). This is all credit card and loan debt. Doesn't include the mortgage, as this is a monthly "living" expense that we would have regardless. I have read about many of the ways (the envelope method, pay smallest debt off and add that to the next one and so on, etc). What tactics worked for you guys and still allowed you to have a "normal" life as far as spending for family expenses? This is the most debt I've ever been in, and I don't intend to do this again once its paid off. I just need to figure out how to pay it off first. The thought of going to cedit counseling to consolidate the payments into one set amount and have them negotiate a reduced % rate crosses my mind, but I know it'll end up ruining my credit (which I don't intend to rely on much after I pay everything off, but its good to have it if needed). Same for bankruptcy.

[DarkSociologist]

Interest rates are killer (especially compounding interest). Credit card debt is considered short-term debt and therefore demands a higher interest rate than long-term debt, like a mortgage.

You want to get rid of your debt that has the highest interest rates first. This probably means paying off your credit cards first, while only paying the minimum payments on your mortgage.

If you simply cannot afford to pay off such debts, then another strategy is to borrow on the equity of your house (a second mortgage) to pay off your high-interest debt (credit cards), which will lower your average interst rate and consequently lower your payments.

As a side note, you should be very careful about the kind of mortgage that you have. There are kinds where even if you make the minimum payments, you can still lose your house.

Go see a financial advisor and they will help you work through all this and help you become debt free.

[sczzy]

I have read about many of the ways (the envelope method, pay smallest debt off and add that to the next one and so on, etc).

If you simply cannot afford to pay off such debts, then another strategy is to borrow on the equity of your house (a second mortgage) to pay off your high-interest debt (credit cards), which will lower your average interst rate and consequently lower your payments.

You are on the right track not my site but good tools.
Crown Financial MinistriesI would look into the money map. It gives you a good outline to follow.

[RT Wolf]

If you're not on a budget right now, then its time. This is a great guide to setting up a quick, simple and easy-to-follow budget:

Getting Finances Done » How to create a zero-based budget

Remember to create a debt repayment plan and budget for it.

Specific strategies, you've said you've heard of many. There was a thread here about debt repayment a little while ago, you could dig it up.

Out of curiosity, why aren't you doing any of the things you've read about?

[John Wesley]

Spend less money than you make.

[Caveman Joe]

It seems very, very obvious, but a lot of people fall foul of this: being in debt, while still having savings.
If you have savings, use them to pay off your debt. Your savings are accruing a far smaller rate of interest than your debt - if you have savings while you're in debt, they're costing you money.

[SeriousKidding.com]

Originally Posted by dgorila1

I am looking for real world, proven ways to get out of debt (over $40k worth). This is all credit card and loan debt. Doesn't include the mortgage, as this is a monthly "living" expense that we would have regardless. I have read about many of the ways (the envelope method, pay smallest debt off and add that to the next one and so on, etc). What tactics worked for you guys and still allowed you to have a "normal" life as far as spending for family expenses? This is the most debt I've ever been in, and I don't intend to do this again once its paid off. I just need to figure out how to pay it off first. The thought of going to cedit counseling to consolidate the payments into one set amount and have them negotiate a reduced % rate crosses my mind, but I know it'll end up ruining my credit (which I don't intend to rely on much after I pay everything off, but its good to have it if needed). Same for bankruptcy.

I am in a similar circumstance. The only way I know how to battle this epidemic is to rein in spending and find a way(s) to increase income. I have found something I believe will work for me. It's too early to tell. But if you want to talk about it, please email me at seriouskidding@gmail.com . Good luck with your struggle my friend. "brad"

[escapee]

What about using a scissors to cut your CCs in half now . I dont own any CC myself but i do use debit card sometimes .

[dor]

Originally Posted by dgorila1

I am looking for real world, proven ways to get out of debt (over $40k worth). This is all credit card and loan debt. Doesn't include the mortgage, as this is a monthly "living" expense that we would have regardless. I have read about many of the ways (the envelope method, pay smallest debt off and add that to the next one and so on, etc). What tactics worked for you guys and still allowed you to have a "normal" life as far as spending for family expenses? This is the most debt I've ever been in, and I don't intend to do this again once its paid off. I just need to figure out how to pay it off first. The thought of going to cedit counseling to consolidate the payments into one set amount and have them negotiate a reduced % rate crosses my mind, but I know it'll end up ruining my credit (which I don't intend to rely on much after I pay everything off, but its good to have it if needed). Same for bankruptcy.

one thing you can do with credit cards - asked for a reduced rate, cite financial difficulty. your cards will be frozen ( you won't be able to use them), but it shouldn't effect your credit rating. some companies do some don't.

Credit card companies are only a little worse than cigarette and alcohol companies -they try to get you 'hooked' on debt. I would not feel bad about doing anything within the grounds of legality to pay as little as possible.

Is it a 'fair' world where congress bails out s&l's and banks when they get in trouble yet passes legislation that makes it harder for you to declare bankruptcy?

[ispf]

dgorilla1: I think you have already taken the first step by acknowledging that you are in debt and starting to look for information on how to reduce debt! Just keep at it and you will definitely be debt-free soon! A few years back, we were in a similar situation with about $42K in debt (credit cards + car loans + private student loans). We got rid of it and the feeling of being debt-free (apart from mortgage) has been incredible!

I wrote a detailed post about my experience on my blog. The link is 7 Steps That Made Me Debt-Free.

Here is a quick summary:
1. Stop adding any more debt (This one is self explanatory)
2. Know your personality (You need to know how much you are willing to push yourself without breaking down and giving up)
3. List your debt and sort it (Do you want to pay the least amount in interest or have the best psychological advantage?)
4. Negotiate lower rates or transfer balances (The debt will not go off overnight - so minimize the amount of interest paid)
5. Plan the attack strategy (based on 2, 3 and 4, determine what is the best way to go forward)
6. Implement the plan (Make as much of it automated as possible, so you dont have to keep worrying about debt - psychologically this was very helpful to us)
7. Periodically re-evaluate (Every now and then, return back and repeat 4 and check if 5 and 6 need to be modified)

That's it. If you stick to this plan and exercise some discipline, it will work. Atleast, it did for us

Good Luck.

[RT Wolf]

Once you finalized on a plan, I would recommend getting some big paper (or just lots of regular letter sized paper) grab some markers and make an easy to read progress chart (maybe even a line from your beginning debt position to 0, or your net worth position to a positive one). If you're using a bunch of papers, just put them up onto a wall and tile them together and then make your chart. This helps in a few ways. One way is reinforcement. Keeping this chart on a wall that you look at often keeps reminding you what your goal is what you're working towards (you might consider giving yourself a little treat once you're out of debt, to add a little bit of motivation). Another way is that it keeps you motivated becuase you'll see how much you've reduced already and how much you've got left. If you want, it can be a simple line with an arrow, going from your debt amount to 0 and make a line and write how much debt you have left every month.

I hope this helps. BUDGET!

[wolfgang]

Originally Posted by Caveman Joe

It seems very, very obvious, but a lot of people fall foul of this: being in debt, while still having savings.
If you have savings, use them to pay off your debt. Your savings are accruing a far smaller rate of interest than your debt - if you have savings while you're in debt, they're costing you money.

Would you say the same thing for contributing to 401ks? Like, would you say stop contributing to retirement and shift that money to pay down debt (except for any matching the company might have)?

[dmauder]

Originally Posted by dgorila1

I am looking for real world, proven ways to get out of debt (over $40k worth). This is all credit card and loan debt. Doesn't include the mortgage, as this is a monthly "living" expense that we would have regardless. I have read about many of the ways (the envelope method, pay smallest debt off and add that to the next one and so on, etc). What tactics worked for you guys and still allowed you to have a "normal" life as far as spending for family expenses? This is the most debt I've ever been in, and I don't intend to do this again once its paid off. I just need to figure out how to pay it off first. The thought of going to cedit counseling to consolidate the payments into one set amount and have them negotiate a reduced % rate crosses my mind, but I know it'll end up ruining my credit (which I don't intend to rely on much after I pay everything off, but its good to have it if needed). Same for bankruptcy.

No offense dgorila1, but if you're not willing to give up a "normal" life for a while, then (IMHO) you're really not serious about getting out of debt.

Almost every approach works - IF you do it. There is no secret, there is no magic formula. It's common sense. John Wesley summed it up nicely - "Spend less money than you make." I would add to that -- "Stop spending money you DON'T HAVE." In other words, stop creating more debt - no excuses.

The best possible advice I can give you, besides what John said, is:

1. Go to your library and grab a copy of Total Money Makeover by Dave Ramsey.

2. Read the book and DO WHAT IT SAYS - step by step. Don't skip anything, and don't try to improve on the system.

3. Prepare yourself to give up the "normal" life for a while. As Dave says, "Live like nobody else, and soon you can live like nobody else!"

I hope that helps.

Dave

[GoalGuru]

I recommend in addition to all the other great resources mentioned here, find a mentor. Utilizing a coach and mentor can help you reach your goals faster.

Here's another resource- MillionaireMentor.com | Millionaires Mentoring Millionaires

Be prepared to set positive goals, create a new plan, take consistent decisive action and make changes within yourself.

Live Your Dreams,

-Jill

[RT Wolf]

Steve is fantastic in the way that he's already blogged about the major problems we face.

Anyhoo, perhaps you might benefit from this entry?
http://www.stevepavlina.com/blog/200...ke-action-now/

I know, more reading. The point is this. GET UP! DO IT! NOW!

[Love]

Wow, got to love all the positive energy on this forum! Definitely go for this, you can totally tackle it down. But you need to decide what's really necessary. After that, take all the money you have left over and pummel into your debt. If you don't have any money left over, a good question to ask yourself, is like Steve says: How can you create more value?

Once you have some free money, this is what you can do.
If you don't want to consolidate, get a lower interest rate credit card (if you don't want to leave your own I'm told you can up your card company and say you'd like to go with another company, but first you want to see if they can best their offer). A good one would be a 0% interest if you can get that... make sure the normal rate after that is not too high. Then switch your balance over to that card. You probably won't be able to get everything on there. But you can make high payments on the low interest card and low payments on the high interest card. Once you finish the low interest card, keep transferring your high interest card money to there.

Good luck! It's definitely, definitely doable.

[Que]

When I went broke last year and had to pay some debt. I talk with my boss and for help. She lent me some money which I paid by working on weekends doing extra projects and running errands. It took me over a year to recover. If you need some help, ask around. Good luck.

[ÜberDan]

I'm currently working my way through £20k of debt so I know how you feel. It's tough adapting to a lifestyle of saving and clearing debt from a spending spree lifestyle, but you have to do it some time so start asap. These might help:

Debt Reduction
Earn More Spend Less
Ten Percent Rule
What I Want
Killing Time

[Rin]

I am one of those dinosaurs who has never been tempted to get into debt, so I don't have much advice to offer (except perhaps "don't get into debt in the first place!") but I am really pleased for you to see all the practical solutions that are being given here. Wise words have been spoken. There is no easy road out of debt, so think of it as a life challenge, one that will help you develop your creativity and problem-solving skills. All of my friends did it, and so can you. Don't feel overwhelmed ($40,000 isn't that bad, after all), you just do whatever it takes to pay it off and keep plugging away. The time will go by faster than you think, and before you know it, you'll be out of debt! You'll be free.

I wholeheartedly wish you all the best, and everybody else who is dealing with this issue too.

[rene_stpierre]

If you want to get out of debt, you will have to do some sacrifices for a while. How fast you get out will depend on what you are willing to do.

There are 3 main things you need to do ... reduce expenses, automate debt payment and increase income. More specifically, here's what I suggest:

1- Do a budget and eliminate any non-vital expenses (restaurants, home improvement projects, new furniture, etc). Non-vital means anything you don't need to survive while you pay your debt.

2- The money you save from # 1 should go directly to pay your debt with the highest interest rate. Once you eliminate one, you put the additional money on the next debt.

3- Automate your debt payment. Once you have figured-out how much you pay every month, automate it. That way, you will be able to spend your energy on #4.

4- Find additional income stream(s). Get a 2nd job, offer your services as a consultant, etc. All extra money generated obviously goes to paying the debt.

Good Luck!
René

[dmauder]

Here's something you might want to check out... I just found it today -- Wesabe: Take Control of Your Money

I haven't started using it yet, but it looks very cool and the writeups about it are pretty darn positive. Basically, they're saying it's like Quicken on the web.

If anyone is already using this, please post back here and let us know what you think of it.

Dave

[neuronicone]

Originally Posted by ispf

dgorilla 7 Steps That Made Me Debt-Free

Here is a quick summary:
1. Stop adding any more debt (This one is self explanatory)
2. Know your personality (You need to know how much you are willing to push yourself without breaking down and giving up)
3. List your debt and sort it (Do you want to pay the least amount in interest or have the best psychological advantage?)
4. Negotiate lower rates or transfer balances (The debt will not go off overnight - so minimize the amount of interest paid)
5. Plan the attack strategy (based on 2, 3 and 4, determine what is the best way to go forward)
6. Implement the plan (Make as much of it automated as possible, so you dont have to keep worrying about debt - psychologically this was very helpful to us)
7. Periodically re-evaluate (Every now and then, return back and repeat 4 and check if 5 and 6 need to be modified)

Good insight! In addendum to everybody's ideas, is to focus on things that earns money so you can pay your debts. This is one trial that you must face, and look for better ideas, and not think of going away with these debts, after all, you have enjoyed it sometime in the past. If you think debt consolidation will help you better, so you will only be paying a lower interest rates, then, go for it. Last remedy would be apply bankruptcy, unless, you have other rich strategies to implement and make money in a spur span of time.

Good luck, and just believe. YOu will make it.

[lady therese]

Originally Posted by dgorila1

The thought of going to cedit counseling to consolidate the payments into one set amount and have them negotiate a reduced % rate crosses my mind, but I know it'll end up ruining my credit (which I don't intend to rely on much after I pay everything off, but its good to have it if needed). Same for bankruptcy.

I can see that you are really are in a bad situation. You seemed confused on what to do. You should go on with your debt consolidation plans because it would really help you. You can also do your loan consolidation through banks for faster payments. Do not speculate about things, research about it very well. There are a lot of resources on line that will enlighten you.

[Vipa]

Lots of good advice here.

I'd add the following though. Bear in mind this advice is coming from the UK and therefore uses UK law. However, I would imagine that there is comparable law in the US if you look for it.

I've reduced £ 16,000 (about $ 28,000) of debt down to £ 6,000 (about $ 10,000) in the space of just a few months and the key to this is knowing how the banks and credit card companies work, how they apply their fees, penalty charges, the legality of such, the economic science behind such, the purpose of debt and so on. It's like many things on Steve's site which emphasize that the world is not as it is presented in mainstream media. There are higher and lower ways to view debt in terms of consciousness, and you have to learn about it at the higher level. Whilst you continue to try clearing debt at a mass level of conscoiusness then the creditors will always have the upper hand because you will feel morally and ethically bound to work to pay it off when in fact this is THE SLOWEST AND WORST method to do so.

Consumer Action Group - Welcome
MoneySavingExpert: Consumer Revenge - Credit Cards, Shopping, Bank Charges, Cheap Flights and more

On the first link do a search on the term CCA Request. Remember there will be a US equivalent called something similar.

Peace, Vipa.

[dgorila1]

Thanks for all the input. Its going to be a multi-pronged approach:
- Reduce unneccessary spending
- Find ways to being in extra income (sell items on ebay, work overtime, etc)
- "Play" the credit card switch game to get the lowest interest rate possible
- Use a debt payoff strategy such as the ine Leo Quin (www.leoquinn.com) advocates.
- Furthering my skills and training to expand my marketability and income potential. Ultimately I want to do like most people on this site want and make a living off the web.
- Once we're out of debt, stay out this time!

[RT Wolf]

Overwhelming force, I like it!

Good luck and work hard and you'll be out of debt and you'll have learned something.

All the best!

[Vipa]

CCA Requests

You do realise that a CCA Request means that a creditor has to provide you with certain documents such as an original signed copy of the agreement, and that in a substantial proportion of cases they have been unable. The older the debt the more likely this is the case. What's even more interesting is that after 30 days of not providing such info the creditor falls into being liable under criminal law and the debt becomes unenforceable, null and void.

There are ethical and moral considerations you have to think through of course, but I really wanted to mention it here as things like bankrupting yourself or taking years to struggle to pay it off are, ethical issues aside, completely pointless and unneccessary.

Surely this site is all about 'thinking differently'. Or as Morpheus explains to Neo recognising the 'real' from 'the desert of the real'. Real truth is not always the same as the ethical truths that are ingrained into mass thought. Perhaps it depends on which circle you're in. Think Dante and the infinitly large and small.

CCA Requests, CCA Law, Data Protection Law. Get yourself informed.

Peace, Vipa.

[dgorila1]

What is the CCA several people have mentioned? How does the process work and what are the implications/negatives/positives/etc? Just curious as it hasn't been clearly explained yet. I think many of us are interested in the details. Thanks.

[Vipa]

The best thing I can do in response is to post the link to the exact thread concerning CCA's on the consumer action group site. Read through that and you'll find all your questions pretty much answered. The link is:-

Loan Company Cannot Supply The Original Agreement - Consumer Action Group

I've also included my own notes on the subject below

---------------------------------------------------

Loan Company Cannot Supply The Original Agreement

Overview

Firstly, under the Consumer Credit Act, if you request a signed copy of the original agreement, they must provide it within 12 (working days at this stage) by Law (see 77 (1) and section 78 (1) and 79 of the Consumer Credit Act 1974). Statutory maximum fee for this type of request is £ 1.00. If they take longer than 30 ACTUAL days (that starts from day 12 so 42 days in total) to provide it (1 calender month), they have committed a criminal offence. They are deemed to have received the letter 2 days from sending it.

It is important that you follow the procedure set out in the Consumer Credit Act and make a statutory request under sections 77(1) and 78(1). A draft letter is shown elsewhere on the forum - and as stated, you need to send the £1 fee.

77 Duty to give information to debtor under fixed-sum credit agreement

(1) The creditor under a regulated agreement for fixed-sum credit, within the prescribed period after receiving a request in writing to that effect from the debtor and payment of a fee of £1, shall give the debtor a copy of the executed agreement (if any) and of any other document referred to in it, together with a statement signed by or on behalf of the creditor showing, according to the information to which it is practicable for him to refer,—

(a) the total sum paid under the agreement by the debtor;

(b) the total sum which has become payable under the agreement by the debtor but remains unpaid, and the various amounts comprised in that total sum, with the date when each became due; and

(c) the total sum which is to become payable under the agreement by the debtor, and the various amounts comprised in that total sum, with the date, or mode of determining the date, when each becomes due.

(2) If the creditor possesses insufficient information to enable him to ascertain the amounts and dates mentioned in subsection (1)(c), he shall be taken to comply with that paragraph if his statement under subsection (1) gives the basis on which, under the regulated agreement, they would fall to be ascertained.

(3) Subsection (1) does not apply to—

(a) an agreement under which no sum is, or will or may become, payable by the debtor, or

(b) a request made less than one month after a previous request under that subsection relating to the same agreement was complied with.

(4) If the creditor under an agreement fails to comply with subsection (1)—

(a) he is not entitled, while the default continues, to enforce the agreement; and

(b) if the default continues for one month he commits an offence.

---------------------------------------------------------------

A good letter to cover this is within the thread I've linked to.

They have to provide the original or a copy of it with your signature on it.

So - the debt is now unenforceable already. If they have entered a "Default" on your credit file, you now have a good case for getting it removed as there IS NO DEBT.

If the debt is unenforceable, you cannot (no point after this) go after unfair charges otherwise you would be admitting that you do actually own the debt, regardless of whether they can find the paperwork or not.

Should they then seek to enforce the debt they will have to explain to the court why they defaulted, and seek permission to continue - and you can also report them to Trading Standards and the FSA.

Thread Comment - I don't want to sound naive or anything here, but what happens if after 12 days without an agreement being produced, you write to the creditor denying the debt,stop payments etc etc,and then they come up with it? Are you still entitled to tell them to go away?

I just want to be sure of this......

After the 12 working days, you DON'T write to them. You just wait. After the 30 days you complain to Trading Standards. THEN you write to them saying "This debt is unenforceable, get rid of my defaults, and by the way you owe me (x) pounds paid to you against this unenforceable debt".

There is no point WHATEVER writing to them after 12 working days and gloating all over their arses for that exact reason; however after 30 days they have committed a criminal offence, and that puts a whole different light on things.

Further Thread Comment - After 12 working days…

Can they enforce the debt if they send you a copy of the agreement after 12 days are up? First Direct did just this with me, and I want to be able to tell them to sod off!!

They can enforce it now, yes. After 12 but before 30 days, they are only "in default" while the agreement remains missing. Once they find it, it's all back on track unfortunately; although you could still (if you wanted to) complain to trading standards about their tardiness. In these circumstances however TS would be unlikely to take any further action.

After 30 working days: choices: Now that of course depends. You have a number of choices.

1. Do nothing; pay nothing. They cannot enforce it therefore you don't need to pay them anything. If you continue to get letters then report them to TS for harrassment, and continue to pay them.... NOTHING. This option is useful if you've not paid them a significant amount already, there are no defaults against you, and you just want to get on with your life.

2. Write to them instructing them to remove any defaults against you, and demanding any money you have already paid to them under this account. If they fail to do this, LBA, Court.

3. Write to them stating that you will no longer be making payments against this "debt" as it is unenforceable. Tell them that you consider the matter closed and that no further correspondence will be entered into.

4. Don't write to them at all, but complain to Trading Standards. Tell them you asked for CCA details and got nothing, and that they continue to pursue the debt.

It's entirely your choice.

BE AWARE OF FOLLOWING STRATEGY FOR FOBBING OFF

A paragraph in the response that reads similar to this……

section 77 and 78 of the consumer credit act 1974. These sections do not apply to your account, this is because sections 77 and 78 only apply to "matters arising during the currency of agreements". since the agreement relating to your account has been terminated (for no payment) the agreement is no longer current.

Is this just fobbing me off and can I still send the request

That is absolute crap....but they will try to put you off, especially if they think that you do not fully understand the legislation.

The critical thing is that the letter states that; you are requesting a true copy of the agreement under the terms of the secs. 77(1) and 78(1) of the CCA 1974 - and you enclose the statutory fee.

Also… You are notified that you are obliged to supply these documents, whether you are the original creditor or not under S189 of the CCA 1974.

By doing this, your request is then legally binding - and if they default, you can take advantage of the remedies available under the Act.

Other points in Overview

What happens if you send the CCA to a DCA then they pass the debt on to another DCA? This could keep going so that none of them have to send you the agreement.

Reason I ask is I had a TSB credit card which got passed to Aktiv Kapital, I sent the CCA to Aktiv Kapital and have since received a letter from Thames Credit chasing the debt.

Any advice would be great.

I *think* you have to send the CCA to the original creditor, in your case Lloyds TSB Credit Card Dept, as they will have all the details still, and should hold a copy of your original agreement.

I am of the opinion that the CCA request goes out to the owner of the debt. If the debt is 'sold' by the bank/credit card co. to a Debt Collection Agency (DCA) then it is the DCA who has to provide you with a copy of the original contract and a deed of assignment otherwise I could write to you asking you to pay me! ( that would be nice! ). This is only where the debt is sold to the DCA NOT if they are just acting as an agent for the bank/cc. You should be advised that the debt has been sold at the same time as the sale.

If they do not provide this within 12 days from receipt of your CCA request and your £1 fee then they have defaulted and can only chase the debt with a court order. They have a further 30 days to come up with the goodies before they are committing an offence and the debt then becomes unenforecable. If they can't prove they own the debt then why should you pay them.

If the DCA ( Aktive in this case ) sells the debt on again you go through the same CCA process with the new agent. If Aktive cant find the documents the liklihood of Thames Credit getting it is much the same so they would not be able to collect it. The letters in the Templates which you should use tell you to write saying you do not acknowledge owing Aktive/Thames credit any debt - provide the proof and I'll consider it - get the jist?

Yes but until you follow the "official" complaint route to the authorties they are going to keep selling it on. & no matter how much they try & wash their hands you must keep involving the original creditor by sending the copy correspondence whilst advising that they will be included in your complaint to the authorities

[CeciL]

Instead of WORKING on getting out of debt. WORK on getting more money... After that the debts will take care of themselves.