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  #1  
Old 03-05-2007, 04:26 PM
XXXNoahXXX XXXNoahXXX is offline
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Default Cycle of Debt: What are my options?

I'm currently in law school, and not counting student loans, I have about 12k in credit card debt from financing my undergraduate education and also going on a couple trips. Obviously, I need to limit my spending and stop going on vacations I can't really afford.

Situation:

The 12k is spread over 4 card with interest rates from 9.9% to 14.99%. My minimum payments each month total about $250. What I have been doing, is paying off the minimum and then using the free space to pay for my cable/phone/internet bills. So obviously at the end of the month, my debt is just staying where it is, and slowly climbing.

My credit probably sucks, because even though I'm never late, my cards are full except two totaling $2k are empty, and I have been denied for cards in past when attempting transfers.

What are my options for slowly paying off this debt? It will get even tougher during the summer since I'll probably have to get an unpaid job and then a second at night.

Should I just keep treading water until next summer where i can potentially get a firm job for $20K+ or maybe until graduation when i can make a bunch?

What about for now? Consolidation loan?

Any advice would be greatly appreciated.


(I also have $1k in ING for emergencies/bills and $1K on poker which I am grinding up from $50 since starting over with my bankroll)
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  #2  
Old 03-05-2007, 04:50 PM
Dave I Dave I is offline
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Default Re: Cycle of Debt: What are my options?

[ QUOTE ]

The 12k is spread over 4 card with interest rates from 9.9% to 14.99%. My minimum payments each month total about $250.

My credit probably sucks, because even though I'm never late, my cards are full except two totaling $2k are empty, and I have been denied for cards in past when attempting transfers.

(I also have $1k in ING for emergencies/bills and $1K on poker which I am grinding up from $50 since starting over with my bankroll)

[/ QUOTE ]

Your interest rates are not terrible. But, you should check your credit and find out why you get denied on transfer attempts. You probably have little history. But, check your credit for free to make sure there is nothing that needs cleaning up. You can do this by going here once a year as well as when you get denied credit. https://www.annualcreditreport.com/cra/index.jsp

Ideally you should try to find and qualify for some 0% balance transfer offers. I still get them almost daily. This will allow you to stop accruing interest and try to make headway.

If you can't qualify for 0% then the "snowball" option is next best.

1. Stop using all cards immediately.
2. Pay your bills with check/cash.
3. Pay as much as possible to the highest interest rate card. Any spare money should go to this. Pay the minimum on all others.
4. Once the first card is paid off, take the payment that you were making and pay the next highest rate card while continuing to pay the minimum on the rest. Rinse and repeat until paid off.

The key to paying off your credit cards is to STOP USING THEM. By paying the minimum, you literally will never pay them off.

I would keep the 1k for true emergencies. But, maybe take $500 of the bankroll and make a payment to the 14.99% card.
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  #3  
Old 03-05-2007, 04:51 PM
jively jively is offline
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Default Re: Cycle of Debt: What are my options?

Stop using your credit cards for cable/phone/internet bills. In fact, don't use the credit cards for anything at all. Use a debit card.

Then, pay at least the amount of the interest & finance charge every month. Thus, your balance will never go up again. If you have excess money, pay down the principal on the highest interest rate cards first.

Definitely do not go on trips if you don't have the money to pay for them.

Good luck,

-Tom
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  #4  
Old 03-05-2007, 05:21 PM
Daniel Magix Daniel Magix is offline
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Default Re: Cycle of Debt: What are my options?

How many jobs do you have now? What's a typical week for you? Do you have some free time on weekends?

I'd strongly suggest doing anything and everything you can to scrape together cash, and then focusing on the 14.99% card first. And as was said, take at least half of your poker roll and dump it into that 14.99% card immediately (you are basically getting an automatic 15% return on your $500 when you do this).

Return cans, give blood, have a yard sale, get a paper route, flip burgers, eat more Ramen Noodles - and put every single cent you can, into wiping away that credit card debt. I mean, you have to look at it like every single dollar you pay toward that debt, is bringing you a 10-15% return.

It sound like basic advice - work extra job, do whatever it takes to make more money - but there is no other miracle answer. Bust your ass and clear it away.

Do you have a relative with some cash, who would give you a loan at a cheaper rate? If you had a friend or relative who could give you a 12k loan, and you paid them back at 7%, then they would be making a pretty good return on their money, and you would be saving a bit in the process. Although, some people may advise against borrowing from family/friends.
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  #5  
Old 03-05-2007, 06:02 PM
squiffy squiffy is offline
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Default Re: Cycle of Debt: What are my options?

Many problems that we face in life have solutions that are simple in theory, but not easy to excute in practice.

I have been where you are. It took years of discipline and hard work to get me to where I am now. I own two homes, three cars and have a net worth of about 700K, depending on how the stock market is doing that day. I am not wealthy, but I live a comfortable life. I define wealthy as not having to work a regular job for a living. I am a lawyer, and unfortunately I do have to go to work each day, but hope someday to retire early.

Anyway, if you are overweight, the solution is simple, but not easy. Eat less and exercise more. Consume fewer high calorie foods and beverages. Drink more diet drinks. Eat smaller portions. Eat only half your meal at the restaurant and take home the leftovers. Do more walking and jogging every day during breaks and after work. The solution is simple, but not easy. I have gone from 160 lbs. to 140 lbs. over the past year.

Most people don't have the will power to do it. What separates the succesful from the unsuccessful in life is that often, the successful people just have more discipline.

Money is similar. If you have problems with debt, you need to earn more and spend less.

It's foolish to take vacations and to have cable and internet if you cannot afford them.

If you keep going down this path, then becoming a lawyer won't necessarily help you or change things. If you start earning 100K, your lack of discipline may lead you to spend 150K or 200K on fancy cars, clothing, and more expensive vacations and gadgets.

So don't delude yourself that graduating from law school will change things. The lack of discipine you are showing now, will not necessarily change, just because someday you may have a bigger paycheck.

Increase your income and reduce your spending. It's that simple.

It's a lot easier to reduce your spending, than to increase your income. Once you start working 60-80 hours a week as a lawyer, you will understand how hard it is to make more money by working more hours. Eventually, your only realistic option will be to reduce your spending, unless you want to die early of a heart attack!!!!!

Best of luck. But I have met very few people in life that have the discipline to follow simple advice. Most of the people I run into weigh 300 pounds and owe tons of money on their credit cards.

The sad part is, that with a little bit of discipline, they don't need to be in that situation. And neither do you.

You should read The Millionaire Next Door and take its advice to heart.

If you are heavily in debt, you need to learn to distinguish between NEEDS and WANTS. You need water, food, shelter, heat, clothing. You don't need high fashion clothing, jelly doughnuts, fancy BMW's, etc. , though you certainly want them.
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  #6  
Old 03-05-2007, 07:29 PM
scott1 scott1 is offline
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Default Re: Cycle of Debt: What are my options?

Can you get a student loan, or larger student loan? If so, immediately pay off the cards and don't sweat the loan until graduation.

Assuming you can't do that, I'll take a contraian position, and say I wouldn't sweat the debt that much as long is it isn't growing. I guess this is a judgement call, but if you're at a good school and get good grades, you'll be getting a high paying job at the end of school. Keep the cable, maybe stop the vacations until you graduate, but you know that eventually you'll have a good salary and if you are fiscally conservative your first few months at the law firm you'll be able to pay off the debt quickly.

Why deny yourself what is a relatively standard service (cable) when your buying power in a year and a half will make this current cost, even with the accrued interest, relatively trivial. Enjoy yourself when you can in law school. Don't take a job that may affect your schoolwork and will not benefit you career-wise just to pay off these cards now.
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  #7  
Old 03-05-2007, 08:59 PM
Thremp Thremp is offline
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Default Re: Cycle of Debt: What are my options?

scott1,

Excellent points.
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  #8  
Old 03-06-2007, 10:30 AM
Daniel Magix Daniel Magix is offline
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Default Re: Cycle of Debt: What are my options?

[ QUOTE ]
I'll take a contraian position, and say I wouldn't sweat the debt that much as long is it isn't growing.

[/ QUOTE ]

Maybe his debt isn't growing, but he is dumping money into it just to maintain it's level. That is money that he is not investing or buying assets with. And I am assuming he is relatively young, which is exactly when he should be buying longer term investments and giving them time to grow.

[ QUOTE ]
I guess this is a judgement call, but if you're at a good school and get good grades, you'll be getting a high paying job at the end of school.

[/ QUOTE ]

Not guaranteed - and even if he does land a high-paying job, it certainly does not guarantee wealth. Having the right frame of mind and discipline is far more important than having a high-paying job. If he is living beyond his means now, with little/no money coming in - then what can he expect when he actually does have money coming in?
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  #9  
Old 03-06-2007, 06:09 PM
bav bav is offline
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Default Re: Cycle of Debt: What are my options?

"Why deny yourself" is why most Americans have a net worth of about -$5000 and will never be wealthy. Paying 10-15% perpetually on maxed credit cards is not wise. He's already told us he can't even get any more credit...he's topped out. So basically he's now living without any credit at all because he's used all that he has, and he's paying outrageous interest rates for the pleasure.

Spend less, earn more, pay down the high interest cards. 95% of people whom I hear claim they're broke are not--they just choose to spend everything they earn.
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  #10  
Old 03-06-2007, 06:51 PM
scott1 scott1 is offline
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Default Re: Cycle of Debt: What are my options?

"Paying 10-15% perpetually on maxed credit cards is not wise." - this is ture for 99% of people.

In principle I agree with you both, but law school is a somewhat unique situation. 1/2 way through most students have a pretty good idea - based on class position and the clerkships and jobs that students a year and two ahead of them are getting - what their salary range will be when they take a job after they graduate.

Of course it isn't foolproof, but it's pretty safe. I have a lot of friends in law school or recently out (2nd tier and average schools) and they all reduced spending during school but racked up a little debt along the way. No one got rid of cable 12k isn't outrageous coming out of law school. It's probably better than most.

Get out of school. Pay the debt off quickly and max out your 401k for the first few years. You'll be fine.
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