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In my continuing effort to help anyone that wants advice to deal with a financial problem, Cami sent in the following question through my online form. If you have a question, you can send it in also for help.

Hi Steve,

I stumbled upon your site while searching for zero percent credit cards for balance transfers. The truth is that I’m in debt, have been for the last 7 years, and I’m desperate to get out. I fully understand that I made some stupid decisions at one point in my life, and now I continue to suffer the consequences of my 21 year-old actions.

I’ve worked very hard these last 3-5 years to pay off some of my debts, but I still have 2 Discover Card payments — totaling about $6800, as well as a student loan for about $3500. I’m sure you’re sitting there thinking that doesn’t sound so bad, because there are many people in much worse financial shape than me. However, when you only make $11.50 an hour and barely have enough money to pay the monthly bills, it’s very difficult to figure out how to pay off the debt.

Obviously making minimum monthly payments isn’t helping me one bit, so I need another option. Oh, I forgot to mention that I pay about 24% interest on the two remaining credit cards! I lost my job in October of 2006, found a temporary job for a couple months and then relocated from California to Idaho for many reasons.

Unfortunately it was much harder to find a decent job here, so I was unemployed for almost 8 months. Consequently, I fell very behind on my payments, causing my interest rates to rise, as well as mounting late fees and over the limit fees.

I’m at the point in my life where I’m ready to get married and start a family, but I can’t help but feel that would be irresponsible considering my debts. My biological clock is ticking (I just turned 29!!!), but I am desperate to figure a way out of this financial mess before I take that step.

I called a number last night who was offering free financial advice to people between 5-9pm, and basically what I was told was that I needed to find a way to transfer my existing balances (at least for the credit cards, not necessarily the student loan, as that’s low interest) to a card (or loan) with 0-10%.

I was told that I could have the entire thing then paid off within 2 years if I went that route. If I knew there was an end in sight, I’d be okay. But wondering if I’m going to be in the same position 10-15 years from now is extremely discouraging and depressing.

My dilemma in this matter is that my credit score is not good, mostly due to the late payments while I was unemployed. I know that I can’t get a loan without a co-signer, which I don’t have. I know that I can’t open a new credit card with a limit higher than $500, so that won’t help me either.

Note that I have a Capital One card with a $500 limit that is paid off and never used. Also note that I haven’t used either of the Discover Cards for over 6 years now (I cut them up and got rid of them).

My policy is to not spend any money that I don’t have to spend…In other words, I only use cash or debit cards.

Back in January of 2004 I signed up with a debt consolidation company who seemed very trustworthy. The payments were automatically withdrawn from my account every month for the next 3 years. However, once I lost my job in California, I contacted them and told them I’d figure out a way to pay them but that they could no longer take funds electronically from my account. Yet they continued to do so, overdrawing my checking account three months in a row. In addition to the existing debt, now I owe my old bank a couple hundred dollars to cover the fees associated with this.

Since then I haven’t tried to open a new checking account, as I’m pretty sure I’d be unable to until I pay the old bank what I owe in fees. Strangely enough the bank has never contacted me about this, but I don’t think it would go away on its own. And of course I wasn’t going to stay with a debt consolidation company that didn’t listen to me or really even help that much. So now I’m trying to do this on my own again.

I am currently up-to-date on my payments and even got Discover to work out a 6 month payment plan for me where they lowered my payments (slightly), and my interest rate dropped to 9.9% — but only for the next 6 months.

Now I’m on a mission to find a solution to my debts. I live with my boyfriend of 7 years, but we keep our finances mostly separate due to my existing debt. He’s got excellent credit and only accrued debt (about $5000) over this last year we moved and had trouble finding jobs here.

Last night we talked about finding a 0-10% interest credit card (or loan) for us to combine our debts and pay them off quicker. Unfortunately as I said before I don’t have good credit. Using his credit would undoubtedly help me get a lower interest rate, and I know enough about myself to say I would never do anything to hurt his credit or his trust. So now that I’ve written you a novel about my financial situation, I guess my questions are as follows:

  1. Do you agree that doing a balance transfer or low interest loan is the best route to take?
  2. Is it even possible for two unmarried people to get a balance transfer together?
  3. Do you have any suggestions of where to go from here?

Thank you for your time. I look forward to your response.

Cami

Cami,

Thank you so much for taking the time to write in. I’m always happy to help. sexya.jpg

Let me tackle your questions in order.

  1. Do you agree that doing a balance transfer or low interest loan is the best route to take?
  2. Is it even possible for two unmarried people to get a balance transfer together?
  3. Do you have any suggestions of where to go from here?

Do you agree that doing a balance transfer or low interest loan is the best route to take?

Well, yes and no. Mathematically a low or no interest balance transfer can make a whole lot of sense. But you’ve got to realize what the aim of the balance transfer offer is and that’s to steal you as a customer from another creditor and get you hooked on a new bank.

You can find the best balance transfer offers of the day though this link.

Now, a free or low rate balance transfer for offer for a lot of people is like that kid pushing drugs in school. “Here’s a free joint, just try it.” The thing that makes these so deadly is if you get hooked on minimum payment crack during the intro period, your payment will be tiny while little or no interest is being charged and when that period ends, KAPOW baby, your payment will shoot up.

Now, all that being said about these offers being a suckers game, you can play the creditor at their own game and win if you do the following.

  1. Find the lowest rate balance trasnsfer or intro rate card online here.
  2. Go for the longest terms on low rate transfers.
  3. Divide the amount you are going to owe by the low rate period. For example, if the low rate will be offered for 12 months then take the balance you owe and divide it by 12. Be sure to pay 1/12th of the total balance you originally transfered each month and by the end of the introductory period you will be nearly debt free.
  4. Following this plan you are using the creditors money for free to get yourself out of debt.

Is it even possible for two unmarried people to get a balance transfer together?

Yes it is. A creditor does not care if you are married or not. The more people they can obligate to a debt, the better.

If your boyfriend wrote in and asked me this question I’d tell him there is no way in hell that he should apply for joint credit with you. But since you wrote in I’d have to say, if he’d fall for that you got a good thing going.

Credit obligations outlast marriages and relationships, often by decades, so just make sure you have a clear understanding of who is supposed to repay what if things don’t work out.

Do you have any suggestions of where to go from here?

Ultimately the best approach is going to be for you to fall on the sword and focus on fixing the past transgressions. Since you don’t have good credit is is highly doubtful that you are going to get approved for new credit without dragging your boyfriend under the bus with you and asking him to apply jointly with you. If you do that, you had better be a mighty fine girlfriend. :-)

Here is the order that I’d tackle things in:

  1. Get a Copy of Your Consolidated Credit Report Online - I need for you to look at it to identify all the bad stuff or old collection accounts you’ve got to tackle.
  2. At the same time I want you to apply for a credit card that you can get with bad credit. It must be a card that reports to the credit bureaus, like these cards.

    3. We can’t improve your credit score unless we start to add good information to a bad history. It’s like they tried to teach us all in high school, a negative plus a positive, cancels each other out. What we need to get to is old history = -1 and new reporting = +4. Get the idea? Now use the card for regular purchases and pay the balance off in full each month. It’s not tough to do.

  3. Increase Income or Reduce Expenses - The only way to change the current balance, or imbalance, of your income and expenses is to either increase your income or reduce your expenses. Either or both of these will free up extra money you can use to pay down the debt.You can use the following quick budget table below to get a glance at where your money might be going.

    Monthly
    Budget Worksheet for ____________________
    Free Personal Finance Worksheet
    (1 of 3)
    To
    calculate your monthly budget, print this worksheet
    and write down how much you currently spend each month per budget
    category below. Finally, add up all of your budgeted expenses
    and compare this total to your net monthly income.
    BUDGET CATEGORY
    AMOUNT
    Allowances: You  
    Allowances:
    Spouse    		  
    Auto: Gas & Oil  
    Auto:
    Registration    		  
    Childcare  
    Clothing  
    Debt/Payment
    To: Credit Card #1    		  
    Debt/Payment
    To: Credit Card #2    		  
    Debt/Payment
    To: Credit Card #3    		  
    Debts:
    Car Payment #1    		  
    Debts: Car
    Payment #2    		  
    Debts:
    Mortgage    		  
    Donations  
    Entertainment:
    Cable & Internet    		  
    Entertainment:
    Movies & Events    		  
    Financial
    Plan: College Fund    		  
    Financial
    Plan: IRA    		  
    Financial
    Plan: Investments    		  
    Food: Dining
    Out    		  
    Food:
    Groceries    		  
    Health:
    Co-pay & Supplies    		  
    Household  
    Insurance:
    Auto    		  
    Insurance: Health  
    Insurance: Housing  
    Insurance: Life  
    Savings  
    Taxes:
    Property Taxes    		  
    Utilities:
    Electricity    		  
    Utilities: Gas  
    Utilities: Mobile
    Phone    		  
    Utilities: Phone  
    Utilities:
    Water/Sewer/Trash    		  
    Other
    Expense #1    		  
    Other Expense
    #2    		  
    Other
    Expense #3    		  
    Other Expense
    #4    		  
    Other
    Expense #5    		  
    Total
    Monthly Expenses    		  
    Monthly
    Net Income         		 
    Minus
    Expenses (from above)    		  
    Available
    Income    		  

    There is an automated way to do this! Mvelopes Personal will walk you through this simple process online and help you create a working budget in just a few minutes. Mvelopes will allow you to create as many budget categories (envelopes) as you need and will help you track every aspect of your finances automatically! No more paperwork or manual data entry. Get a FREE 30 day trial of Mvelopes Personal today by clicking here or visiting www.mvelopes.com.
  4. If You Are Able to Find Extra Money Each Month - Don’t use all your new found money to pay off the old debts. I want you to save at least 50% in a high paying savings account like this one. If you simply send all your extra money off, all it will take is one big unexpected event to force you back to using credit for a new tire or engine repair.
  5. Finally, Focus on repaying your old lowest balance obligations first and start paying off as many of those accounts as you can. We need to minimize the credit report wounds you took before. A high balance debt and a low balance debt, both delinquent, count similarly. So if we focus on all the low balance accounts at the same time, we can make some immediate progress.

Do You Have a Question You’d Like to Ask?

Send me your question online, right here.

XOXO

Steve

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