Am I on the right track?

samruba · #1 (**permalink**) 06-07-2010, 10:29 AM

"Hi everyone,

My wife and I currently have $23,000 in credit card debt, which is eating us alive. Most of this was racked up during our college years as my wife had to put herself through school on her own. We are now both 27.

I started tracking expenses 2 months ago, after all the monthly bills are paid we have $600 left over- or should. The problem is the $600 gets eaten up by clothing for our daughter, toys, vet bills, all the random things that just don't get on the monthly bill list.

I contacted a national bank and requested a $23,000 personal loan to pay the credit cards off. They would only do $15,000 which would pay off the largest credit card we have. The interest rate is 9.9% and would save us $50 a month- and be paid off in 5 years vs 85!

This leaves us with $8000 in debt.

I have 3 options here:

-Apply for another personal loan at a different bank (doubt they would give me one?)

-Ask for a loan from a family member.

-Ask my parents to take a home equity loan out for the full $23,000 and let us make the payments. I do not know if they would help us like this or not, their house is paid for and has been for awhile. The payment would be low enough that defaulting should not be a concern.

I also have $70,000 +/- in a 401K but have been told I can not take a loan out against it (due to program rules?). We are very responsible with our money, but can't seem to get these cards behind us.

My goal here is to just get all the debt off the cards and into something that is a low fixed rate.

Any thoughts out there?"

littleroc02us · #2 (**permalink**) 06-07-2010, 11:53 AM

Not yet would be my answer? Especially if you follow any of your ideas. It sounds as though you don't have any disposable income left after all your bills, because you stated that the extra $600 is spent. Since you didn't lay out your budget I'm going to assume then that you have an income issue. My advice would be to get another job doing anything possible, even delivering pizza for a while. The extra income can be used to tackle debt from the smallest to the largest. I just don't think continuing to borrow money is going to fix the problem in the long run, which is in your mind. Good luck!

janna · #3 (**permalink**) 06-08-2010, 08:39 AM

"NO. It doesn't. That leaves you with the same $23,000 in debt but instead of owing it all to credit card companies you owe some to the credit cards and some to the bank. It does nothing to reduce your debt. It just shuffles it around a bit.

You can not borrow your way out of debt. Not from a bank. Not from a family member. Not from a retirement plan. You just can not borrow your way out of debt.

The only two ways to get out of debt are 1) increase income and 2) decrease spending. Number 2 is generally the easier of the two to accomplish. You have at least $600/month going to ""random things."" That needs to stop. You and your wife need to sit down and go through the budget with a fine tooth comb and cut out all unnecessary spending - new clothing, toys, entertainment, cable tv, fancy phone service, gym membership, haircuts, charitable donations, dining out, etc. As for number 1, go through the house room by room and collect anything that you don't need and can sell either on ebay, craigslist or a yard sale. I've read that the average family can make at least $1,000 by doing that. I don't know how old your daughter is but sell all of her outgrown clothes and toys she no longer plays with and books that are below her reading level. Sell tools you never use, wedding gifts that have never come out of their boxes, unwanted holiday gifts that you never got around to returning. Anything and everything that you can live without needs to go. The other piece of number one is working more. Do both of you work now? Get second jobs. Turn a hobby into a business. Whatever it takes.

Don't forget to look at every possible expense. Get new quotes for auto, home and life insurance and see if you can get cheaper policies. Buy more store brand groceries and clip more coupons to cut the food budget. Be more mindful of your driving to conserve gas and make sure you know which stations in your area tend to have the lowest prices. Lots and lots of ways to trim spending that can all add up to big savings.

What shouldn't you do?

DO NOT borrow from family.
DO NOT borrow from retirement plans."

sapphirecapital · #4 (**permalink**) 06-09-2010, 02:30 AM

as a last resort you can use the retirement money (no borrowing straight sell) and pay a penalty, from your age there is time enough to make up for it but that needs a plan, and sticking to the plan. I'm not a friend of that however I do not like you using your parents even worse.

GeezLuise · #5 (**permalink**) 06-10-2010, 08:24 PM

I have to agree with everyone else here - you can't borrow your way out. It's great to reduce interest etc. but that won't really do much. It sucks - but America is not what it seems. It's a fake dream that has to be shattered at some point - and you are actually better off waking up now rather than at 50. If you want to pay the debt down in a traditional way - you MUST overpay the lowest balance until it goes to zero and then roll that payment into the next one etc etc. That means you MUST have extra income to do that. Which means you MUST either reduce spending or increase income. And this is where the dream fades. Here you are - working a decent job, and making a decent living - delivering pizza on weekends and shopping at the thrift store for clothes and toys for your daughter. Welcome to the REAL America.

If you ever DO get out from under it - you will be hard pressed to stay free, as we all want that new flat screen (now you'll have to go back to delivering pizza on weekends to get it!)

Otherwise - you'll have to do some crazy debt relief program that will eventually get you out after lawsuits, credit problems etc. Some definitely work - but they are no miracle pill. I used one to get rid of about $60K. I have not had a card in over 7 years, and my credit is finally OK. But it is difficult to not to have a credit card (or good credit) for 7 years! But it CAN be done and that is really where you want to be. Otherwise you are a slave debtor to the banks - who ultimately are in control of this system...

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