Scared to death

Hi ladies,
I am a regular poster on this site but I'll admit that I made a new name because Im embarassed.
My husband and I have been married for 3 years and are expecting our first child in 4 months. We own a house and both have jobs.
Why am I scared? We are in WAY over our heads in debt and it scares me. We always pay the mortgage ontime but other bills late. Im not asking for pity-I know that we did this ourselves but the closer it comes to my due date i worry that we wont be able to provide for our baby.
We were thinking about Credit card consolidators but I dont know much about them- then I have read about the Snowball effect to get rid of CC bills-
Is there anything else out there? Maybe something you have done and it worked for you? I just always get sick to my stomach when I think about this- we def. could have prevented it and its sad that its being realized too late.

Re: Scared to death

Do either of you have a 401k?
You could take a loan out against your 401k for the lowest interest you would get anywhere (usually it's like 3 or 4 %)and the low interest you pay back goes right back into your 401k. You could then use that money to pay your cc's off and usually the payments come out of your salary each week. You can do a pay bak option for 1 year, 5 years etc.... and the longer youpick to pay it back the less you even feel it when it comes out. It sure beats what currently is going on.

Also.... using a cc consolidation company is a good idea, but doens't alwyas necesarily work. What happens is you make a payment to the company once a month... usually like 300 or so (depending on your bills) then they divey that out to the credit card companies and keep a piece of it themself as a fee. NOW here's where it gets tricky... if you pay them on the 15th of each month but your cc's are due on various dates then some cards will be continuously late. The consolidation company contacts the cc companies and some companies decide to waive the late charges and work with you... some even lower your int rate drastically... BUT others (usually american express and some others) REFUSE to do this and thus you have late payments each month that are applied and they end up being more than the payment the consolidation company is giving them as a payment.... and the result is you actually go UP in debt not down. At this point BANKRUPSTY is usually advisable.

Another option is to take out a loan from the bank to pay off all cc's and then make the one monthly loan payment.

And yet another option is getting cc with VERY low or no interest for 6 months to the first year and doing balance transfers. This is VERY risky because what usually happens here is you don't get approved for a limit high enought cover all your debt. So you would have to transfer the cards with the highest interest.... and though this can save money you could also go further into debt because now you have more open credit to spend so when youhave no cash it's VERY easy to charge more... and then your credit will grow!!

The other way is to call the credit card companies and explain the situation to them. Some will actually work with you and lower your interest rates etc. The way they see it is ... you are on the verge of bankrupsty where if that happens they get nada! But if they work with you then they will still get their money. You never know. It's worth a try.

Also then you have bankruptsy... in which case will wipe the slate clean.

I'm sorry you are in this situation. If you have any questions feel free to FM me!

PS the BEST option is the 401k loan. Then if that's not an option I would call the credit card companies and try for a bank loan. Then try to consolidation company... or bankrupsty... consolidation companies like I said, dont' always work.

Message edited 12/22/2009 2:46:42 PM.

Re: Scared to death

We were/are kind of in the same situation. We have a lot of debt. We are able to make our payments every month but just barely.

I've lately been trying to pay off some of our credit cards. I've been sending extra money to the CC with the highest interest rate. They say this is the smartest way, but that CC also has a very high balance. I calculated that it's going to take me approx 2 years to pay that one card off without touching the other cards I have. So I might jump to the card with the lowest balance and work hard to pay that one off quickly

What about looking into cards that have 0% interest for a certain period of time and transferring some of your balance there and try to pay off as much as possible.

You can also try calling your CC companies and trying to get them to lower your interest rates.

Also make up a budget of what you spend every month and cut out all non essential items. It may mean not eating out, not getting starbucks...etc to get some of your debt paid off.

I also buy a lot of my stuff/toys second hand. I look for deals on Craigslist, Ebay and on the Buy/Swap thread on Parenting. I buy my formula, diapers, wipes, creams at BJs....you can also try generic items to cut down on costs.

HTH

Re: Scared to death

Be careful with the 401k loan. While it may not be a bad option money and interest rate wise, I would only do it if you are absolutely CERTAIN your job is secure.

Because if you were to get laid off, those 401k funds would be due back immediately IN FULL (usually within 30 days of termination).

If you don't pay it back in full, they will tax the hell out of it, along with a 15% penalty tax.

Re: Scared to death

Borrowing against my 401K would be my absolute LAST LAST option, for many reasons. If you care, I will go into further detail.

Although its horrible timing, if you are shelling out more than what's coming in, perhaps down grading is an answer. Then from there, I would look into what I can cut out. Get a budget. Call CC companies, see if they will lower your interest rates. Many times, a simple call will do the trick. I know many people are struggling, and im sorry your in that situation

Re: Scared to death

I've borrowed against my 401k and paid it back in the past with no problems and in the long run i actually saved money that way... rather than paying back so much in interst if I were to take a loan from a bank or use another credit card.

I agree that if you don't plan on staying with your job and don't have job security then it's not a good option for you.

You are removing money from the market for the time that the loan is outstanding and thus won't earn interest on the removed portion of funds but again you are saving by not paying back as much interest.

I still recommend it. if you are looking to pay down a bunch of credit cards and bills... sometimes tapping into money you already have set aside works. It will def get you out of cc debt. but it is important that you stay with your job for the life of the loan... i did fail to mention that earlier.

Message edited 12/22/2009 5:00:54 PM.

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DH had a ton of debt when we first started dating but he was making enough to pay things off just spending unwisely. These are some things I had him to to help pay it off. First I created a spreadsheet with all the money going in and out and what it was being spent on. I had him change his cell phone plan to something lower, drop to basic cable and bring lunch to work. He then transferred part of his debt to a card with 0% interest leaving the rest of it as manageable. He put everything extra toward the debt with interest for a period of time and paid down that debt. Make sure if you are taking one of those 0% deals that the interest rate after the promotional term is not too high.

I would only borrow from a 401K as an absolute last resort.

Re: Scared to death

I would call the cc companies and tell them the situation and ask what you can do. You may be able to get them to lower your interest rates, change due dates, etc.

We used the Dave Ramsey method of getting out of debt, which is to pick the lowest balance cc or loan and throw everything you have at it. Pay the bare minimums on the others and just give all of your extra money to that one credit card until it's paid off. As you close out each card, it'll make you feel like you're accomplishing something instead of just treading water. Keep a lookout for good deals on balance transfers too. You have to pay a percentage of your balance as a fee but it's worth it long term. Our final credit card has only a 4% interest rate.

We also set up a specific budget and stick to it pretty well most months. We put our total expenses in a spreadsheet and every month, we go through all of our statements and make sure we stuck to it and make adjustments if we have to. In 3 years, we managed to get DH's credit card down by 10K, pay off my car, pay off one of my smaller student loans, and one of my credit cards. We also saved a ton of money for our wedding during that time. A budget it is SO helpful.

My parents did the same thing when I was younger when they were in huge debt and they eventually got a house and now they're in great shape, with a retirement fund and everything.

Good luck!

Re: Scared to death

Message edited 12/27/2009 10:38:49 PM.

Re: Scared to death

I think a lot of people these days are in your shoes. You need to ask yourself what you spent money on to get into debt in the first place.

You need to eliminate all spending that isn't necessary to live. Even in the grocery store, be careful what your buying.

I personally would NEVER touch my 401k. I started it when I was 19 and I was told to never borrow against it by a financial adviser.

You really shouldn't be ashamed of your situation. People might think we are poor because we never spend money but I don't care, we aren't poor. We are careful savers. And We are rich with happiness, thats all that matters.

I hate to say it but you seem to be living above your means and selling your home may an ultimate solution.

Re: Scared to death

I followed Oprah's Debt Diet including the scripts she supplied for the credit card companies - it was not an exact science but it offered me the basics.

OPRAH'S PLAN

I hope this helps you. On a personal note take deep breaths. You are not alone. Someone told me a long time ago -- pay your mortgage, feed/clothe your children then pay your bills. While never a pleasant situation it could be worse. The banks will work with you because in the end they want to be paid. If all else fails you can consider filing chapter 13 which would allow you to file bankrupcy for your credit card debt but not affect your mortgage. It's not something I'd recommend but it's an option as a last resort - only you know your situation best. I had a friend do this and it's not easy but she's breathing a little easier. Again, it should be a last resort. Try hard to work with the banks to pay off what you borrowed.

All the best to you.

Re: Scared to death

Check out Dave Ramsey's book "The Total Money Makeover". Good luck to you.

Re: Scared to death

DH and I took a loan from his 401k to consolidate our bills. As long as you have enough money in it to do that. It really helped us through rough times. We saved a lot of money and aggravation since the payment per month was much lower then our outstanding bills.

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Message edited 1/21/2010 12:29:29 PM.

Re: Scared to death

I don't think that you should borrow from the 401k

I would just continue to pay the cards off as you have been...

Re: Scared to death

We were able to take out a HELOC (Home Equity Line of Credit) against the equity on our our home. Granted this was in 2005. We paid off our credit card debt and now make one monthly payment towards the HELOC, which is now at only 4.5%. It was at 6% when we got it, and just kept going down and down to 4.5% where it is now. For us this was the best option. We plan to sell our house in the next 3-4 years, pay off the remainder of the HELOC, and still have a decent down payment on a new house. Luckily for us we bought the house for a steal, renovated, and increased the value greatly. Even in the recession we are still up 70K on the house easy, hoping for it to get better as the economy stabilizes. I don't know if this is an option for you at all, but it worked out very well for us. Be strong, you will be able to get through this situation.

Re: Scared to death

I've been in the same situation when my business went downhill. I would NOT advise borrowing against you 401K. That would be my last option.

CC consolidators are good but pending the companies they are dealing with sometimes are useless.

Speak with your CC companies, be honest and let them know the problems. Usually they will try and work with you because they don't want to lose you as a customer.

I was able to make arrangements for smaller amounts monthly while still holding onto my card with a lower credit limit approved by both myself and the bank.

Take a look and God Bless...stay strong.

Travis L