Author Topic: Help me help my friend out of debt  (Read 2798 times)

maginvizIZ

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Help me help my friend out of debt
« on: September 17, 2019, 01:09:52 AM »
Hello! My friend opened up to me about his finances, as he knows I'm good with my finances and thought I could helP!

 He's a summer salesman dude...projecting to make $50k.

Car loan = $5545 at 18%. His 2012 Hyundai Elantra with 160k miles is worth $3-4k.
Credit card = $900 at 20%
Credit card #2 = $2084 at 25%.

Credit score = ~550-600
I've face punched him about 50 times. But the debt is still there.

He can't go get a new car loan since he owes more than it's worth, right?

Is the best option to get a personal loan to consolidate everything? Any recommendations where to go?  Lending tree? Local credit union?

Do I add him as an authorized user on a couple of my credit cards to boost his score? I've sold tradelines before... Is it worth waiting a month forthe credit report to reflect the new cards for him to get a lower rate?

Realistically he could pay these off by March... He has about $36k in expenses (I suspect that number is conservative.).

Thank you for helping :)

six-car-habit

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Re: Help me help my friend out of debt
« Reply #1 on: September 17, 2019, 01:30:50 AM »
 What does" summer salesman" mean ? Is he a year round salesman, or do most of his sales happen during the warm months...

a) Pay off the $900 CC#1  while making minimum payments on the other CC and car  loan
b) Pay off CC#2 now @  approx $1900 while making minimum payments on the car loan
c) Pay off the car loan now @ approx $5000

He could go get a new car loan, but he's underwater on his trade-in , the interest rate % will be high , any decent dealer will have loads of vehicles that seem superior to his Elantra - so they will use that desperation for something newer to fleece him on the base price of the newer vehicle..... He just needs to wait on/ save for a better car to be bought in year 2021 or beyond.  Just getting a new loan he's immediatley upside-down on is no great sacrifice or acheivement !

 No to the credit consolidation. Really the loan amounts aren't that large. Just knock out the credit cards and the car will be manageable.

 No to adding him as an authorized user on your cards ! Crazy , No !

 March is barely 5 months away, just be supportive and in his face about this. Show him how you are being "frugal" in your life.

Linea_Norway

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Re: Help me help my friend out of debt
« Reply #2 on: September 17, 2019, 02:27:41 AM »
Can your friend do an additional job to burn off his debt? That might be motivating for a couple of months.

Don't consider adding him to your credit cards. You can well help if with advice on what he should do, but I don't think there is any need that you should offer your own finances to him. Maybe that is why he contacted you, maybe he wants you to give him a loan with lower interest. No, let him solve his own problem, and only give good advice.

former player

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Re: Help me help my friend out of debt
« Reply #3 on: September 17, 2019, 03:58:41 AM »
Good on you for being the kind of person your friend turns to.

I know there's a tradelines thread here and that apparently it's a safe way of boosting someone's credit rating: the person you are adding doesn't have access to the card or its details so can't borrow money, but does get the boost of the better credit rating.  I've no personal knowledge though, as I don't do debt in any form any longer.  The question I have is: what's the point in raising this friend's credit score?  Credit score is only relevant to someone who wants to borrow money.  You would need to be dead sure that this friend isn't going to be borrowing new money on the back of his new credit score, and I would want at least a bit of a track record of paying off existing debt before risking that.

So the question then is: how fast can those two high interest credit cards be paid off?  $3k is not that big a debt relative to an income of $50k and I agree not worth refinancing if it can be paid off reasonably rapidly.  Does your friend have any unused belongings he can sell to raise cash?   Can he reduce expenses to free up more income?  If he is a summer salesman does that mean that he is coming to the end of a high earning period and going to be short of income over the winter, the period in which you are expecting him to pay off the debts?  What can he do to increase income?

Zamboni

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Re: Help me help my friend out of debt
« Reply #4 on: September 17, 2019, 05:36:09 AM »
As stated above, adding someone who is known to carry credit card debt to your own cards is a very bad idea and I am posting entirely to emphasize that.

Uturn

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Re: Help me help my friend out of debt
« Reply #5 on: September 17, 2019, 06:20:13 AM »
Your friend cannot finance his way out of debt.  He is going to have to accept the fact that he owes more on the car than it is worth.  Many of us have been there, it sucks.  You can't do anything for your friend other than moral support and possibly some math.  Help his choose between the avalanche method or snowball method of eliminating debt.  At these loan sizes, it really doesn't matter which he chooses.  What your friend needs to do is put his foot down and declare that today is the last day that he will finance things that depreciate. 

Sibley

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Re: Help me help my friend out of debt
« Reply #6 on: September 17, 2019, 08:02:50 AM »
"summer salesman" = only works in spring/summer/fall? If so, he needs to go get a job for the winter.

Easiest way out of this mess is to increase income. Given that he's shown he's not able to keep himself out of trouble, enabling additional credit card use is not going to help. He needs to go cash based for a while, at least until the debt is paid off.

He also needs to take a good hard look at his expenses. Yeah, the car hurts, but death by a thousand cuts is a thing.

RWD

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Re: Help me help my friend out of debt
« Reply #7 on: September 17, 2019, 08:09:55 AM »
Your friend cannot finance his way out of debt.

This. We're talking about only $8500 in debt. Even without refinancing that can by easily wiped in under a year with payments totaling $900/month. Should be a cakewalk on $50k of income.

AMandM

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Re: Help me help my friend out of debt
« Reply #8 on: September 17, 2019, 08:43:01 AM »
The way for you to help your friend get out of debt is not to guide him to new debt opportunities, but to help him look at his income and expenses. Even if he doesn't want to share detailed numbers, you can give him advice both on how to increase income and on how to reduce expenses. If his numbers ($50k in, $36k out) are real or close to it, it shouldn't take more than a couple of tweaks to knock off the credit cards in just a few months.

HPstache

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Re: Help me help my friend out of debt
« Reply #9 on: September 17, 2019, 09:32:08 AM »
Have the him start listening to the Dave Ramsey Podcast.  Dave will help this friend recognize that his debt is a problem and will give him a clear path to being out of debt (the Baby Steps).

DeniseNJ

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Re: Help me help my friend out of debt
« Reply #10 on: September 17, 2019, 09:50:39 AM »
NO!  Do not add him on anything of yours.  Never.

He should call the cc companies and ask for a lower rate.  He should put a block on them so he cannot use them.  He should go make more money and don't buy ANYTHING but rice and beans until those cards are paid.  Then maybe he can refi his car loan.

True you can't refi your way out of debt, but you can't even earn your way out of debt.  You have to stop spending.  There will always be stuff you need and want.  He should not spend a single dollar.  See the spend nothing month threads.

Rosy

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Re: Help me help my friend out of debt
« Reply #11 on: September 17, 2019, 10:15:25 AM »
You know I get the feeling that your friend may be looking primarily for an easy way out.

My two cents are to tell him in no uncertain terms - like this:

CAR
1. You better baby your car for another year and a few months. Be ready to start looking for a car in about Jan-Feb 2021. They are not going to stop making new cars and by then your finances will be solid.
That is living like a grown-up - not to mention your credit rating will be good enough by then to get a decent interest rate on the car loan.

CREDIT CARDS & CAR LOAN
2. Concentrate on credit card #2 first. That 25% interest gives me hives - it needs to leave the premises and you will never allow yourself to be robbed of your hard-earned income like this again, ever!
This is entirely within your power and a really easy fix once you commit yourself to a plan for payback that is doable for you.

Take back control over your finances - it's not that bad, you can do this, but the payback pain will be a reminder that this is something that you could have avoided. So no consolidation - easy way out. All that will do is have you right back where you are now in another year with still no hope of ever financing a car.
CC #2 - approx. $2100 is not that much - find a way to bring in extra money - challenge yourself to have it paid off in four months while making min pmts on everything else.

3. CC #1 is next - $900 bucks, surely you can come up with something to make this go away pronto.

4. OK then, now that $3K is gone - - you will challenge yourself to not add any other debt to your two existing cards - use them if you need/want to, but the deal is you will pay it off in full when the bill comes. NO EXCEPTIONS!

5. You are turning over a new leaf - you have a budget and you know where your money is going. Then you set up an emergency fund of approx three months worth of salary - $100-$300 ea month until you've reached your goal.
That will go a long way toward keeping you financially stable and out of trouble. Cheers:).

6. The car loan $5500 approx - no extra payments on this puppy until you have an EF of at least one month worth of income, then you make payments on both until you have filled up your 3 mo EF bucket.

7. YOU NEED A PLAN!

You didn't get there overnight so it stands to reason you need to review every little thing about your expenses, do you have options to reduce your spending - think out of the box, be open to change your grocery shopping or at the very least your going out to eat habits, when was the last time you got comparison quotes on every one of your insurance policies? We literally just saved $900 on our homeowner's insurance - that is insane! Well, it's Florida and the market changes constantly.
Have you done the easy stuff - stopped subscriptions, cut cable, committed to not going out more than twice a month - or not at all for a while, - whatever it takes should be your answer - which will jet propel you forward into the land of the debt-free!

You've got this - it just seems overwhelming and stressful because you are focused on replacing your car and think that a good credit rating is everything. Be kind to your self and smart about your money instead.
Make a plan for pay off - set a timeline - establish an EF - and everything will fall into place all by itself.

Surely you can allow yourself 12 months of financial recovery:), grit your teeth and baby your car and who knows you might be tempted to add another six months of driving it just to enjoy not having a car payment for six months - you deserve it after you worked on your plan for over a year:).
I can think of a whole lot of better things to do with my money than having a murderous, usurious car payment - can't you?
Shift your perspective - there is no law that says one has to have a car payment, it is a depreciating asset as you have become painfully aware.

You'll be all sorted by Dec 2020 with an EF in place - ready to cruise for a good car deal in Jan/Feb or just drive the old beater for another six months enjoying the freedom from car payments.
You'll be fine.

To the OP - I'm not sure about adding him onto your credit card right now, I'd do it like say in 12 months from now, in Sep, when most of this is already resolved and you can see your friend has indeed done all he could to take back control of his finances.
It would give him a nice push in time for a new/used car purchase.

... and yes, Dave Ramsey podcast - just so he knows he is not alone and that there are plenty of people out there who are way way worse off.
Ramsey advocates cutting up your credit cards, but imho it is enough to not add or add very little when you are in dire straits.
Most of all he needs a good plan and regain the confidence that he can do this on his own - one step at a time.

From what I can tell, he is simply floundering and looking for a quick fix instead of addressing the real problem - he needs to get back in control of his finances, his life and his future plans, that means a real budget, a plan and a real commitment from him to fix his financial life one step at a time.
One year in a lifetime is nothing - he needs a change in perspective, just sayin'.

Maybe help him find a cc that he can transfer his 2100 balance or at the very least the $900 balance - at zero percent interest. It will make his life and payoff plan easier and save him some money along the way. See doctorofcredit.com blog - search for zero percent interest credit cards (some include zero percent for new purchases as well) which would be helpful if something important is coming up that he has no funds to deal with - say the AC or new car tires or whatever.

 

 

Nederstash

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Re: Help me help my friend out of debt
« Reply #12 on: September 17, 2019, 11:35:48 AM »
25% interest made me throw up in my mouth a little. How the hell did he sign on for that? Don't attach yourself to anyone financially unless they got your ring on their finger - and I'm guessing he's not that sort of buddy!
 
Anyway...
 
1. If he has an emergency fund, strip it back to $1000 and use the rest to throw at the debt. Credit card #2 if you want to be mathematically smart, or #1 if you want a quick win (Dave Ramsey's method). I don't even care, just throw it at something.
2. Make a budget and stick to it. Go barebones, cut cable, eat rice and beans, forget about Starbucks. Anything he can squeeze out of his budget. If he really wants to make headway I'd say stop 401k contributions.
3. Debts are cleared within a year!
4. Build up the emergency fund, start 401k contributions back up etc.

Uturn

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Re: Help me help my friend out of debt
« Reply #13 on: September 17, 2019, 11:44:19 AM »
My take on co-signing and/or adding someone to my cc.  If a company whose sole reason for existing is to charge interest does not want to do business with a person, then I probably don't need to put my credit on the line either. 

partgypsy

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Re: Help me help my friend out of debt
« Reply #14 on: September 17, 2019, 12:03:45 PM »
NO!  Do not add him on anything of yours.  Never.

He should call the cc companies and ask for a lower rate.  He should put a block on them so he cannot use them.  He should go make more money and don't buy ANYTHING but rice and beans until those cards are paid.  Then maybe he can refi his car loan.

True you can't refi your way out of debt, but you can't even earn your way out of debt.  You have to stop spending.  There will always be stuff you need and want.  He should not spend a single dollar.  See the spend nothing month threads.

This is spot on advice. You don't help him by adding him to credit cards. You help him by having him be ninja good at not spending money and attacking those loans. I agree Dave Ramsey is more his inspiration level then mmm.
You can help by looking at all his expenses (he says he spends 36K but does he have a budget? Does he track his spending?) Basically help him by having him track his expenses and then see anywhere he can cut expenses, whether it is internet/phone/cable, insurance etc. Hopefully this will be a learning experience for him that his money is valuable and to make each dollar count.

Frankies Girl

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Re: Help me help my friend out of debt
« Reply #15 on: September 17, 2019, 12:08:46 PM »
I think the best way to help your friend is to show him how to budget and track expenses, then show him areas where he can cut spending (eating out, drinks, entertainment, cancelling/reducing extra services like cable/music/delivery).

He doesn't have so much debt that's he going to lose everything, and it's really just a case of becoming a more conscious spender and follow an actual budget.

So get him to sign up for Mint or Personal Capital (both free), and then in a month or two, sit down with him and figure out what is going where, and what he needs to cut back on and take steps to start saving money and paying down debts.

Under no circumstances should you loan him money or put him on your credit. His issue is solved by understanding budgeting/cutting expenses, so teach him how to do this, and he should be fine in under a year easily. MUCH less if he'd cut the likely really easy stuff and go bare bones (like cooking cheap meals at home, canceling all subscriptions/cable/gym, whatever isn't needed for actual living).


ABC123

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Re: Help me help my friend out of debt
« Reply #16 on: September 17, 2019, 12:15:29 PM »
Does your friend actually want to do the work to get out of debt?  Or is he wanting to skip the hard part and go right back to fresh new lines of credit?

Adding him to your credit card is an absolute No.  If he wants to raise his score, then he can pay his bills on time, every month, and watch those numbers go up.  If he actually wants the debt gone, and doesn't know how to do it, he can come here and post his budget.  Or find a Dave Ramsey Facebook page to ask for help. 

Lots of people want to be debt free.  They want someone else to swoop in and take care of it all.  They want to magically wake up with an 800 credit score and no credit card bills.  But those who want it, and those who are willing to do something about it, are not always the same people.

AMandM

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Re: Help me help my friend out of debt
« Reply #17 on: September 17, 2019, 12:51:28 PM »
I understood the OP differently from most of you, I think. I took the question about the "new car loan" to mean refinancing to get a new (hopefully lower-interest) loan on the existing car, not a loan to buy a new car. But either way, I agree with you all that it's a no-go.

maginvizIZ

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Re: Help me help my friend out of debt
« Reply #18 on: September 17, 2019, 12:57:38 PM »
Thank you all for your responses!

1. I couple people understood adding him as an AU... Most people didn't.  He wouldn't have access to this card and it's simply a trick to raise his credit score so he can get a better rate.  Calm down... I'm not giving this sucka money!
2. 0% APR credit card sounded like a suberb idea... But most cards appear to want a 650+ credit score.  Good suggestion but damn it he will probably get denied.
3. Refinancing his car loan seems logical... But his car is probably going to die in the next 2-3 years.  No reason to refinance to a 5 year loan, when his car won't even last that long.


Overall, I think the best way to help him is to teach him how to budget.  Show him Dave Ramsey stuff. He even offered me access to this bank/credit card statements... I'll help him install Mint, and maybe dump expenses into a spreadsheet to help him realize how much money he is truly spending on things.

I'll start with the budgeting portion tonight. Thanks everyone!

edit: Definitely didn't mean to go out and get a new car.  Simply refinance and get a lower rate was what I was thinking.

Uturn

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Re: Help me help my friend out of debt
« Reply #19 on: September 17, 2019, 01:14:16 PM »
In that case, yes a budget.  However, I would not frame budget as a limiter on spending, rather a tracker of money.  Depending on his mindset, you might need to find a different word.  I would also suggest he track spending for a few weeks before he starts setting category limits in the budget.  You have to baseline what is happening now, else you won't see improvement and give up. 

frugaldrummer

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Re: Help me help my friend out of debt
« Reply #20 on: September 17, 2019, 02:05:15 PM »
One additional thought - what does he have that he can sell?

People have a surprising amount of stuff (go to any garage sale).   Does he have extra stuff that he could part with, on eBay or craigslist or such? If he could scrounge up $900 worth of stuff to sell and get rid of that one credit card, a win like that could be very motivating.

Also, agree with others that a second job or side gig is in order. If he could make just an extra $500 a month, that would go a long ways towards retiring his debts.


maginvizIZ

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Re: Help me help my friend out of debt
« Reply #21 on: September 17, 2019, 03:52:38 PM »
One additional thought - what does he have that he can sell?

People have a surprising amount of stuff (go to any garage sale).   Does he have extra stuff that he could part with, on eBay or craigslist or such? If he could scrounge up $900 worth of stuff to sell and get rid of that one credit card, a win like that could be very motivating.

Also, agree with others that a second job or side gig is in order. If he could make just an extra $500 a month, that would go a long ways towards retiring his debts.

Side job & selling stuff is a good idea.  I'm sure we can find ~$500 of random stuff to sell.

 
In that case, yes a budget.  However, I would not frame budget as a limiter on spending, rather a tracker of money.  Depending on his mindset, you might need to find a different word.  I would also suggest he track spending for a few weeks before he starts setting category limits in the budget.  You have to baseline what is happening now, else you won't see improvement and give up. 

Good idea on how to frame this all.  I don't want to sound like this monster who is limiting him to have fun.  BUT HOLY SHIT 25% INTEREST WTF! lol..


I want to say he told me his cell phone bill is $100 (I think he has a payment plan on his iphone X).  I will present options with Mint ($20 a month for 8gb) and Net10 (5gb on any carrier for ~$20).  I thought I heard $100 a month on insurance (Geico/Progressive quotes... Any other places to score quotes?).
« Last Edit: September 17, 2019, 03:55:36 PM by teltic »

ColoAndy

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Re: Help me help my friend out of debt
« Reply #22 on: September 18, 2019, 12:41:48 PM »
I would steer him toward the Dave Ramsey plan.

SunshineGirl

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Re: Help me help my friend out of debt
« Reply #23 on: September 18, 2019, 01:52:55 PM »
Steer him this way so he can start reading people's case studies and ways we all save.

I use YNAB for budgeting & love it. You assign every dollar a job, so it really makes you think what you value.

Can you explain what his job is?