“That’s a great question” is a dumb thing to say, stop being dumb. Anyway, a guy last week asked me a great question. He walked into my office, closed the door, sat down and said “You know about money, right?” (Don’t worry, that’s not the ‘great question’). I confirmed his assumption and he proceeded to tell me his story.
He said, “Jeff, I need some advice. I’ve got a debt of $18,000 on a credit card with 0% interest. The 0% interest expires next month and then it balloons to +16%. I don’t have $18,000; what should I do?”
I responded, “That’s a great question.” I didn’t say that… I typed it here because I thought it was funny. I actually didn’t respond right away.
This was a man’s life, his future. He and I aren’t really close; I barely know him. He’s got to be at the end of his rope to come ask me (basically a stranger/co-worker) about this problem. I thought of all the things I’d heard over the years from Dave Ramsey, Ramit Sethi, and Tony Robbins… which advice should I give him? This is, most likely, the biggest problem in this guy’s life right now.
"If I give him bad advice, and he uses it, it could ruin his future, the future of his wife, the future of his kids."
I had to help him solve this problem, so here’s what I did.
First thing I asked him about was his current liquidity – “How much do you have in savings? What kind of money can you get your hands on right this second?” He said, “You know what, that’s a great question” He didn’t say that, I like beating dead horses. He told me a number, I don’t remember how much it was, maybe a thousand or two – clearly it was not enough to solve this problem.
Next I asked him if he could take out a 2nd mortgage – it’s an awful idea, but I wanted to know. He told me that he’s got a VA loan which discourages 2nd mortgages… I don’t know if that’s true, but I went with it. I wouldn’t have recommended this anyway.
He interrupted my line of questioning with an idea from his wife: “She thinks we should borrow from our 401k.” Ok, not the worst idea. I don’t recommend that one either, but it’s more liquid than a loan, and the interest is a lot less. You get the principle back (and maybe the interest) into your 401k account. We’ll put that in the ‘maybe’ pile.
Finally I asked him, “Have you talked to the credit card company?”
“About what?” Wait, what? You haven’t talked to the credit card company? You owe a guy EIGHTEEN THOUSAND DOLLARS AND YOU HAVEN’T TALKED TO HIM? I didn’t say that… verbally… and I hope I didn’t say it physically either. But I might have said “dude, stop being dumb” with my eyes, but not out loud.
So I gave him a few options.
I got the simplest negotiation advice from a lady a few years ago “Ask to pay less.” I called her up and said – I’m going to go buy a car tomorrow, any negotiation tactics I should use?” She said “Ask to pay less.” So I told him that – call the credit card company and ask them to pay less – whether it’s lower interest rates, or extending the 0% - something, anything to pay less money out of pocket. Tell them what you told me – I owe you $18K and I don’t have it, what are some options for me to utilize in order to get you the money I owe? Can we extend the 0%? Can we look at a 5%? Even 12% is better than what you’ve got right now…
Ramit Sethi actually has scripts you can use to negotiate lower interest rates (http://www.iwillteachyoutoberich.com/blog/lower-credit-card-apr/)
Next I told him to shop around – there are some credit cards that offer balance transfers for free (or a small fee) with 0% interest for 12-21 months depending on the company. Here are a few:
Chase Freedom Unlimited 0% for 15 months with no opening balance transfer fee
Citi Diamond Preferred Card 0% for 21 months with no opening balance transfer fee
Amex EveryDay Credit Card 0% for 12 months
BankAmericard Cash Rewards 0% for 12 months
So transfer your balance to one of these cards and you’ve bought yourself up to 21 months of 0% interest. (There are some credit score requirements with each. See the top 10 here: https://www.creditkarma.com/creditcards
I could literally see his expression brightening. He was starting to get some excitement back in his life. He thought the end was near; it wasn’t. He just didn’t know where to look.
I saw this guy again today at the office. I asked him, “how’s the credit card thing going?” He said “That’s a great question.” So I punched him in the face... He actually did say that. Because he'd done nothing about his debt. Poor guy...
Here are some success stories from people who had mounds of debt and how they got through it. Using a credit card to transfer balances buys you time, but you still have to work to get out of that debt. That's what these people did: