**Need some financial advice please...regarding credit card debt

[HelloWorl]

A friend of mine (not me, really) started their own business selling house supplies. They ended up hitting a rough spot as the economy tanked and finally had to close up shop. It's been over a year now but they still have nearly $40k of credit card debt to their name. Since they were an independent contractor, the debt is entirely in their name as opposed to a corporate card or something (not sure if that makes a difference).

They came to me asking advice but I really don't know what to say. What options do they have? They're accumulating something like 20% APR, so the debt is going to spiral out of control unless they can pay it off quickly.

The problem is that they have no money, and aren't pulling in much really. What happens if they continue not paying? What's their best course of action here?

Thanks guys...this is the most depressing Christmas for my friend. Any sound advice is much appreciated.

 

[drebo]

Bankruptcy. Yes, it'll suck and their credit will tank for 7 years, but it's the cost of doing business. Bankruptcy is the normal course of action in this situation.

 

[HelloWorl]

Bankruptcy. Yes, it'll suck and their credit will tank for 7 years, but it's the cost of doing business. Bankruptcy is the normal course of action in this situation.

How much more favorable is bankruptcy than just trying to negotiate down the balances? I've read that you can get the balances down to about 25% of the amount owed, but it still hits your credit pretty hard.

Is negotiating the balance down to $10k-$20k and paying it off over the next several months not even worth it at this point?

 

[RaistlinZ]

When my toilet clogs I call a plumber. When the power goes out I call an electrician.

Why are your friends not calling on a financial advisor for their current situation? That's what you should advise them to do.

 

[HelloWorl]

When my toilet clogs I call a plumber. When the power goes out I call an electrician.

Why are your friends not calling on a financial advisor for their current situation? That's what you should advise them to do.

They don't know of any, and none that do it for free.

 

[nanette1985]

creditboards.com

 

[Elbryn]

How much more favorable is bankruptcy than just trying to negotiate down the balances? I've read that you can get the balances down to about 25% of the amount owed, but it still hits your credit pretty hard.

Is negotiating the balance down to $10k-$20k and paying it off over the next several months not even worth it at this point?

if your friend can pay off 10-20k in a few months then why cant they pay 40k off in double that time? do they currently have other jobs/sources of income? they can call and ask for interest rate reduction. if thier credit is still good, they can open other lines of credit with promo low interest terms. if they have a heloc, they can pay off with a heloc. if they own a house with equity and still show income, they might be able to get a heloc. if they've got inventory, they can sell it. 40k isnt such a bad number, it's potentially payable. others have done it 500 or 1k at a time. are they willing to really cut back on everything and focus on paying the debt? can they get second jobs? an important piece is what they bring in versus what they owe on a monthly basis, basic budgeting and what they're willing to do.

 

[peasant]

The only way out, is to maintain a good relationship with the CC company, the only way to do that is with plenty of dialogue, and keeping whatever commitments they make to the CC company, no matter how painful or what could be considered luxuries in these circumstances being missed. It could be that this is only short term for them given good luck and determination. Short term sacrifices, often pay big dividends. I wish them every bit of good luck possible, especially at this time of year.And a speedy return to more plentiful times.

( Bankruptcy is the easy option for immediate solution, the future though, isn't just about instant solutions, pain today, gain tommorrow)

 

[HelloWorl]

Thanks for the info. They don't have a house or anything else that can be used as collateral, nor a job that pays a steady income. Bankruptcy might be the only way out for them at this rate...

 

[AlienCraft]

The best advice is to get a someone who will consider what is in the best interest of your friend, as opposed to the best interest of themeslves or their company.
"Finacial advisors", come in many colors and stripes. Most are not acting in their client's fiduciary interests, but in those of their firm(s) they represent/sell.
An attorney with CPA attached to their CV would be a good place to start, especially one versed in bankruptcy. A few hundred dollars for a consultation / planning session may give your friend some ideas not commonly known or available to the general public.
Remember, if walking away from a business debt is acceptable for Corporate America, there is no shame for a small businessman to do likewise.

2, 4, 6, 8 Let's all InCorporate!

 

[HelloWorl]

The best advice is to get a someone who will consider what is in the best interest of your friend, as opposed to the best interest of themeslves or their company.
"Finacial advisors", come in many colors and stripes. Most are not acting in their client's fiduciary interests, but in those of their firm(s) they represent/sell.
An attorney with CPA attached to their CV would be a good place to start, especially one versed in bankruptcy. A few hundred dollars for a consultation / planning session may give your friend some ideas not commonly known or available to the general public.
Remember, if walking away from a business debt is acceptable for Corporate America, there is no shame for a small businessman to do likewise.

2, 4, 6, 8 Let's all InCorporate!

I agree, financial advisers could possibly have some sort of agenda or ulterior motive behind their suggestions if there's a chance they can benefit from the one they're giving the advice to.

 

[StageLeft]

The best advice is to get a someone who will consider what is in the best interest of your friend, as opposed to the best interest of themeslves or their company.
"Finacial advisors", come in many colors and stripes. Most are not acting in their client's fiduciary interests, but in those of their firm(s) they represent/sell.
An attorney with CPA attached to their CV would be a good place to start, especially one versed in bankruptcy. A few hundred dollars for a consultation / planning session may give your friend some ideas not commonly known or available to the general public.
Remember, if walking away from a business debt is acceptable for Corporate America, there is no shame for a small businessman to do likewise.

2, 4, 6, 8 Let's all InCorporate!

Realistically a guy who's up to his nose in debt is not going to pay $300 for extra advice when he could get a lot of it online. I wouldn't in that situation. It's ideal but $300 is a lot of cheese.

First you call credit card company and tell them sh*t is dire and that if they don't cut that APR back (he's paying $666/month in interest now) that you're going to drown.

Next if they don't cut it back you call a credit consolidation service.

Also, you still need an income, though, and if you're the kind of person who is still going to crank up debt because you are fiscally idiotic (your friend probably is, it sounds like), well you're probably fvcked either way.

You are asking all this on his behalf. What is he doing? Is he surfing the net, joining message boards laying it out for specific advice from people who have actual experience with this or is he on his ass tonight watching TV like a damned child in despair over what he's gotten himself into?

 

[HelloWorl]

Realistically a guy who's up to his nose in debt is not going to pay $300 for extra advice when he could get a lot of it online. I wouldn't in that situation. It's ideal but $300 is a lot of cheese.

First you call credit card company and tell them sh*t is dire and that if they don't cut that APR back (he's paying $666/month in interest now) that you're going to drown.

Next if they don't cut it back you call a credit consolidation service.

Also, you still need an income, though, and if you're the kind of person who is still going to crank up debt because you are fiscally idiotic (your friend probably is, it sounds like), well you're probably fvcked either way.

You are asking all this on his behalf. What is he doing? Is he surfing the net, joining message boards laying it out for specific advice from people who have actual experience with this or is he on his ass tonight watching TV like a damned child in despair over what he's gotten himself into?

They've looked in to it and have come to realization that bankruptcy makes the most sense.

 

[dullard]

They've looked in to it and have come to realization that bankruptcy makes the most sense.

A rule of thumb is that if you owe more than you earn in a year and if that amount is sizable, then bankruptcy may be the best option. I do think your friends fall in that category. Without a steady job, $40k is certainly more than they make in a year. And $40k might be considered sizable (it is borderline, but in their case with no way to generate steady income and no assets to sell, I'd call it sizable).

If they enter bankruptcy it won't be really any worse than if they negotiate a settlement with their CC companies. Both are bad marks on your credit score. But with bankruptcy, they have a lot more legal rights than if they negotiate payments and then fail to make them.

 

[Vette73]

A friend of mine (not me, really) started their own business selling house supplies. They ended up hitting a rough spot as the economy tanked and finally had to close up shop. It's been over a year now but they still have nearly $40k of credit card debt to their name. Since they were an independent contractor, the debt is entirely in their name as opposed to a corporate card or something (not sure if that makes a difference).

They came to me asking advice but I really don't know what to say. What options do they have? They're accumulating something like 20% APR, so the debt is going to spiral out of control unless they can pay it off quickly.

The problem is that they have no money, and aren't pulling in much really. What happens if they continue not paying? What's their best course of action here?

Thanks guys...this is the most depressing Christmas for my friend. Any sound advice is much appreciated.

Was it amway? or one of those type scams? :awe:


But yea, its bankruptcy time.

 

[Gibson486]

They don't know of any, and none that do it for free.

lots do it for free....they get commission from referring you to different services. HOw do you find these people? Lost of real estate companies have people that do it (they will refer you to one). Go to one of the first time home buyer workshops. They will pass info on it and there will usually be a free financial adviser there.

 

[iversonyin]

Are they making enough money to pay them off? Or their income is zero?

 

[Via]

I'm self-employed as well, and I had two nagging credit cards from when I started off totaling about $15000.

I ended up taking out a home equity loan to take care of both. It'll take five years at $290 a month, but after years of sub 10% interest (with zero late payments) both CC companies jacked up the rates to the point I was paying almost that in interest alone anyway.

Maybe your friends can explore that route (with a co-signer).

 

[SunnyD]

How much more favorable is bankruptcy than just trying to negotiate down the balances? I've read that you can get the balances down to about 25% of the amount owed, but it still hits your credit pretty hard.

Is negotiating the balance down to $10k-$20k and paying it off over the next several months not even worth it at this point?

Um, negotiating down the balance may be worse than bankruptcy in certain cases. You do realize that negotiating down the balance on a debt essentially turns the negotiated debt into income, thereby requiring you to pay income tax on that amount, didn't you? If they can't afford to pay down their $40,000 debt, how happy do you think the IRS is going to be when they can't pay taxes on the $30,000 of untaxed income they have just received?

 

[Sho'Nuff]

In the future, incorporation could have saved the persons in question some of these headaches. All credit should be in the corporations name, if possible. If the corp. goes bankrupt, the cc company will have a significantly more difficult time attaching to the assets of the underlying employees/board of directors.