Those of you who have read my columns know that I have tried various approaches to the credit card debacle that far too many people in this land face, with illustrations, humor, facts and any other tools I have available. Somehow, I don't think I am getting through to enough people to make a difference. I feel lousy about it and it isn't even my problem. It's yours or theirs, but not mine. Not now anyway. It was mine many years ago right after I got married.
I'll get into that in a moment, but first, if you have credit cards that you can only afford to pay the minimum each month, please realize I am writing this for you. For those of you who always write to me about your ability to pay cash for everything or you don't buy it, I applaud you. You generally follow up with the thought that I am enabling people to continue their wayward ways! I am not! I am just trying to stop the financial bleeding so the patient can get back on his or her feet financially.
Now back to me. After a period of 3 or 4 years, or maybe a few more, I was deep in credit card debt ($6000+) and had no reserves or basically any spendable income after paying off the debts. When I could take it no more, I went to my father (which was the hardest thing I ever had to do in my life up until that time), and admitted I needed his help financially and he gave it to me. I never did that again and was able to repay him and take care of him and my mother when they needed me. I bring this up because I have been where you are and know the feeling, understand the pressure and do not now or ever will consider you to be less than me because of your situation.
Now for the reality: Credit card companies are raping Americans. Let me list a few of the interest rates that have been sent to me by prospective borrowers. I will abbreviate to try to protect the guilty and save nasty letters coming my way. C Bank 29%; C Bank 18.2% on purchases, 23.2% on advances; Gasoline MC 20.24%; Auto MC 16.49%; and a low interest Visa 10.9%. There are other companies charging up to 33.3%, and the best ones are the 0% for a specified time, which if you don't have paid off by the specific date, jumps into the 20% range.
The new credit card rules make you pay the interest, fees and 1% of the balance every month. A $10,000 balance at 23.2% has a minimum payment of $293 a month.
A 30-year loan has a payment on $10,000 of about $60 a month; a 15-year fixed loan has a payment of about $83 a month. The non-deductible interest on the credit card example above is $193. That is three times the payment (not interest) on a 30-year fixed loan, and over double the payment of the 15-year loan. In the home loan examples of 30 and 15 years, the interest is deductible. By the way, the interest portion on the 30 and 15-year loans is about $50 in each case, as the interest rates are only about 1/4% apart.
My solution to those who are in too deep is simple: Go to your father and see if he will help you. If you choose not to do that, and you own a house, you really need to refinance and include all of your credit card debt. With gas prices going through the roof, no one can afford the luxury of paying ludicrous interest on their debts.
You’re not through, though. The last part of the solution is building reserves through monthly savings now that you aren't giving your money away or by pulling the money out of the house when you refinance. (See my column 7/18) This will enable you to develop a new pattern, paying cash.
I will leave you with a good feeling that shouldn't be misconstrued. The two largest credit card debts I have ever dealt with were $600,000 and about $350,000. One was a consultant to my industry and the other a banker for a major worldwide bank.
One refinanced and paid the debt off, the other didn't. I really don't feel bad about that one!
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom. Roger is the President and founder of Manhattan West Mortgage.