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I have four credit cards. They are to their max limit. I financed a new car for about $25,000. I have $13,000 in credit debt. And I only make $420.00 per week. What should I do? Please tell me all my options.
Jacinto - Perth Amboy, NJ

Your outstanding debt balance is approaching twice your annual income. That’s way too much debt. Unless you have a big savings account, you’re asking for trouble if your debt balance rises above a third of your take-home pay. So unless you can find a better-paying job, it’s going to be almost impossible to pay off what you’ve taken on. (For starters, you’ll probably need to trade in that new car for an older model and use the difference to pay off some of your debt.)

Carrying around high credit card balances is like burning a piece of your paycheck every week. Here's the math: To save up that $13,000 over 5 years, you’d have to set aside about $217 a month. But paying off the same amount as a credit card balance, with an interest rate of 13.5 percent (the current average for a standard card), will cost you about $300 a month for five years. By just making the minimum monthly payment, you’ll be paying the bank forever.

So contact the local chapter of the National Federal of Credit Counselors (www.nfcc.org) to find a credit counselor in your area to help you work out a payment plan. (Avoid other “credit advisors” – many of these people are just trying to lend you more money to pay off your debts and then charge you a higher interest rate for your "consolidation" loan.)

Before you get started, look hard for places to cut back on expenses to free up cash (though on $420 a week this will be hard to do.) Then see if you can work out a plan to pay off the whole balance. No matter what kind of plan you come up with, this is going to take years. But once you get started, you’ll be one day closer to no longer paying interest for the rest of your life.

Lastly, learn from the experience. Credit card lenders, mortgage brokers, and car dealers used to take a close look at your finances before lending you money to determine whether you could afford to take on more debt. No longer. Lenders these days are happy to load you with more debt than you could ever handle and then jack up the rates when you fall behind. And they’ve recently succeeded in getting bankruptcy laws tightened to make it harder for you to get out from under that debt.

We’re all for borrowers accepting responsibility for the debts they take on. But American consumers wouldn’t be as deeply in debt -– total debt outstanding has doubled in the past decade to more than $2 trillion -- without the active encouragement of a lending industry that is hauling in billions in profits on all that interest.

So next time you get a pitch in the mail for one of those low-interest, “teaser rate” credit cards, stick it where it belongs – in the garbage. When a lender tries to show you how much more you can afford to borrow, get up, walk away, go home and do your own calculations. And if you think you’re “handling your debt” by making the minimum monthly payments, take a look how much of it is going to interest and finance charges.

SAWBUCK MYSTERY
On our currency, why is Alexander Hamilton facing left and all the others are facing right?
Kim D. -- Evansville IN

It must be part of that vast, right-wing conspiracy that Hillary Clinton warned us all about.

OK, Answer Desk readers: any better explanations?

 

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