When are you really out of debt?

Suze Orman says there is bad debt and good debt; and that at times credit card debt can be good debt but those times are rare.

Good debt would be a home mortgage (building equity for the future) and/or student loans to improve your education so you can increase your earnings.

Bad debt is any debt that lets you buy your wants and pay for them later (in the context of wants vs actual needs) and allows you a feeling of false security.

So my philosophy is debt free is being free from the overburden; being able to save; knowing I can pay my bills on time and not running up charges on the credit cards; yes I use cc’s but I pay them off that month or within a month or two. I can sleep at night without my mind running endlessly about how to pay this and where am I getting the money to pay for that.

So, our best bet would be to pay off all credit cards, then pay off our RV and truck, then work on the house? Now, the big question, do we pay off all debt THEN save or try to save along the way even if it takes longer to pay off debt? I’ve heard mixed opinions on this.

Paying off all debt vs some debt

You should focus on what makes you the most/costs you the least … so if paying off credit cards at 15% – 30%; then focus on the credit cards as you wouldn’t make near that from earning interest on a savings account.

Worst case scenario; if you needed cash in a hurry for an emergency thing; you still have the credit cards to use (and for real emergency stuff only) so in this case savings is secondary to paying off those high interest credit cards.

I agree 100%. In my dept payment strategy, I’m knocking off everything that I can in extra payments. If an emergency come up, then I have a credit card that will help me through. If not, my debt is getting cleared up. The interest rates on savings accounts are really low, when compared to credit card rates.

Making offer to pay off debt

I checked again and it shows that I owe $2000 actually, 1700 for one of them, and 300 for another one. Both are going to the same collections agency. I tried calling the hospital and see if they couldn’t handle it instead of the agency, and they said they’re the ones that handle it. Both of ’em are about 3 years old and, even the few bucks I did send them, apparently they never received (it was literally only a couple bucks).

This debt is from a hospital bill btw. How low should my first offer be for them to clear my debt I owe them? and would my credit show that the debt was paid? how would it look on my credit report?

I know we’re all here because we want to get out of debt. What exactly are we saying by that? For example, is it a bad thing to be paying a mortgage? Or a car payment? Here’s our personal situation: We have a truck payment, a trailer payment (RV), a house payment and a few credit cards to pay off. We make enough that we have never missed a payment, but at the end of the month there is nothing left for savings. We were able to pay a big chunk of the credit card debt with our tax refund and may be able to pay more when my husband gets his bonus in April.

Our main concern in our credit card debt, of course. After that is paid off, are we to say that we aren’t financially free until we have no payments whatsoever, even a mortgage? If so, then we would be depriving ourselves of all the fun things of life until we have paid everything off just in time to be too old to enjoy it!

Hope my question makes sense.

Because my goal is to pay off everything and owe nobody anything. That includes house, car, everything.

The only way to have financial victory is to spend less than you make. If you have nothing left for savings, then you need to make adjustments to your income and/or outgo.

I paid off my first house so it’s possible but I have another mortgage now plus lots of other debt. I guess the trick is to pay them off (work on it) and NOT get into debt again which is so easy, especially when you have no debt, then you think a few small things will be ok and then the debts just seem to grow after that kind of thinking.

Some families do actually become debt free.

We achieved debt freedom in the month of Dec 2004. That is we own our home, two cars and have no cc or other debt. We were able to become debt free by setting up a budget sticking to it and living below our means. When one is debt free one can build assets which pay you monthly income instead of paying monthly on liabilities which is debt. One should buy assets that pay you monthly instead of buying liabilities which take money from you monthly. Pay your self 10% first to build an emergency fund, after you are debt free then you have all that money that was going to pay liabilities is now available to buy assets that pay you monthly toward financial freedom (early retirement). It is not how much income you make it is how much of it you keep.

We are always paying others our money ie. mortgage, auto loans, cc companies, utilities, why not pay yourself 10% first before paying the others. Marriages are falling apart due to the stress of debt. Being debt free is real freedom and peace.

When one gets into debt it is over a period of time so it will take time to get out of debt.

Don’t lose hope it is a process but well worth the effort.

Clarification about 401k situation

Just to clarify, if we could just get rid of this huge debt ($20k) we will be in a position where we are making more than we spend. We can afford to pay the $1,000/month for my youngest’s school if we scrimp. The problem is the $20k that’s hanging over our heads.

However, I am certainly going to look again where we can trim and pay some more attention to the advice on this list. Maybe I can work something out with the school if I can pay little by little?

Thank you for your advice.

You know I was thinking about your situation today and honestly, if it was me I would take $$ out of the retirement. My biggest concern is that you would allow yourself to fall into the same old habits that got you where you are in the first place. Know what I mean?

I could be wrong and I am sure others will let me know if I am…..LOL…but I can certainly understand your wanting to just pay the debt and be rid of it. How much longer would you have to pay the family loan?

As far as your budget is concerned, even cutting corners a little bit more could add up. For example, in my phone bill I realized we were paying for services (such as three way calling etc.) that we never used. So I had them turn those off. I also called up my cell phone company and had them take off other services I never used. Like the text messages. My provider now charges .20 per text. Their package costs $5 a month. I would have to text 25 times and I never come near that. So, I just pay the .20 when and if I text. Not much but if you add it up it will count.

Anyways – since I had re-thought what I had originally written I thought I should write again. 🙂

Innnnnteresting….. I appreciate your writing again. I have the exact same concerns, because we have “resolved” to change old habits but have fallen into debt again….. but at least it was less the second time around! So I would definitely need to figure out a safe game plan that we STICK TO……

Also I realized that between now and June we will be paying about $4000 toward this year’s tuition, leaving $13000 due, not the $17k I was figuring on…… So we’ll have to throw that in the mix…..

Unfortunately we are dealing with two new situations in the next school year: One child in public high school, and one child homeschooling, and we’re not sure how much all that will cost. So we want to estimate high…….

It just drives me nuts to spend all those extra thousands to get out of debt! BUT I guess it would be worth it if it means the END of the debt…..

As for the debt to my family, my wonderful brother loaned us $40k and said it’s his youngest child’s college fund, so we have 15 years to pay it back…… but we’ll pay more into it as we can.

Thanks again!

The ONLY way to get out of debt is to:

STOP BORROWING FROM ANYBODY FOR ANYTHING … family, friends, loan companies, credit card companies or anyone.

Cut up the cards, throw away every loan application, and save to pay cash, or do without.. If you still decide to get quick cash loan online – do your best to pay it off as soon as possible!

Then be sure you’re spending less than you’re earning and apply as much as possible to the debts.

God bless…

Newbie at this!

Ok, I need some advice please. Up to now we have been able to make the payments on all our credit cards and mortgages (1st & 2nd). We have two rent houses (one makes us some money, the other one doesn’t). But now things are really tight. Husband said one credit card payment is now past due. We have 8 we are dealing with. Any suggestions on what to tackle first? We are working on getting rid of the two rent houses. Real estate is just slow….

Husband is needing to get out of his job because of the stress but knows we can’t afford to right now. Prayers are definitely needed at this point! Any suggestions will be appreciated.

Advice on debt settlement

I was just curious how many have actually settled any of their credit card debt. Did you do this alone or through a program/company? How was your experience? And which way is better?

Settled w/ WaMu on my own. Working on the rest right now. I prefer to handle things myself.

Where do you start on your own? I would prefer to do that too…we are just now 60 days late. I’m guessing we aren’t in the position just yet, right? How did you do with MBNA. Both cards we need to settle are WaMu based.

Try to settle it on your own. It may take away and few phone calls and/or letters to get it settled ,but it will happen. Right now it is too early to even try to settle on the accounts. You are just past due. Usually a creditor will charge off the accounts after missed payments for 120 + days. Try and call the CC to see if you can make payment arrangement to get caught back up or try and cut somewhere else in you budget to get caught back up.

If you continue to miss pymts and wait until the accounts get charged off . Your credit score will go down and that Charge off will remain on your credit report for 7 yrs. If you can get caught back up ask the CC to take off the 60day late mark on your credit report. ( they will usually do this if this is your first time being late).

I just started calling my creditors. I am now currently 7 months past due. This evening I settled with B of A & Union Plus. I expect to settle with Barclaycard tomorrow.

How did you do with BOA? My largest card is with BOA…just curious…

I have been behind since August and last month started calling all my creditors to see who was willing to settle. Went back and forth a couple of times. I tried to get them low (as I did w/ MBNA) but they would go less than 35%. That’s fine. I will receive a 1099c for the forgiven portion so we know to expect that.

I have 3 credit cards left, 1 medical bill, 1 attorney bill. In the past week we did manage to pay off $37400 worth of debt for $11200. We still have $30k left (not including 2 retirement loans & 1 auto loan which equal another $27k) so we still have a way to go.

It can be done. This group is awesome about helping find even more ways to cut expenses and tighten up the budget even more. I reached out to the group and they definitely helped me.

For your settlement was it 35% of where you started (7months ago) or 35% of what they say is the balance today(ie after fees, extra high interest,lawyer fees etc). And was it a one time lump-sum payment or do you have a certain amount to pay over time (ie payment plan)? Thank you for sharing and good luck with it all, you will get done, have faith.

Still refusing to let the debt win.

Believe it or not, our balance had not gone up drastically. We had decided to not re-file for bankruptcy and I took our balance in December and based my negotiations on that. My calculations were only off by less than $50.

I paid a one time lump-sum because I preferred it that way. A couple of them offered a payment plan but it was limited to being paid completely within a month and a half.

Re: Any success on getting interest rate cut?

The Public Interest Research Group (USPIRG) did a study where volunteer cardholders attempted to convince their credit card companies to lower their interest rates.

One interesting finding is that “With one 5-minute phone call, 56 percent of consumers who called their credit card company lowered their APRs.”

However, the incentive for the credit card companies to lower the APRs of these cardholders was competing card offers and the potential of a balance transfer to that other card (losing their customer’s business, in other words).

It appears the credit card companies do not care much about financial, family or other hardships. If you want them to lower your APR, the best chance you have is presenting them with the potential of you moving all of your balance to another company’s credit card at a lower APR.

If you do not have any offers, you can find some online at:


It may take more than one call, and you may need to escalate the conversation to a supervisor. However, when you speak with the company, remember to remain calm (no matter how stupid their excuses are) and polite.

However, if you have an offer to transfer a balance to another card, and your credit card company will not budge after several attempts to ask them for a lower APR, think seriously about taking advantage of the balance transfer offer. It may save you some money and help with your cash-flow issues.

However, read the new contract very carefully to make sure there are no Universal Default clause (allowing them to raise your interest rate if you are late paying ANY credit account). You will also need to see if there are any balance transfer fees (sometimes balance transfer fees can negate some of the benefit of the lower APR). When you shop around for a balance transfer offer, look out for these issues (Universal Default, balance transfer fees and other terms).

Another consideration is that the card company may assign different APRs for the balance transfer portion of your principal and the portion of your principal to which you charge purchases. Be sure to understand these terms and their differences (especially if you plan to use this card for future purchases).

Also, if the current card (the one not wanting to lower your APR) is an old account, you may not want to close it after you transfer the balance (if you end up transferring the balance). The age of open credit accounts reflects positively on your credit report, so closing an old credit account could negatively affect your credit score.

However, late payments reflect more harshly, so your credit score (if your credit score is even a concern right now) may already be damaged from previous late payments (which may make it difficult to get a really good balance transfer offer, but you may still be able to get an offer for an APR lower than your current APR that could still save you some money and improve your cashflow problem).

I hope this helps and I hope your child gets well.

Any success on getting interest rate cut?

Does anyone have advice on how to get a cc to lower the interest rate if a hardship is involved. We just can’t make our minimum payments anymore but if the interest rate is lower it would be more manageable.

Capitol One said since we have been late on our payment there is nothing they can do. We explained to them that we have a very sick child who’s medical expenses have been denied by our insurance company and unfortunately she needs to continue treatment. Any success on getting a lower interest rate for a while and if so how is this done? How late do payments have to be before a cc is willing to be more open to assist?

I don’t know the answer to your question, but I wanted to say that I am sorry about your child being ill. I’ll keep your family in my thoughts….

Nolo Press has 2 books on dealing with creditors. Your public library might have at least one of these books. I would highly suggest you read one. One is called Credit Repair and one is called Solve Your Money Troubles. Both these books have printable example letters to send to creditors to change terms.

Personally I would just call and see if you could get it lowered. My best advice is to just call them and explain your situation and if you don’t get an understanding rep, call back until you do.

There is a hardship department at card services try to get that number first don’t just deal with a customer service representative.

Also you could let your payment go past due over 120-150 days then ask them to settle a payoff amount. Till then save up so that you have the money to offer a payoff.

Need advice on a settlement offer

Base your offer on the original amount; it depends on how delinquent the account is and what State you are in as to how much to offer.

How delinquent is when you last made any sort of payment.

The State will determine if you are running close to the Statute of Limitations for the debt.

It really doesn’t matter if you use USPS or another delivery service; that’s up to you; but, yes, get delivery confirmation either way.

Hope this helps,

You could have used IRS Form 982 to exclude canceled debts from your income report if you were insolvent at the time the debt was canceled.


You only needed to be insolvent (the amount of your debts are greater than the amount of your assets) by the amount of the canceled debt, so if you were $900 or more up-side-down, then would not have needed to pay income taxes on that canceled debt.

Also, when you consider the amount of taxes versus the amount of interest you will pay (either on that debt or on future credit with very high interest because of a bankruptcy on your credit file), the additional amount in taxes may be less (sometimes much less).

The IRS webpage about this is located at:


Scroll down and read the “Insolvency exclusion” section. They even provide an example.

Need help on how to get on a Budget

My husband and I are in bad financial distress. Our problem seems to be that we cant get on a budget. Every month we are lacking. We seem to be able to only afford our main bills like car, house, electrical and phone in which those are still hard to pay. Some weeks it seems like we are scraping for grocery money. On top of it all we owe so many back credit card bills and hospital bills that we cant even afford to pay just a little amount on them. I often tell myself it would be SOOOO much better if we could just get on a very tight budget. Can someone please help.

Thank you!

You really need to sit down and take a good look at your financial situation NOW! Maybe post them to the group for suggestions on where/how to cut.

Be realistic and honest in making your list. Set your list for bill, minimum payment, balance owing, any past due amount and interest rate. This should give you a good heads up on where to start.

My answer will go a bit deeper. It is a smart thing to do to learn more about budgeting, financial plans, issues with debt-credit-and taxes. You need to know all you can about these things. The statistics indicate that just because you know something doesn’t mean you will do it, so you need to go beyond that. Only one out of eleven will actually self-start AND self-finish ANY financial plan. Knowing that from the start can lead you to take some much more powerful steps to get yourself back on track. A group like this is also great support.

The first step is to assemble all your financial information.

  • Do you know what your current spending looks like – basically this is your budget?
  • Do you have all your mortgage information together on whatever properties you own?
  • How about all the information on secured loans(auto, boat, timeshare, etc.) and student loans?
  • Can you gather together all the information on your unsecured debts such as credit cards, collection accounts, civil and judgment accounts, medical and dental debt, taxes, etc? You’ll need balances, monthly payment amounts, minimum payment amounts, interest rates, etc.

What you will find is that there are programs and processes out there that are not designed to feed off of you when you are down, but instead seek to create margin in your monthly budget to drive your debt down and work with you to keep you on whatever kind of plan you choose.

Let me know if there is anything I can help you with.

Re: Should we bust open a 401k to get out of debt?

The school may not be optional but you can’t afford it. I understand that I do not know the other info as to why you have to go to the private school but that line just jumped out at me. There’s always an option. We all have choices. Could be something personal that I am missing but that’s my thoughts.

As far as taking out of the 401k savings I would NOT recommend it. I would recommend that you halt any and all contributions which should free up some money.

I know that you “think” that you have shaved as much as you can but you would be surprised at the ingenuity that can be found in this group. I posted my info and received TONS of solutions. Most I had thought of but many I had not and I was able to trim some fat off a budget that I thought was already lean.

Part of the general understanding in this group is to spend less than you make. You aren’t doing that. Think about if you had cashed your check each week with no ability to obtain credit/loans. Once that money is gone…..it’s gone. End of story.

If you are serious about getting out of debt then you have to make some serious sacrifices and some really tough choices. In the end, it will be worth it.

Also, watch what Dave Ramsey answering your question:

Feeling sad and hopeless….

I have been and understand your pain. I once had all my debt paid in full and thought i had enough not to do it again but i did.I believe debt is similar to an addiction in the sense of your actions and mind set. If you don’t hit bottom i believe you will continue to accumulate debt and never realize until you are too deep.

Please keep faith that everything will turn out okay. It is a daily struggle to be positive but it’s not impossible. I have good days and bad but tomorrow is another day and know that there is one small thing you can do to continue on your journey. Dave Ramsey’s plan – I can’t say enough good things about it…

Need advice on a settlement offer… More responses plz?

Base your offer on the original amount; it depends on how delinquent the account is and what State you are in as to how much to offer.

How delinquent is when you last made any sort of payment.

The State will determine if you are running close to the Statute of Limitations for the debt.

It really doesn’t matter if you use USPS or another delivery service; that’s up to you; but, yes, get delivery confirmation either way.

Should we bust open a 401k to get out of debt?

Here’s the situation: Currently we owe our kids’ private school $17k for the 2005-2006 school year. They have been very patient, and while we’ve been paying $1600 every month for the kids’ education, that all just went to LAST year’s tuition, which just got paid off. We haven’t even STARTED paying this year’s tuition, even though the school year is over in two months. It needs to be paid and we can’t afford to keep making payments on top of what we need to pay for next year. This is a religious school and it is not optional for us. The $17k INCLUDES a substantial scholarship (three children). (Big comfort: Next year the oldest will start public high school, and the middle will homeschool, so the bill next year will be much lower–about $1000/month.)

On top of that we just found out we have to pay $2300 in taxes.

We have paid all the credit cards off by getting a loan from family, which we are paying back at the rate of $300/month until we can pay more, eminently reasonable.

We have about $60k in a retirement account–the only nestegg we have. We have very little equity in the house, not enough to take a loan off. We’ve shaved our budget as low as it can go.

The question is: Should we tap into the retirement account? We calculate that in order to get the $20k that we need to pay off the school tuition and the tax bill, we would need to take out $26k to cover taxes and penalties. $6k is an awful big hit to take, but it would eliminate all debt except what we owe family. We might be able to take a couple hundred a month and put it into a CD, in order to re- build some of our savings.

I should mention that at some point in the next ten years or so, we are expecting to inherit at least $100,000, and probably quite a bit more. Nothing to plan on, but nothing to ignore either. That will be able to be invested into retirement planning.

My husband thought that maybe we should take out another $5k to pay off an old car loan, so we can have that much more financial freedom, but I’m already VEEEEERY leery about taking ANYTHING out of our very last nestegg.

What do you think? Any and all advice would be SO appreciated, I really do not know where to turn and can’t decide on my own what to do!

Thanks so much!