Solutions to Common Credit Dilemmas

Jennifer Merz: The Dilemma -

Recent College Grad vs.
Student Loan & Credit Card One-Two Punch

Jennifer Merz and her husband Andrew graduated from college with degrees, job training, and debt. Attending a pricey private school in Kansas, the Merz's wracked up more than $100,000 in student loans and an additional $11,000 on credit cards.

"Some of the things we bought were unavoidable and some were irresponsible purchases," says Jennifer, 24, now a nurse at Children's Mercy Hospital in Kansas City, Kansas. "As a young college student, you get these credit card offers not realizing that you're going to end up paying double anything you charge once interest kicks in."


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Jennifer Merz: The Fix

Amy Grothaus, assistant vice president for CommunityAmerica Credit Union in Kansas City, is one of several coaches giving the Merz's a financial makeover. For families with student loans and credit card debt, Grothaus recommends creating a debt attack plan, one that incorporates building a nest egg for emergencies.

"Families need to focus first on making minimum payments, then on paying off the highest interest card and putting away some savings," says Grothaus. "They want to pay that debt off, but they also need six months of savings as a fallback, especially with people losing their jobs recently."




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Diana Laboy-Rush: The Dilemma -

Small Business Risk-Taker vs.
The Business Loan Crackdown

Sure, being the boss comes with great perks, but it also comes with significant fiscal responsibility. Just ask Diana Laboy-Rush. Founding Portland Wiz Kids -- an engineering and mathematics enrichment program that serves about 3,500 children annually -- in 2006, Laboy-Rush, 35, charged almost $80,000 on five cards to get the company started.

"I didn't want to take out a loan for a project I didn't know would work," says Laboy-Rush, "so I chose to bootstrap it. Now, I'm in a really tough place because the minimum payments are getting harder to pay."


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Diana Laboy-Rush: The Fix

Beg a bank for a loan, advises Grothaus. "If [Laboy-Rush] can show a lender the appropriate accounting statements, business plan, and balance sheets, it would definitely be worth a shot to try for a small business loan," says Grothaus. "Banks are fairly conservative about who they lend to, but if she has a business that's running, a loan is still possible."

In addition to banks, small business owners can also find fiscal help through the Small Business Association and business incubator programs. If all else fails, new business owners can take out a lower-interest home equity loan to finance their endeavor. "It's risky," says Grothaus, "but so is the possibility of filing bankruptcy for credit card debt."


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Michael Williams: The Dilemma -

New Dad vs.
The Tight Baby Boom Budget

Babies change everything, especially family budgets. When Michael Williams, a 32-year-old pastor in Topsfield, Mass., and his wife had their first child about a year ago, their already tight budget became even tighter.

'We had about $90,000 in student loans, $2,000 in credit card debt, and a $320,000 mortgage,' says Williams. 'Now we live month to month with our finances. There are times when we have $60 for groceries for the three of us for this week. How anyone's supposed to do this, I don't know.'


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Michael Williams: The Fix

Change the payment plan. 'Instead of payments every month, make payments twice a month and focus on the $2,000 first,' advises Curtis Arnold, author of 'How You Can Profit From Credit Cards.' 'The payments look the same on paper, but it accelerates your repayment in a big way.'

Because credit card interest is based on your average daily balance -- the amount of debt carried each day divided by the number of days in a billing cycle -- those that make two half-payments carry a lower daily balance than those that make one. Arnold also urges those with card debt to find a card with a zero percent interest introductory rate and transfer their balance. The no-interest introductory offer will save cash and may buy them time to pay off some debt before the offer expires.


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Edwin Duterte: The Dilemma -

Layoff Victim vs.
Vicious Unemployment

Edwin Duterte didn't have financial problems until he lost his job more than a year ago. The 39-year-old Los Angeles-based real estate construction lender is struggling to find work.

'When I was laid off, I had $30,000 in savings and got around $450 a week in unemployment,' explains Duterte, who has since been searching for a position in the finance sector. 'Now I have about $10,000 in credit card debt and I just moved back with my parents.'


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Edwin Duterte: The Fix

Arnold advises recession casualties to take advantage of credit card hardship programs designed to help those in temporary fiscal trouble.

'There's this myth that credit card companies just want to collect interest and late fees, but their bigger fear is that you'll have to write off your debt,' says Arnold. 'A lot of banks have instituted repayment plans at lower rates, sometimes as low as 5 percent. That could be a life-saver.'

In an effort to limit future defaults, card companies like American Express are offering incentives to help buyers close out their accounts. In addition to asking for lower interest rates, consumers in precarious fiscal positions should also ask about credit forgiveness and deference programs.


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Marissa Ruiz: The Dilemma -

Single Mom vs.
The Plastic Trap

It doesn't take long to rack up debt when you've got kids. Marissa Ruiz, a 41-year-old social worker and single mother of four based in Pasadena, Calif., knows how easy it is to fall into the plastic trap.

'I wasn't spending money on luxury things, and I was just surviving,' says Ruiz. 'Groceries, shopping for kids, birthdays ' it all adds up. In December of 2007, I had about $12,000 across six cards.'

Ruiz enrolled with a debt settlement service. Instead of working with her creditors, the settlement service cut communication between Ruiz and her card companies off, only making the situation worse. Today she works with Clearpoint Credit Counseling Solutions, a National Foundation for Credit Counseling-certified nonprofit, to alleviate her financial woes.

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Marissa Ruiz: The Fix

Stay the course and be your own credit counselor. First up, make sure you review and understand your credit report and credit score. Then, 'credit counseling is great, but people can also get free financial advice just by going to their bank and asking,' says Grothaus. 'Having a second pair of eyes comb through your finances for budget leaks can be really helpful.' Grothaus adds that those with debt on multiple cards can gain bill-paying momentum by attacking the smallest one first. 'Once you see one [card] paid off, you'll be more aggressive to pay off the others,' she says.


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Anthony Nguyen: The Dilemma -

New Home Owner vs.
The Debt Juggling Act

Between student loans, credit card debt, and a new mortgage, it's a rocky fiscal landscape for young first-time home-owners. When Anthony Nguyen, a 23-year-old engineer based in Baton Rouge, La., started thinking about buying a home, he knew he had to get his debt under control.

'My credit card were up to $12,000 and I had about $14,000 in student loans,' says Nguyen. 'I just didn't realize it built up so quickly.'

Nguyen spent 2008 paying off $8,000 in debts then purchased a $165,000 house in January of 2009. Today he juggles student loans, credit cards, and a mortgage.


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Anthony Nguyen: The Fix

Attack the cards first and negotiate for better rates. 'He should call the card company, talk to a manager, and threaten to take his business elsewhere,' says Arnold.

Arnold adds that consumers should also know what kind of interest rates they qualify for. They can get that information by simply asking multiple card companies. Those who feel they're getting screwed shouldn't be afraid to point that out to their company and to investigate cards that offer a low balance transfer fee ($100 or less).

'People have to take a proactive stance when it comes to their credit,' says Arnold. 'Credit card companies are hurting right now and consumers can use that as leverage.'


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More on Credit & Debt:

' Steps to a Higher Credit Score

' Have Bad Credit Score? 5 Things to Kiss Goodbye
' How to Read Your Credit Report

' Quiz: What's Your Credit I.Q.?


Credit Dilemmas:
' Student Loan & Credit Card Debt
' The Business Loan Crackdown
' Tight 'New Baby' Budget
' Unemployment Fallout
' Single Mom Plastic Trap
' New Homeowner Juggling Act



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