Personal Finance

Escape from a monster credit card?

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  • Nov 16th, 2013 4:13 pm
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Deal Addict
Oct 6, 2007
1156 posts
656 upvotes
Toronto, ON

Escape from a monster credit card?

Hello, quick question.

One of my relatives has only an HBC Mastercard (17% + Prime, but if any late payments occur then it jumps to 29.99% annual), which is a relatively crappy card, but they've had it for quite a while. Their debt has accumulated and in this past year they started spending with the credit card to get by. They now sit at around ~$10,000 balance on the CC.

They're on disability so their income is low, and fixed. Mortgage of about ~$150,000. Line of credit against the house of about ~$50,000 (maxed out, but managable interest rate).

What would be the best option to avoid living off this monster credit card, considering their low income and relatively large debt (large compared to their income)?

Thanks for any advice.
18 replies
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Feb 15, 2008
26318 posts
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Calgary
For starters, the card needs to be torn up. The root cause needs to be addressed. If they have any home equity left, it probably should be monetized and used to pay the card and the other loans off. I don't know specifics about their house, but basically housing is likely at a long-term peak, and the situation with the HELOC financing and mortgage is likely to deteriorate in the future. Look into the availability and their eligibility for socialized housing -- they're likely to need it sooner or later, whether they resolve this debt through a voluntary sale, or whether the creditors start to move to seize home equity.

Its only a matter of time before the banks run some fancy SQL query on the HELOCs and start jacking the rates up significantly on the ones that are maxed out. A fully drawn HELOC is a dangerous thing.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
Deal Expert
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Nov 15, 2004
21786 posts
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Toronto
a) Get a second credit card. Any kind, no matter what the limit or interest rate. Put all new purchases on this card and pay it off every month within the interest-free grace period.
b) Start paying down the first card, and don't put any new charges on it.

As long as they don't do anything stupid like carry a balance on the second card they'll be okay if they don't have structural debt.
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Feb 15, 2008
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Piro21 wrote: As long as they don't do anything stupid like carry a balance on the second card they'll be okay if they don't have structural debt.
Another credit card for someone who's shown an incapacity to even utilize the existing CC appropriately? Tsk, tsk.

And yeah, they have $200k of structural debt, do they not? In the mortgage and HELOC? That's a problem when rates start to rise. Heck, even a default on the CC could send the HELOC lender rushing to raise the rate, especially if its fully drawn.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
Deal Expert
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Nov 15, 2004
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Mark77 wrote: Another credit card for someone who's shown an incapacity to even utilize the existing CC appropriately? Tsk, tsk.

And yeah, they have $200k of structural debt, do they not? In the mortgage and HELOC? That's a problem when rates start to rise. Heck, even a default on the CC could send the HELOC lender rushing to raise the rate, especially if its fully drawn.
He hasn't said if it actually is structural debt or just bad money management. If it's the latter there's no reason that wouldn't work.
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Mar 23, 2011
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Etobicoke
Sell the house, pay off the debt and start renting. Why do people cling to their homes like it is a right to own when they have no income to support themsleves. If they are on disability then their expenses will continue to grow in a house where their income won't.
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Feb 15, 2008
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Piro21 wrote: He hasn't said if it actually is structural debt or just bad money management. If it's the latter there's no reason that wouldn't work.
OP wrote:they started spending with the credit card to get by.
..
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
Deal Expert
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Nov 15, 2004
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Mark77 wrote: ..
That still doesn't really confirm it though. Lots of people end up spending on credit cards 'just to get by' when they would have money left over if they just made a few changes. This doesn't sound like a "you're *****ed no matter what" situation with just the information provided.
Deal Addict
Aug 19, 2013
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sherman51 wrote: Sell the house, pay off the debt and start renting. Why do people cling to their homes like it is a right to own when they have no income to support themsleves. If they are on disability then their expenses will continue to grow in a house where their income won't.
+1. Sell the house. Rent somewhere cheap. More credit is a very bad idea.
Deal Addict
Jul 15, 2009
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If house has appreciated since they got the HELOC, apply for an increase in the HELOC limit, pay card with HELOC, cut up card.

If not, apply for unsecured LOC, pay off card with LOC, cut up card.
Deal Addict
Jul 15, 2009
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Mark77 wrote: Its only a matter of time before the banks run some fancy SQL query on the HELOCs and start jacking the rates up significantly on the ones that are maxed out.
What a great idea! Let's send our most profitable customers to our competitors!
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Feb 15, 2008
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bubak wrote: What a great idea! Let's send our most profitable customers to our competitors!
Competitors don't want people with maxed out lines who have serious long-term issues in repaying them.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
Deal Addict
Oct 6, 2007
1156 posts
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Toronto, ON
House has appreciated significantly since the HELOC was applied for but with such a lack of income we kind of assumed not to bother trying to increase HELOC as it would just prolong the problem rather than solve it. Net worth is still over 300k [after selling house and paying off all debts]. The idea is to sell house, pay debt, purchase smaller house with tiny/no mortgage and then be able to float without accruing more debt. At this point the kids will be moving out of the house so expenses such as groceries, gas, etc should all drop.

Also, convincing an aging European to rent is like blasphemy.. there's this view that house ownership matters more than anything (and having something to 'leave to your kids' when you die).

I'm more interested in stop-gaps to at least drop the interest charges in the next couple months before the house is sold. I should add that cash flow is negative at the moment. There is no way to make repayments on debt, only to meet the minimums each month by pulling a bit of money from other sources of debt. It will stay this way until the house is sold and a new situation stabilizes.
Deal Addict
Jul 15, 2009
3651 posts
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Mark77 wrote: Competitors don't want people with maxed out lines who have serious long-term issues in repaying them.
A borrower who has always made their monthly payment (so far), and is essentially risk-free (since they have enough equity to have qualified for a HELOC)? Sounds like a perfect borrower to me. They provide a regular, reliable interest payment every month, and it's a high payment because they owe a lot. Who cares if they eventually can't make the payments anymore? Either they sell the house and I get my money, or I sell the house and get my money (and expenses). Until that happens, I can keep collecting lots of interest.

Competitors already fight over first-time buyers with minimal equity and no mortgage payment history. That's way more risky.
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Oct 26, 2003
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refer them to a credit specialist, I'm not sure if solutions exist
Sr. Member
Mar 18, 2012
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Sounds like you already have a decent plan, it's a bad situation to be in.
I'm not sure anyone could offer any new lower interest loans..best of luck to them
Deal Addict
Jan 19, 2006
4624 posts
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Vancouver, BC
Sounds like there's a plan to manage the current debt, but you can also try to manage the spending.

You said groceries, gas, and so forth will decrease when the kids are gone... Are the kids helping out with the expenses? If not, get the kids to help. If they're going to move out anyways, why wait any longer? They don't have to saddle their kids with the debt but they might as well prepare them for the expenses they'll face by having them chip in for stuff like family groceries, gas, high speed internet, and covering their own groceries (junk food, preferred brand names), cell phones bills, and so on. It could be a good learning experience for them.
Deal Addict
Nov 21, 2007
3433 posts
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Scarborough
dmxlite wrote: Sounds like there's a plan to manage the current debt, but you can also try to manage the spending.

You said groceries, gas, and so forth will decrease when the kids are gone... Are the kids helping out with the expenses? If not, get the kids to help. If they're going to move out anyways, why wait any longer? They don't have to saddle their kids with the debt but they might as well prepare them for the expenses they'll face by having them chip in for stuff like family groceries, gas, high speed internet, and covering their own groceries (junk food, preferred brand names), cell phones bills, and so on. It could be a good learning experience for them.
B I N G O !

At least until the CC balance's paid down to zero.

I plan to charge me kids $800/mth room n board. Else they may get the idea that 100% of the earnings are disposable income, lol.

Every penny would be returned back as down-payment for their first home..
Deal Addict
Feb 10, 2013
4782 posts
1327 upvotes
Richmond
open a couple mbna smart cash cards, balance transfer over to the max. And pay off that cc amount as much as they can and don't use the cards at all. Pay everything with cash or debit. Transfer what's left over from the hbc mastercard into the mortgage if they can. Probably a lower interest rate than the cc at any rate. If they wish to keep their house, generate extra income by renting rooms out. Rent the couch out if they have to. My mom's friend did this for her son, she transfered his student loan to her mortgage since the interest was lower. I'm guessing the bank opened a line of credit for her, she told my mom it was an open ended mortgage, she could borrow up to a certain amount. And she only used 2/3 of what they gave her. They now have 4 jobs paying the mortgage.

If they have kids, make the kids pay rent. Or have them pay for the groceries, each person pay for a separate expense, while the parents put all their income into paying off the debt. Say one takes care of the phone bills, ultility bills. One takes care of the groceries. As for property taxes, each kid pays a share of it. Anything they can chip in to help their parents pay off their debt. if the kids can afford it, maybe they can all chip in a couple thousand using their savings for the parents to pay off their cc. If the kids have savings, i'm thinking they're probably the parent's fastest method of getting out of debt. If they have two kids, between two kids, they can lower their parents' cc debt to 6000 or less. Ask them to talk to their kids about their situation. Who knows? The kids might have enough money in their savings put to pool together to help their parents pay off the cc debt in one go.

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