When to Give Advice

Posted by in Articles, personal finance | 9 comments

This may seem like a strange topic..When to Give Advice, especially considering I just finished a credit eBook that gives advice on improving credit scores. However, because I have learned many things about how credit works along the way to my own financial freedom, I’ve been asked to give advice to a friend or two recently.

Just yesterday, an older woman who I’ve helped over the years, asked me what she should do about her credit card debt. Now granted, this particular case is unusual and interesting, so my answer wasn’t complete because there are so many variables affecting her life of debt. Some background on this woman to put things in perspective:  She is nearing 65 years of age and has accumulated $120,000 of credit card debt over the years. Her excuses for this behavior are plenty: her mom died (10 years ago), her husband left her (12 years ago), her dad died (4 years ago). Her excuses go on and on. Her income is generated from her family’s businesses and her ex-husband’s social security and residual income, it comes out to about $80,000 annually. On top of this income, she also has investment accounts that her parent’s left her. Basically, she hasn’t really had to earn much of her income over the past 25 years, it just sort of accumulated from relatives. Her grasp on finances has dwindled due to this and other factors.

She asked my advice about calling and asking a credit card company to increase her credit limit or reduce her APR. The reason being was that Chase reduced her credit limits on two of her cards. She has stellar payment history, but her credit to debt ratio is well over 30%. I explained this to her, as it was one of reasons listed on the Chase letter she had received. She didn’t understand why they were looking at her overall debt including all of her credit cards. Once I explained that they see her as a risk because she is using much more than her 30%, she sort of understood, but felt it was unfair. My advice to her was to call Chase and ask them to either reinstate her original credit limit or reduce her APR. My thought on this was that it doesn’t hurt to ask, the worst they can say is no. Obviously the better option is to reduce the APR.

She then asked if she should pay more towards that card, thinking it might act as an incentive to change their minds. My advice to her was that she needed to figure out what the goal was: Was she thinking she wanted to pay off the card quicker? Her answer was no. Was she thinking of paying a large portion of debt off this year due to some additional income coming her way? Her answer was she wasn’t sure. I then explained to her that if she receives this additional income she is expecting, she might want to put a large portion of it towards her debt. However, by the end of the conversation it was clear she just wanted to reinstate her original credit limit of the card.

After I hung up with her, my husband who had overheard the entire conversation chimed in that she really needs to speak to a financial consultant. She did that two years ago, but didn’t like their answers: 1) Pay off the entire debt and save up to $20,000 a year on finance charges, or 2) file for bankruptcy. But I realized what the underlying problem is that’s causing her to be indecisive: She doesn’t realize that by paying off her debt, she will be saving the money she spends on finance charges.

There are some great calculators out there, like CreditKarma’s Debt Repayment calculator. I think my next strategy with her will be to show her how long it will take her to pay off her debt with the online calculator. Maybe then she’ll realize the sooner she pays it off, the better!

What are your thoughts? Obviously, this is an unusual scenario. She makes plenty of money, but just can’t seem to see the big picture. How would my credit eBook helped someone like this 25 years ago?

9 Comments

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  1. George@MoneyLounge.net

    You can give the advice, but it doesn’t mean that they’ll take it.

    If she can’t negotiate a deal on her cards through regular avenues, she can get in contact with Chase’s Executive Customer Service:
    http://consumerist.com/2009/12/another-number-for-reaching-chase-executive-customer-service.html

    Although it doesn’t sound like she wants to pay down her debt, she’s just looking for more credit to spend more. This might not solve her problem, but make it worse instead.

  2. RainyDaySaver

    I’m still trying to pick my jaw up off the floor after reading that she has $120K in credit card debt!

    From your post, I’m gathering that she has no intention of paying off the debt. Chase has been notoriously bad in the past year about lowering credit limits (and canceling inactive cards, like mine), and I don’t see them being the solution to her problems. Bet anything she finds another credit card account to open and continues to pile on debt. Does she have anyone in her life (husband, kids, partner, niece/nephew) who she would be leaving her estate to? If she’s not concerned about the debt in HER lifetime, that’s a lot of debt to pass on.

    • Little House

      @RainyDaySaver – She has a step-son who she’s hoping to leave money once she passes away. However, I’m thinking that what ever is left over in her estate would go towards her credit card debt. Probably the one thing she hasn’t thought of is that when she dies (which is probably a long way from now), the residual income she currently receives will be transferred to her step-son. I would think that the creditors would have dibs on that first, she would feel horrible if she actually thought this one through!

  3. Susan Tiner

    If there’s no spouse involved the debt probably won’t be passed on to heirs.
    http://www.creditcards.com/credit-card-news/credit-card-debt-death-1282.php
    .-= Susan Tiner´s last blog ..People: Pay Someone Else to Care! =-.

  4. Ryan @ Planting Dollars

    I think it’s not harmful to give her advice, considering you’re familiar to the topic at hand. However, not sure if she’ll agree with you especially after not agreeing with her financial advisor.

    Sounds like this lady is a bit out of touch with reality to me, not sure it’s good to reason with her, maybe somehow entice her to make the right decision by drawing to her ego or emotional tendencies.
    .-= Ryan @ Planting Dollars´s last blog ..Starting an Online Business – The Waikiki Site =-.

    • Little House

      @Ryan @ Planting Dollars – I think you’re right, she’s not going to listen to anyone unless the advice works in her favor, which would be reducing her debt through some miracle!

  5. Little House

    @George@MoneyLounge.net
    Thanks for that link to Chase, it might help her situation a little bit.

  6. Holme

    My jaw hit the floor when i read 120,000 in credit card debts. That is a LOT of money even for someone who earns 80k. 20k interest fees is a quarter of her annual income, it’s crazy to give away that much in interests alone, and still she wants to borrow even more.
    The good news is that she still has 60k to spend on paying it back and, honestly, I would have told her that the only advice I’d give her is to pay back the money and stop living on credit cards. She may very well live another 20 years and it will be very hard if anything happens with the family business and her steady income diminishes.
    Show her how fast she can pay it back if she puts the heart into it and what huge difference it will make when she lowers the balance and the interest fees. And tell her that you will be happy to help, but only if she is willing to look the situation in the eye.

    It’s sad to hear about someone wasting this gift of a financially stable life that she has been given.
    .-= Holme´s last blog ..Hent blogindlæg som PDF =-.

    • Little House

      @Holme- Thanks for the advice. And I agree, it’s sad that she was given a financially stable lifestyle and is ruining it. But I think that is also the problem, she was always so used to being taken care of that she never worried about her finances. Now, she realizes that she really doesn’t know very much and is paralyzed by fear to fix it!

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