Hard to get ahead of CC interest

[LivingAlmostLarge]

So I have a friend we're making a deal to for me to save my refi savings $700 a month and invest it. And for her to save $700 month from her refi and pay off her CC faster. She refinanced in December but well she's not great with money and it keeps slipping away. But more than that the amount of interest she's paying is absurb. I get that she charged it but because she charged so much and she has so much debt, even with a good income she can't seem to get ahead. I'm not sure that BK is the way to go. But she went from owing $50k to $36k from August 2020 to April 2021. But she owes the irs $12k this year and will owe $12k next year because she doesn't withhold any taxes from her alimony. And this year and last year she cashed out $5k last year and $18k to help pay down her bills. They withheld some taxes so that helps. But the interest rates is 29%! It's usury. Yeah I do her taxes and we're friends.

Should she keep going? Declare bk? She has trouble getting 0% because her credit isn't great but it's improving. I can't believe how much interest is. I know that part of it is her because of spending but part of it is the CC companies and interest.

[Jordan53]

Her debt went from $50k to $36k but also accumulated a tax bill of $12k so the needle was really only moved $2k.

BK is not going to solve her problem, she needs a budget and to live within her means. The interest is bad but it’s far from the primary issue.

[HundredK]

I was over a hundred thousand in debt and paid it off. I think it would be extreme to file bk over $36k. I'd have her chase those zero interest offers, it might take a few months to qualify, but she can do it. And if I understand correctly, you're going to be issuing her a loan of some sort, and I'm pretty sure I don't have to tell you how quickly financial transactions can go bad between friends... so I'd totally avoid that. Sometimes the best help you can offer someone is the encouragement and knowledge so that they can do it themselves. And it's not too late to advise that she increase her withholdings for this year so she isn't in the same boat with the IRS next year.

[LivingAlmostLarge]

No loan. Just helping her rob peter to pay paul. She doesn't have withholdings because her only income is alimony.

[HundredK]

No loan. Just helping her rob peter to pay paul. She doesn't have withholdings because her only income is alimony.

ahhh. Well, robbing Peter to pay Paul probably isn't helping her get anywhere long term. I honestly think that people have to want to make a change before any change can be made. And sometimes they just need to see that a change is possible given whatever dire circumstances they're in. The way I've helped a few people is not to offer any sort of monetary help, but to map out for them where they're headed in three years if they continue on the exact path they're on. I read somewhere that the brain has trouble processing beyond about 3 years from now, so I usually stick with that timeframe when chatting to people. I explain that everything's a choice, even if you are limited by the circumstances of life, and that we all have some wiggle room in how we choose our path no matter how dire that path may seem. So I'll map out three different paths that are all actually workable for them (and that's key, mapping out a path that could never happen for them will only discourage), and then I tell them it's their choice which they choose. And then I don't judge them whatever they choose, but I also don't get financially entwined with anyone either.

[Jordan53]

No loan. Just helping her rob peter to pay paul. She doesn't have withholdings because her only income is alimony.

OK now that is the problem, her shovel isn’t big enough to dig out of the debt, is she able to work?

[disneysteve]

she's not great with money and it keeps slipping away

She needs to address this and the rest of the situation will correct itself.

even with a good income she can't seem to get ahead

As always, we can't give specific advice without specific information.

How much does she earn?
What are her non-discretionary monthly expenses?
How much does she have in savings not tied up in retirement accounts?

she owes the irs $12k this year and will owe $12k next year because she doesn't withhold any taxes from her alimony

Can she fix this so they start taking the taxes out to keep from escalating this part of the problem? If she doesn't ever get the money, she can't spend the money.

And this year and last year she cashed out $5k last year and $18k to help pay down her bills

She "cashed out" from where? I'm not sure what you mean here.

If she does make "a good income" she shouldn't be driven into bankruptcy by 48K of debt. The interest rate isn't the problem here.

[bjl584]

Can your friend work?

There are some major financial shortcomings here.
I'm not sure how much you can help her.
You can point her in the right direction, but it's going to be on her to change her behavior.

I'm not sure what you mean by "cashed out" but it sounds like she took money out of retirement to pay down CC debt?
Has she stopped living beyond her means and stopped using credit cards?
Sounds like she needs a budget and a job. Alimony only lasts so long.

[breathemusic]

Taxes may not get automatically withheld from alimony.... but that doesn't stop her from making estimated tax payments during the year. Or setting that money aside so that she is ready to pay taxes when they come due. She needs to set up a savings account that she doesn't touch where she puts aside a portion of that income for taxes.

[Like2Plan]

No loan. Just helping her rob peter to pay paul. She doesn't have withholdings because her only income is alimony.

I am wondering how much of that is penalties and interest (which just makes things worse)?

You can set up online payments:
Paying Your Taxes

https://www.irs.gov/payments

3 easy ways to pay explained on this Youtube:

https://www.youtube.com/watch?v=drh1UUCMMLk

[LivingAlmostLarge]

Yep I've been trying to encourage her to set up a budget and pay off CC and not just open up more CC. no loans but encouragement. Seriously also she's been paying her daughter who is 40 CC bill. The minimum but still that's something.

[bjl584]

Yep I've been trying to encourage her to set up a budget and pay off CC and not just open up more CC. no loans but encouragement. Seriously also she's been paying her daughter who is 40 CC bill. The minimum but still that's something.

she's paying her daughter's credit card too?
with what money?
the situation that you described sort of suggests that she doesn't even have any money of her own

[disneysteve]

A copy of Dave Ramsey’s Total Money Makeover might be a nice gift in this case.

[HundredK]

A copy of Dave Ramsey’s Total Money Makeover might be a nice gift in this case.

Oh, anyone but Ramsey please. He's condescending and also a pretty awful human from everything I've read. Plus, his advice is pretty awful and his math makes no sense.

[disneysteve]

Oh, anyone but Ramsey please. He's condescending and also a pretty awful human from everything I've read. Plus, his advice is pretty awful and his math makes no sense.

I'm not a huge fan either, but I do think his advice is pretty solid as far as changing your mindset and lifestyle and attacking debt. Ignore anything he says about investing though. And certainly don't get involved with any of his preferred providers or any other businesses or services he shills for. The TMM book can and does help people transform their lives, though.