Credit Card Reduction

If any of you have come to me via my NetworthIQ.com account, you may have read in my journal a while back that I had found that one (I currently have three roommates) of my roommates had a large sum of credit card debt and was considering working with CCCS (Consumer Credit Counseling Services) to find a better way of handling his current debt load. We will call him Mr. Debtor.

Here is the question I had:

"Last night I had a pretty heartfelt talk with my roommate about his finances. Little did I know, that he has managed to incur more than 25k in credit card debt. When I asked him how he accumulated most of it, he responded by telling me that it was from transferring balances from one card to another to another.

He was unable to explain to me exactly 'what' he had spent the money on. He makes a decent living, considering living in New York City - However, he is living paycheck to paycheck because with increased rates, he is paying almost $700 a month and doesn't see anyway out.

Has anyone used CCCS to help with credit card debt?

What was your experience like?"

Well, last night I had yet another conversation with my roommate about his current situation. He was asking me about what I thought of him purchasing a new digital-super-duper camera for $839.99.  I asked him how he was doing with his debt reduction plan and if he maybe had set a goal that he would be more comfortable with before he began making large purchases. He was very hesitant at first to go into detail about his debt, but after I showed him a debt reduction (snowball) calculater he decided to bring up his excel spreadsheet of the ten credit cards he currently had a balance on. 

I was shocked to find out that he had well over $33,000 in credit card debt.  We worked through a few different scenarios in which he could reduce that debt significantly over the next few years. He was shocked and amazed how quickly he could reduce his debt by throwing a bit more cash in the direction of his debt rather then spending found money on splurges and material wants. If he stays on course, paying well over $1,000 a month towards his debts he would be free and clear in 3 years, 1 month.

His other big concern was about whether or not he should be putting money towards an emergency fund or paying off the credit card debt.  I explained to him that there are a couple of different views on the subject:

1. Pay off your credit card debts first so as to have the security of use in your credit cards
2. Pay yourself first by creating a substantial emergency fund and pay the minimum on your credit cards
3. Create a compromised payment plan to both contribute to an emergency fund as well as pay above your minimum payments so as to pay down the debt and lessen the interest burden over the long term

I told him that the worst thing that could happen is that he is both in credit card debt and without an emergency card if he were to lose his job. Luckily, he is working for a rather well established retail chain that is doing very well during the current economic climate. His job is stable.

During this whole process, I realized that his major concern was being judged by me. I have known Mr. Debtor since I moved to Manhattan well over 7 years ago. He is 12 years my senior. I can understand why he would feel hesitant to speak to me about his financial shortcomings. I had to set him straight.

About four years ago I was behind on all of my credit cards, late on all of my student loans, lived paycheck to paycheck and hid it all from my then partner. I did not come clean until we were applying for our next apartment and he wanted to have me on the lease, so we gave our information to the realtor to conduct a credit check.  After we left the office of the realtor I told him that we needed to take my name out of the equation. I couldn't hide it any longer - He needed to know that I had a terrible credit history of collections, late payments and delinquencies.

Now, keep in mind that at 21 years old I was no where near the amount of debt that he is currently in.  But, I've been in the position of financial despair. I am in no position to judge despite my current financial situation. I feel much better about where I am and where I am going with my money, but I was once in that deep dark, secretive hole. I'm just glad I managed to get out of it.