Consolidation loans?

[kb4ns]

The wife has about $11k on credit cards and wants to get a consolidation loan so that she can pay a little less each month as well as get it paid off sooner (since we all know how credit cards work). I know we have some financial minds on this board and wanted to get some opinions on how to do it. I know that we do not want anything that is tied to our house like a 2nd mortgage. And I've heard that some of those credit card "relief" companies will screw your credit up. We have good credit scores and she's not late on anything so we don't want to hurt her credit score. I'm thinking about sending her to the credit union to get a personal loan, but with our debt to income ratio, I dunno if they'll do it. Ideas?

[Guest Sgt. Joe]

I joined a Credit Union about 5 years ago and have been forever since kicking myself in the butt for not doing it sooner, as you probably know they are like day and night from a bank.

I am certainly no financial expert but I would think that any consolidation loan would in turn cost you more in the long run and possibly lower your scores. I know the consolidation thing really screwed my wife up when she did it with her student loans. The consolidation company has to make a buck in the process also.

I would advise going to your credit union's financial office and asking that person what would be best for Y'all to do. If you cant borrow enough on you Sig. to pay off all the cards maybe you could borrow enough to pay off one or two of them and if the debt is all on one card you may could at least knock it down a bit. I would much rather owe a credit union than a credit card company any day, and your interest rate will surly be lower.

MY credit union has been most helpful in giving information and was a great help a year or so ago when the IRS was climbing up my back. Thank God that is all taken care of.

Hopefully some smarter folks here will be able to help you more. I just am very leery of the "pay less and pay off quicker" line.

[Smith]

The only way that won't cost you an arm and leg is to move them to new cards with introductory rates and PAY THEM OFF ASAP. However, the fact that there is 11k in un secured debt and no plan to take care of them indicates you would probably end up doubling your debt with the above option. As Dave Ramsey refers to it, call it your Stupid Tax and concentrate on paying them off as is. The pain will be a better lesson. The more creative you get the more screwed you usually get. BTW keep in mind that your wife's debt is your debt as well. Sorry, but there isn't an easy way only painful and more painful. That is debt. I speak from experience.

[Guest db99wj]

Stay away from those "finance companies" that promise you to get you out of debt, debt consolidation companies you see on tv during the day. Go to your bank or credit union and see about a personal loan or other loans they may offer. An equity line on your house, like a 2nd, is not a bad thing. You can use it to consolidate your other debt, then put yourself on a plan to pay it off, the interest is typically way way way less than any other type loan.

If you haven't refinanced your homes first mortage, look into that as well. Rates are below 5% in many cases. If you are paying 6.5 or more, it might very well make sense to do a full refi. You might be able to throw in the debt (if you have equity and this will reduce any that you have), refi the house, and drop your payment. Or Refi the house, drop the payment, use the difference plus what you are paying on the debt and pay it off quicker. Those are a few of my ideas anyway. Main thing is pay it off quickly....that reminds me, need to go write a check.

[Guest KimberChick]

I spent a few years as a bankruptcy paralegal and by default, picked up a little bit about credit, money, debt and so forth.

Here's the difference between a consolidation loan and debt consolidation:

A debt consolidation(the thing Consumer Credit Counseling will do) is an agreement between the consolidator and your creditors to accept a lower, fixed amount towards your debt each month. They may also agree to either fix your APR or reduce it. This WILL jack up your credit 99.999% of the time as you are generally left paying less than the minimum monthly payment. However, by the time most people seek the help of an org. like CCC, their credit is already wrecked. They also tend to charge monthly maintenance fees.

A consolidation loan is (usually) a fixed rate, multi-year loan through your bank or credit union. It will work as planned ONLY if you stop using the cards it paid off. IIRC, the bank will want to know the 5 W's of the debts you plan to pay off. They pay those debts off and you pay the bank back monthly, similar to an auto loan. The interest rates are fixed and tend to be lower than the variable rates most cards have.

For what it's worth, A credit union might be a better place to look for a consolidation loan. If credit scores are still good, a consolidation loan will keep them that way. It will pay the balances down to zero in one lump sum. Just don't close out the cards. That will negatively impact your credit score.

(now I'm sure someone will chime in and tell me I'm wrong, haha)

[Guest db99wj]

I spent a few years as a bankruptcy paralegal and by default, picked up a little bit about credit, money, debt and so forth.

Here's the difference between a consolidation loan and debt consolidation:

A debt consolidation(the thing Consumer Credit Counseling will do) is an agreement between the consolidator and your creditors to accept a lower, fixed amount towards your debt each month. They may also agree to either fix your APR or reduce it. This WILL jack up your credit 99.999% of the time as you are generally left paying less than the minimum monthly payment. However, by the time most people seek the help of an org. like CCC, their credit is already wrecked. They also tend to charge monthly maintenance fees.

A consolidation loan is (usually) a fixed rate, multi-year loan through your bank or credit union. It will work as planned ONLY if you stop using the cards it paid off. IIRC, the bank will want to know the 5 W's of the debts you plan to pay off. They pay those debts off and you pay the bank back monthly, similar to an auto loan. The interest rates are fixed and tend to be lower than the variable rates most cards have.

For what it's worth, A credit union might be a better place to look for a consolidation loan. If credit scores are still good, a consolidation loan will keep them that way. It will pay the balances down to zero in one lump sum. Just don't close out the cards. That will negatively impact your credit score.

(now I'm sure someone will chime in and tell me I'm wrong, haha)

When I was in the mortgage business, this was equivalent to a Ch 13 when looking at credit.

[Armed Aviator]

DAVE RAMSEY . . . DEBT SNOWBALL . . . FINANCIAL PEACE!!!!

[timcalhoun]

DAVE RAMSEY . . . DEBT SNOWBALL . . . FINANCIAL PEACE!!!!

HUGE +1

[jeffmem]

Another +1 for Ramsey ... 1000 in the bank, pay of all debts smallest to largest, sell everything that you can (yes this includes the guns, the boats, the atvs, etc)

Stay away from the consolidation loan.

[Guest KimberChick]

When I was in the mortgage business, this was equivalent to a Ch 13 when looking at credit.

Indeed. It's basically a Chapter 13 with no legal protection but it makes people feel all warm and fuzzy because it's not actually filing bankruptcy. There's nothing keeping your creditors from deciding to give up the negotiated plan months down the road. The payments tend to be higher as well. The attorney I worked for used to get people who had either been advised by a consolidator to file or those who'd already been and had their payments get so high they couldn't afford them anymore.

Ramsey is great if you want to pay cash for everything up to and including a house. If you can pay down your debts but keep up payments on all of them so as not to kill your credit score it works just fine. Most people will still need a decent credit score to secure a mortgage unless they are in the home they'll die in when they start his program. I recommend his books to people as the "first resort" to getting back above water.

Guess it depends on how badly you'll need your credit after you pay your problem debts down.

Edited June 28, 2010 by KimberChick

[kb4ns]

BTW keep in mind that your wife's debt is your debt as well.

Well, that means that my debt is hers as well, and I don't think she wants mine. I wish mine was as low as hers! I know that legally, it's our debt, but we've always kept our finances separate. We also both went rather retarded with our finances in our early 20's (me more so than her).

If you haven't refinanced your homes first mortage, look into that as well. Rates are below 5% in many cases.

Looked into that a few months ago. We're at 5.25%, so I was advised by the refi companies that it wouldn't be worth it.

A consolidation loan is (usually) a fixed rate, multi-year loan through your bank or credit union. It will work as planned ONLY if you stop using the cards it paid off. IIRC, the bank will want to know the 5 W's of the debts you plan to pay off. They pay those debts off and you pay the bank back monthly, similar to an auto loan. The interest rates are fixed and tend to be lower than the variable rates most cards have.

For what it's worth, A credit union might be a better place to look for a consolidation loan. If credit scores are still good, a consolidation loan will keep them that way. It will pay the balances down to zero in one lump sum. Just don't close out the cards. That will negatively impact your credit score.

That's what I did with a couple of credit cards a few years ago. The APR was higher, but it was simple APR, so I had the load paid off in one year (albeit at a higher monthly payment). It would have taken me years to pay off just those two and it would have cost me a whole lot more in the long run.

Another +1 for Ramsey ... 1000 in the bank, pay of all debts smallest to largest, sell everything that you can (yes this includes the guns, the boats, the atvs, etc)

That's what I'm kinda doing now (I'm not selling all the guns. I sold a bunch and put towards debt, but no more dammit!). I did the budget and am sending a whole lot more than the minimum towards the lowest bill, and plan to add that to the next lowest bill when this one's paid off. I guess a half-assed Dave Ramsey plan is better than no plan at all.

Thanks for the replies guys. Gives us (well, her) some things to think about!

Edited June 28, 2010 by kb4ns

[jeffmem]

It is a tough road to go down but you are making the right move by addressing the problem now. Every journey starts with one step.

[analog_kidd]

The biggest issue you face is behavior modification. Don't take that the wrong way, I went through it too. A long time ago I took out a loan on my 401k to pay off credit cards. As soon the CC company got the check, we ran up the cards again. Then we had two debts.

You got to stop charging stuff right now. Vow to never use the card again.

The Dave Ramsey stuff rocks. It's easy to do if you stick with it. Find someone who's been thru it to show you how to make a real budget. Save cash and use it to pay for everything. Get envelopes and put a set amount in them for certian things and only spend from those envelopes. If you say I need $100 a month to eat out, put $100 in an envelope every month. When you go to eat out, grab the envelope, if its empty, stay home. Never borrow from the grocery envelope to eat out. Pre-define what your monthly needs are adn stick to it.

We've been doing this for years now. It was hard to make the change (paying cash for gas sucks big time), but you get used to it after a while. We got really focused at the begining and paid off all the credit cards and my truck. Took a little over a year, but we are debt free, and it feels great.

I would not take out a consolodation loan. I would transfer the balances around every now and then to low rate cards. Or even call up your card company and just ask for a lower rate. You'd be surprised if you tell them you are moving the balance, a lot of times they will work with you. Don't transfer too often as that may damage your credit rating.

Good luck

[Mike.357]

That is debt. I speak from experience.

yep

[lowbud]

credit cards are the DEVIL

[Capbyrd]

Good luck bubba. I just authorized a final payment on one of my cards. Having one paid off is an awesome feeling.

1 down, 3 to go!