View Full Version : How best to consolidate CC debt ?
Hello all. I'm sure this has been addressed before in the old forum, but as I'm finally getting the courage to seriously take on the 9 steps to FI, I need some advice on how to consolidate high interest credit card debt. I have too many cards, several maxed out, and want to bundle it into one monthly bill. However, I don't want to put my home at risk, so am thinking a home equity line is not a good thing. (I haven't considered taking out a second mortgage either, for the same reason). I had a great job for almost 7 years, but was recently laid off, without notice, and am concerned that this may now limit my consolidation options.
Have you found something that worked? Do you recommend any particular website or institution? Thanks for your help!
- EarthSky
(moving out of financial anxiety to financial integrity and independence one baby step at a time :))
The Storyteller
2-4-11, 6:34pm
The only way I would consider consolidating debt is if I could move it to one or two lower interest cards. There is no way I would exchange unsecured debt into secured debt, and never would I use a consolidation company.
That said, I don't see a credit card company giving you a card if you are unemployed. If they do, it will likely be high interest anyway, since you are a higher risk. You might want to consider Consumer Credit Counseling to help you work through your debt, although that will likely give you a ding in your credit.
Barring that, just look up Dave Ramsey and follow his plan and debt snowball it. Just pay them off one card at a time.
I agree about the home equity line of credit. The problem with consolidation is that people tend to think that if they consolidate then they made their situation better so they relax too much. All consolidation does is make your debt payoff a little more organized and streamlined and eventually a little cheaper.
One of the reasons that people like to consolidate is to save on interest. This only works if you are truly committed to paying the consolidate loan off just as fast as you would the individual loans. If you consolidate 25K into 6% interest and pay it off in 3 years you will still pay MORE interest than if you pay that same 25K off in one year at 18%.
Obviously, the best scenario is to consolidate and pay the 25K at 6% for a year. I used the debt calculators at CNN Money (http://cgi.money.cnn.com/tools/debtplanner/debtplanner.jsp) to get these figures.
25K, 18%, 1 year = $2097.53 interest
25K, 6%, 3 years = $2243.52 interest
25K, 6%, 1 year = $691 interest
Regarding where you get your debt consolidation, see if your credit union or local bank will loan it to you. Though without a job this could be difficult. Be very careful about transferring the balance to a new card. Make sure you read the fine print carefully so you don't get hit with odd fees.
I agree with The Storyteller:
No on the consolidating with home equity.
Yes on trying to find a lower interest credit card to transfer balance to
DEFINITELY big yes on Dave Ramsey. His debt snowball plan is simple, unambiguous, and makes practical and emotional sense.
The only way I would consider consolidating debt is if I could move it to one or two lower interest cards. There is no way I would exchange unsecured debt into secured debt, and never would I use a consolidation company.
That said, I don't see a credit card company giving you a card if you are unemployed. If they do, it will likely be high interest anyway, since you are a higher risk. You might want to consider Consumer Credit Counseling to help you work through your debt, although that will likely give you a ding in your credit.
Barring that, just look up Dave Ramsey and follow his plan and debt snowball it. Just pay them off one card at a time.
If you are looking to get out of debt follow either Dave Ramsey's "Debt Snowball Plan" or Mary Hunt's "Rapid Debt Plan". Debt consolidation plans just continue the problem; you need to focus on doing; if you want to truly get out of debt.
Ed
Totally Debt Free For Over Ten Years:)
I hate debt, but I'm going to disagree with the above posters. You are currently without a job, and do not mention if you have an emergency fund or any other means of financial support. You need to take care of daily living expenses first. If you don't have food, shelter, and warmth, paying off credit cards will NOT help. You are in emergency mode right now, unless you have some other means of income than your job. If you do, then by all means pay off your credit cards, making sure that you have enough to pay the minimum monthly bills (and this does not include the cable TV bill - I'm talking mortgage, heating bills, basic groceries).
Good luck and best wishes in your financial journey.
loosechickens
2-5-11, 2:24pm
I kind of agree with herisf. If you are without a job, your priorities change. While it's great to get out from under credit card debt, and you ARE paying that interest, in the emergency, providing for daily needs, followed by building a bit of emergency cash (even if it means just paying the minimum payment on those CCs for a bit) puts you in a safer position, and then you can begin the debt snowballing toward getting the debt paid off.
Also agree that replacing unsecured debt (credit cards) with secured debt (a home equity line of credit, etc.) is NOT good, because it puts your home at risk and really only benefits your creditors. It looks attractive, because interest rates are usually much less, but what most people end up doing is having that house debt, PLUS they still keep charging on the cards. Not good. Best to learn to break the credit card habit for good. (Doesn't mean that you can't USE credit cards, but only after you get them paid off, and only for stuff you have the money to pay the bill for in full when it comes).
The biggest thing you can do at this point is ruthlessly look at your spending, eliminate ANYTHING that can be eliminated, (and yep, I'm talking about stuff like cable, eating out, a coffee habit at Starbucks, etc.) and get your spending down to the absolute minimum. That alone will free up money to build a bit of emergency fund, and begin to chip away at the credit card debt.
Because if you've GOTTEN in credit card debt, it's because you have been spending more than you have coming in, so getting that spending down to the point where less is going out than is coming in is the very first step toward success.
and, of course, it goes without saying, STOP charging anything on those credit cards. No point in opening up a new hole while you're trying to bail out the boat.
Good luck.....
simplelife2
2-5-11, 2:38pm
It you are without a job, do NOT worry about your CC debt right now. The first order is to keep all the liquid assets you can, especially since it is a tight job market. Without a job, no one is going to give you more credit right now for any purpose. And if you find a company that will, RUN because any business that is not looking to rip you off will not help you.
First order of business: Do not tie your debt to your house. You may end up bankrupt and homeless. You're in a hole, so try not to make the hole bigger. Do not charge any more on your cards and pay only the minimum due. Again, retain your liquid assets for as long as possible so you can keep up with the bare necessities. No eating out. No shopping for anything but groceries and see if you can trim that with coupons, store brands, less meat, etc. Conserve gas.
Once you find a new job, then start thinking about repaying the debt. If you keep with the bare bones emergency budget, you will see how little you can really live on. Keep that up and use the extra to pay down the debt. Good luck in finding a new job.
And if things don't improve, especially without a job, you seriously may want to consider declaring bankruptcy as a last resort. Not sure about your situation, but sometimes it really is the best option. (And, yes, I know many here will disagree with this, but I don't know why we feel a moral obligation to screw ourselves when corporations are shredding the workforce, shedding their pension obligations and outsourcing every possible job.)
EarthSky can you post a bit more about your situation so the advice you're given can be tailored better? Savings, amount of debt, severance, significant other income, etc.
I'm not familiar with the 9 steps that EarthSky mentions but I assume that a basic emergency fund is in place and that a budget has been developed. I also assume that even though the OP doesn't have a job, there is still income of some combination of unemployment and spot jobs that is providing for the four walls as Dave Ramsey calls it - food, shelter, lights, and clothes.
If these things are not in place then I agree to not to attempt debt consolidation.
Hello everyone. Thank you all for your wisdom, and sharing your experiences! I have been out of town for a family funeral in a rural area without access to internet, so could not respond sooner. Just returned home, and will share more info tomorrow!
The Storyteller
2-12-11, 12:29am
I have to stick with my original comments. It is a rare person indeed in this culture who must choose between paying down debt and keeping a roof over their head. It is more likely choosing between cable or Internet or that diet coke and debt as opposed to essentials. Just make sure your needs (actual needs) and an emergency fund are taken care of as you pay down your debt.
Every dollar you spend knocking off debt is one less dollar you have to pay exorbitant interest on.
There's typically another nasty evil to consolidation and refinancing, although it might sound nice: the payment goes down. The payment goes down because the interest is lower, which is good, but it typically also goes down because the term is longer, which is not good at all. I have also known people who are credit card spenders who consolidate, and then feel that the $200 less in monthly payments means it's fine to incur yet another debt. Hey, now we can afford a snow mobile, the payments are only $200! nooooooooo.............
Snowballing is actually kinda fun, because you get these satisfaction hits along the way, you can chart your debt and watch it go down, and the amount of money you have available to throw at the next card just keeps going up, so there's this linear reward.
It is a rare person indeed in this culture who must choose between paying down debt and keeping a roof over their head. hmmm. Which culture is that, exactly? The one where everyone's employed and insured? I musta missed the exit. I find it's a rarer person who Isn't juggling debts, bills and mortgage payments, praying to keep all in the air.
Every dollar you spend knocking off debt is one less dollar you have to pay exorbitant interest on. - now that one I wholeheartedly agree with, it's an excellent motto.
With today's CC rates, you could almost say a penny paid is two pennies earned. :~)
Double ditto to the last comments by The Storyteller and kib.;);););)
Ed
Totally Debt Free For Over Ten Years:)
I didn't take the 'bundle it' route. I paid off a couple of smaller ones first, and then took on the big one and threw everything at it -- GIANT charts on the wall and the whole nine yards. In 13 months, I paid off $18K in debt, which was clearly impossible on my salary. >8) I still have no idea how I did it, except I think I annoyed many of my friends with my frugality and zeal during that time. The payoff was immense in terms of emotional and financial well being, though.
The Storyteller
2-12-11, 2:55pm
hmmm. Which culture is that, exactly?
The one where people tend to spend money on crap they don't need, generally regardless of income. Money that in this case would be better spent on paying down debt.
Hello all. Sorry I've been MIA. However, per your advice, I have read Dave Ramsey (the Q&A book and Financial Revisited) and now have the CD to listen to (all from the library :). I like the snowball strategy lot, but think I also need the YMOYL 9 Steps - especially the visuals of the wall charts, and the re-thinking of the real worth of all the extra hours I've worked over the years. (Has anyone on the forum intentionally worked both approaches simultaneously?)
Most of my debt is not from trivial spending on unnecessary things, but from major life events - divorce and child custody trial, cross-country move, major home repairs (roof, basement). I'm never been a big spender, but am re-reading Tightwad Gazette to get some renewed inspiration.
I have a few months of severance, but no emergency fund, so am really taking to heart your advice on prioritizing financial needs (ensuring Food/Shelter/Lights/Clohtes) - and will not consolidate my CC debt in a way that is tied to the house!
My related dilemmas (for other threads) are 1) what type of position to pursue (I've always done non-profit high-responsibility jobs that have been very demanding of time and emotional energy, and again, am trying to listen to the wisdom of YMOYL) and 2) helping the children understand the need to tighten the belt' even more.
Thanks again for sharing your stories of struggle and success.
I would recommend looking at your overall picture. Have you been tracking the last few months (since all the craziness settled down)? If not, can you at least estimate most expenses? Now, look at your biggest necessities: housing, transportation, bare-bones food, childcare, health care, minimum debt payments. What percentage of your income is that (use unemployment or the pay rate of some job you could reasonably expect to get)? If it's more than 70%, you have to think long and hard about whether your basic expenses are unsustainable. If that is the case, definitely check out Consumer Credit Counseling-make sure it's accredited/legit and not some company that promises to consolidate, improve credit scores, or anything else that sounds fishy because fish get stinky real fast. If it's not, hang in there til you get a job then follow debt snowballing. Any of these can be used in conjunction with YMOYL. One of the most helpful is to track all your spending and when you get a job offer, calculate your real hourly wage. It will help make things very clear in terms of spending priorities.
As for what to tell the kids...try googling stuff on making hard times into teachable moments. Depending on age, they can start learning about budgets, tracking spending, making intelligent money choices and so forth. If you can involve them in a way that makes things fun it will be less stressful for both of you and may be a great topic for a whole thread.
Great advice, and good timing since I'm looking at all my recurring bills right now - thanks!!
rodeosweetheart
2-26-11, 8:20am
Just want to second Anne Lee's comments about the four walls concept of Dave Ramsey. What we found incredibly helpful when faced with lots of debt from all sorts of things including medical and credit card was to go to his Financial Peace University at a church. It have us a framework for the decisions you are facing and enabled to make big life changes and pay off all debit within a year. He has lots of very specific advice on stuff like debt consolidation, and I felt like he had done the thinking for me on some of these complicated questions.
Good for you for being willing to confront your issues with debt. and I'm sure you will find the right way for you.
Thanks for the strong recommendation for the FPU and the support, rodeosweetheart. (I'm hoping you're an equestrian?! One of my pressing issues is how to keep riding in a very challenging financial time.... It's better than any therapy and instills me with joy and confidence, so I don't want to totally give it up!)
rodeosweetheart
2-28-11, 8:10am
Hi EarthSky, yes, and you are so right about the joy and the confidence and the need to be around horses. That was the one mistake we made by buying the foreclosure we bought this year after selling the farm--we do not have enough room for horses right now, and I don't think I;ll be totally happy without that in my life. So \now that the debt is gone, I am going to start riding at a stable, find room for 1-2 lessons a week if I can figure it out--it is SO EXPENSIVE, and use this as a time to figure out how to get back to owning my own horse again. It will also be a good time to learn some new things, like trying gaited horses, see if the next horse needs to be better suited to my arthritic new persona. Without the debt, I feel I can use the money for a more satisfying life, although I still need to keep that intensity going to fully fund the emergency fund. We're a little out of order on our steps, since the house was paid for with cash.
loosechickens
2-28-11, 1:40pm
As a person once married to a professional horse trainer and judge, I know that much of the horse business RUNS on the fact that there are lots of horse crazy people willing to do physical labor of cleaning stalls, grooming horses, cleaning tack, etc., for the chance to ride or join in for free lessons. If you want to ride, or you want to have lessons and have abilities in that direction, you can usually work something out. Horse operations are often open to trades of labor, etc. Just sayin'
rodeosweetheart
2-28-11, 9:08pm
That's a GREAT idea, LC!
Powered by vBulletin® Version 4.2.5 Copyright © 2024 vBulletin Solutions Inc. All rights reserved.