How best to consolidate CC debt ?

[EarthSky]

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]

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.

[Anne Lee]

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 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.

[catherine]

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.

[eleighj]

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

[herisf]

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]

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]

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.)

[Zippy]

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.

[Anne Lee]

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.