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  #1  
Old 01-06-2011, 09:07 PM
Splais Splais is offline
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Location: Yuma, AZ
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Default Input on Debt Consolidation

Iím in a mess and have decided itís time to fix it. $28,700 of credit card debt on five different credit cards with interest rates from 0 to 14%. I am currently paying $1045 a month in payments to them. I also have a car loan of $18,000 that I pay $383 a month on. it was a 5 year loan and has 4 years still to run.

I am trying to figure the best way to clean this up and have come up with two options, well three, if you count cutting up the credit cards. I want to restructure this debt so I can pay it off, put money in savings, and stop living off credit cards.

Option One: take out a fixed rate home equity loan for $47,000 over 5 years with payments of about $923. this puts a lean on my house and does result in some loan application and appraisal fees. But it does pay off everything: the five cards and car loan. Allows me to a few hundred dollars a month in savings and have money left over.

Option Two: does pretty much the same thing and results in the same overall monthly payment. consolidate all credit cards on my NFCU card with about a 7.9% interest rate after a reduced 1st year incentive. With this option I have no lean on the house and still have the car loan, but my new total monthly payment will be almost identical to option 1.

One last thing I have good credit and so far have never missed a payment.

Love to read some input form others on which way to go or even something else.
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  #2  
Old 01-06-2011, 10:12 PM
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DavidBibby DavidBibby is offline
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Default Re: Input on Debt Consolidation

Splais,

You are to be commended for taking stock of the situation at hand and deciding to do something about it.

While consolidation looks like a great idea... it really isn't

Most people who consolidate were just looking for some breathing room in the budget... and before the consolidation is paid off the credit cards are right back up to where they were to begin with.

By lowering your monthly payment with OPTION 1 or OPTION 2, you are effectively extending the length of your overall debt and you will pay more interest overall than if you used the following method.

Step #1 - Arrange your 5 credit cards from smallest balance to largest.

Step #2 - Pay off the smallest debt with as much financial energy as you can, while paying only the minimums on all the rest. Once it's paid off... you'll put what used to be it's payment towards the next debt.

Step #3 - Pay off the next smallest debt with as same enthusiasm as the first debt. Then take it's payment and apply it to the next debt.

Step #4 - Do this until all your credit cards are gone.. and then apply all those payments towards your car.

Obviously you won't be borrowing ANY money at all while doing these steps.

I'd be willing to bet that you'll have all the debt paid off in THREE years instead of FIVE doing it this way. THEN you will have $1500 a month to SAVE after all the debt is gone. This means that potentially you'll have $36,000 in Savings and NO DEBT in the same time you'd make your final payment with the consolidation route.

I'd be happy to crunch the numbers for you if you'd like.
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Old 01-06-2011, 10:52 PM
Splais Splais is offline
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Default Re: Input on Debt Consolidation

I probably should have provided a little more information. I didn't really get in this mess from being careless or wasteful. I got into it because I got in a situation mentoring and helping a young man on the other side of the country. It took longer than expected and just got out of hand. I run a STRICK budget and have for years. I know were every penny comes from and will go at the beginning of each month. I'm retired and on a gov't pension. While I've managed the debt and not missed any payments I've just managed to let more and more of my disposable income get sucked up with credit card debt. I reached the bottom of the barrel. Currently there is no savings and no way to cover anything unexpeted except with more credit card debt. With a consolidation I've already worked out a budget that pays a new single paymnet that will eventually pay off the debt, at the same time puts money away in an account to pay all those once a year bills like property tax, insurance, etc, and still leaves money to put in regular savings. Even after doing all this, I still have about $1000 a month I'm spending on living costs for the young man mentioned above. BUT he is finally working in a good job and I hope to reduce my help to him over the next several months. I'm taking another step - selling a motorcycle I have to put a nest egg away to get started. I plan to never buy with a credit card again. I'm now 67 so I think the temptations are less than when I was younger.

Under all this senario I'm just trying to balance the pros and cons of my two options. I have thought about your plan actually on my own. But the problem is, right now I have no excess income, all income is programed against some expense. I need to do something that gets me some wiggle room even if it means making payments a little longer. and yes I realize there can be no backsliding, or it will just start all over. But I am going to run some numbers on your idea.
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Old 01-07-2011, 08:40 AM
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DavidBibby DavidBibby is offline
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Default Re: Input on Debt Consolidation

Splais,

You have a better handle on your situation than most. Go ahead and crunch the numbers on your Option 1 and Option 2... and on my suggestion as well.

Then determine which is the most do-able for you.

Of the two options you presented... I like option 2 better than option 1. Like you... I'd rather not put a lien on my house.

We're here to encourage, inspire, and help you reach your goal, and we're glad your with us!
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  #5  
Old 01-07-2011, 08:50 AM
Splais Splais is offline
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Default Re: Input on Debt Consolidation

The only reason I was considering the HEL was because I could roll the car loan into it. But because both options end up with about the same bottom line I think it is much better to use the consolidated credit card method for a few months to see if I can actually stick to it. If I decided later on I could always go the HEL route to finish it up. The bottom line is I would not have a problem if I could get this kid (young man) up on his own two feet, that's a problem I must also address.
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  #6  
Old 01-10-2011, 06:32 PM
Finance Guy Finance Guy is offline
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Default Re: Input on Debt Consolidation

You really should take Davids advice.

Right now if you dont pay... you dont pay. They will get a judgement at best and your credit gets worst.

On the other end you are looking at losing your home. Why would put tat on the table? You should have done that in the first place if u were ok with it.

Since you already have and continue to pay the interest for a non secure loan you may as well keep the "benefit" of that agreement... seeing how you are as close to needing it as you have ever been.

Nothing is certain. There is only possibility. Do not risk your home to save a few interest points on junk debt.

Good Luck Bud

- Finance Guy
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  #7  
Old 01-11-2011, 11:22 AM
lighthouse lighthouse is offline
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Default Re: Input on Debt Consolidation

David really knows what he is talking about. We also see this situation to often and understand that most people have good intentions when they accumulated the debt. The good thing about your situation is that you still have an opportunity to help yourself. If you go for the "quick" consolidation fix (1 or 2) you may find yourself right back in the same boat this time with less options.....

I am sorry to say this but.....How are you ever going to help this young man get on his feet if you are not on yours?

Opt 1 and 2 is not a strong foundation. Take Davids advice and create a budget and attack the debt using the debt snowball method.
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  #8  
Old 01-11-2011, 11:39 AM
Splais Splais is offline
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Default Re: Input on Debt Consolidation

I got my card limit raised on the lowest interest card, it's at 7%. rolled the three cards into the one eliminating two cards with 14% and 10% interest respectively, closed out the two cards.

I have a very specific and complete budget for all monthly bills worked out right to the last penny. I also added up all those annual. biannual, quarterly bills like property tax, insurance etc and worked out a method that pays them from a separate savings account I opened with automatic monthly deposits that will keep me from having any lump sum bills due.

After all that I still have $950 of excess income. I plan to put about half that into regular savings for unanticated expense/repairs, etc. Will see how thing go for a couple of months.
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  #9  
Old 08-28-2011, 09:23 AM
debt.advisor debt.advisor is offline
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Default Re: Input on Debt Consolidation

It benefits you if your hubbys late on his payments. If thatís the case. A consolidated company will work it so his credit will be better. The late payment/bad credit history will become good again. They are capable of lowering credit cards interest rate and compine all your debt into just one. So that way, you wont have to write so many checks to pay a veriety of bills. I went through one three years ago. and now, my credits and bills are so much better now.
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