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thedanimal
thedanimal Reader
11/19/16 9:42 p.m.

So the wife and I are working hard to get out of debt, though with an almost 3 month old, this has been slowed down a bit. I have been thinking about getting a loan to pay off all my credit card debt, which in the interest of full disclosure is north of $10k but not by much. My thought process is, one manageable payment and paid off in half the time. Now I know what the top recommendation will be and that is, rice and beans budget and work on paying off lowest card to highest card. I want to see if anyone else has done this and If what the pros and cons are.

Streetwiseguy
Streetwiseguy PowerDork
11/19/16 10:22 p.m.

Its all in the interest rate. Cards are horrible. Personal loans are not. Mortgages are better yet. If you can borrow the money, pay all the cards immediately, and cut them up into tiny bits.

szeis4cookie
szeis4cookie HalfDork
11/20/16 7:18 a.m.

Honestly, assuming you have good enough credit to be getting offers for new cards in the mail, my method would be to get a card with a 0% introductory period and transfer as much as you can onto it. Don't ever activate it, pay it down as much as possible until the 0% period ends, then find another card and repeat.

einy
einy Reader
11/20/16 7:23 a.m.

Start listening to Clark Howard and/or Dave Ramsey on your local radio station. Lots of good advice there on this question

Dr. Hess
Dr. Hess MegaDork
11/20/16 7:26 a.m.
einy wrote: Start listening to Clark Howard and/or Dave Ramsey on your local radio station. Lots of good advice there on this question

QFT.

The solution to getting out of debt is never getting more debt. In theory it looks good, in practice, it is a disaster.

Nick (Bo) Comstock
Nick (Bo) Comstock UltimaDork
11/20/16 7:39 a.m.

The biggest downfall is getting the loan then racking up more credit card debt do to an unexpected expense or just serious lack of self control. If you can prevent that from happening, then it's all just a numbers game ie. Find the best interest rate.

thedanimal
thedanimal Reader
11/20/16 8:05 a.m.

Thanks for the responses. We've gone through Dave Ramsey's program before, probably a good time for a refresher. I'm fortunate enough with my new job to get quarterly bonuses so we finally have some money in savings in case the E36 M3 hits the fan, so all but one card has been put into a drawer and hasn't seen the light of day in quite some time. The other piece of this puzzle is, my wife is out of work right now because of the baby. Child care costs are ridiculous, so we're trying to find some part time evening jobs she could work from home.

Mike
Mike Dork
11/20/16 8:14 a.m.

The "lowest card first" thing is recognizing that you're an irrational bag of meat who can be led around by positive reinforcement.

The ideal is still to clear out highest interest first. It's just that it can be much less rewarding.

mtn
mtn MegaDork
11/20/16 9:11 a.m.

Are you a rational person who can stop using the credit cards? Then consolidation makes sense. A lot of sense actually. Especially if the interest rate is reasonable.

If you're not, then do the Ramsey snowball method. I don't like it because I was a math major and that is bad math! But if you were good at math you wouldn't be in this situation in the first place.

What do you have around the house that you can sell? Every little bit helps.

dculberson
dculberson PowerDork
11/20/16 9:24 a.m.
Mike wrote: The "lowest card first" thing is recognizing that you're an irrational bag of meat who can be led around by positive reinforcement. The ideal is still to clear out highest interest first. It's just that it can be much less rewarding.

The irrational bag of meat is what ran up the debts. If it was capable of the ideal then this situation would not have happened. Snowball is rewarding and works.

$10k is not awful money. If you made a budget I bet you could find $10k inside of a year. Consolidation makes sense if it saves you money but remember you need some wins to keep the momentum up. With consolidation you only get the one win, at the very end. Can you keep it up? Can you stay out of debt?

I don't believe in cash emergency funds unless you're out of debt. Credit card debt is an emergency.

carguy123
carguy123 UltimaDork
11/20/16 9:35 a.m.

As long as the interest rate is less than what you are paying on your cards AND, here's the big one, you are able to not charge the cards back up then some sort of consolidation can work.

Mortgages cost too much and go on for too long to be a viable credit card debt reducer. There's a time and a place for doing a cash out refinance, but $10k to get rid of credit cards is not that time.

When you zero out your credit cards do not close them. The loss of the available credit will do your credit scores in. Credit scores are mostly about credit usage so you need to maintain some credit usage. An "activity unit", as they call it is just any kind of payment monthly so charge your meals and gas, things you would normally pay cash for, on those cards and then pay them off or seriously down each month. A $5 payment counts almost as much as a $500 payment. This allows you to maintain a high credit score while not taking you into debt.

Along these same lines don't do all your purchases to one credit card, spread the same amount of debt over several cards. That will give you several times the amount of credit scoring.

thedanimal
thedanimal Reader
11/20/16 7:19 p.m.

Great points, I will do some research as far as interest rates. The credit cards would not be run up after debt was paid, I have a side job as a detailer so that's been a huge help financially and my wife has started making wreaths so that has brought in some extra money.

SVreX
SVreX MegaDork
11/20/16 7:50 p.m.

No one has considered the time.

If you change nothing at all and continue what you are doing exactly the way you are doing it, how long would it take to pay off?

If the payoff date is like a year away, I wouldn't change anything. If the payoff date is 10 years away, I'd reduce the interest as best as I could. Might reduce the time by a couple of years.

Dusterbd13
Dusterbd13 PowerDork
11/20/16 8:16 p.m.

When I got back on my feet, i had 16k of 20+% (one was 29%) credit card debt, and owed 7k on my truck at some abysmally high interest rate from a buy here pay here lot. I paid everything that came in my paycheck on tbe debts. Making me use the creditcard to eat and get gas to go to work.

I sat down with a guy at the state employees credit union, who made a hell of a lot of sense to this stupid meatbag.

Essentially what we did was move the car payments to them to lower the rate.

Then we took out an unsecured personal loan due to me not owning jack E36 M3. The unsecured personal loan was 12%. He also set up an automatic withdrawal of 100 over the minimum payments 2 a month. At the end of every other month, i bought groceries for two weeks, put 100 cash in my wallet for gas, and transferred the balance of the account to the principal on the loan. Got it all knocked out in a year and a half.

Streetwiseguy
Streetwiseguy PowerDork
11/20/16 8:41 p.m.

Math: $10k at 20% CC rate is $2,000 per year. That's $166 per month in interest. Thats a third of a $500 a month payment. Ths same at 5% is $40 per month, which means you are paying $125 per month more.

If you can keep the credit card current, a debt consolidation loan is a no brainer.

jmthunderbirdturbo
jmthunderbirdturbo HalfDork
11/20/16 8:59 p.m.

In reply to dculberson:

"I don't believe in cash emergency funds unless you're out of debt. Credit card debt is an emergency."

i have never disagreed with a statement more than this. if you have a financial emergency where your weekly/bi-weekly/monthly income can't cover an expense, the LAST thing you need is another or a higher payment to make the following month. that's just BEGGING another, bigger financial test/disaster to come into your life, and usually sooner then later.

PLUS, a liquid cash emergency fund helps define the word EMERGENCY. if you can just pull out a card and swipe it, what constitutes an emergency becomes shoes, pizza and a new Blu-Ray. but if you have to open a safe/lock-box/frozen block of tupperware, pull out $200-$1000 in cold hard cash, and look your spouse in the eye while you do it, it becomes MUCH easier to find a way to leave the fund alone, and get by. rice and beans taste better when you buy them with paper money.

i did a 401k loan to zero my CC debt and pay off the wife's car. i went from a compounded, combined interest of 14% to 2%. i also factored in the lost investment from the loan, and increased my contribution to off set it by 125%. so i'm making a LOWER total monthly payment (even with the additional 125% of loss kick-in), i'm giving my retired self a 25% bonus, and i'm cutting my debt payoff from 5 years to 2. now i have a secure enough job to not worry about the big danger of these, which is immediate payoff upon termination, or face a huge tax liability. you MUST have that security first to even consider this. i'm also 30, so even a complete dissolution of my savings wouldn't mean dog food and a tent when i'm old. it would suck, but i'd survive.

i say for you, run the numbers. amortize each option and add up total cash outlay, and see if its worth it. anything less than 5% total cash outlay savings is a waste, unless your dealing with big money. this will hit your credit, and that matters in some cases. your home situation will determine that. if your 4 years into a 30 yr fixed and dont plan to move, go for it. who cares? if your renting and looking to buy next year, eeh, better leave it be and stay diligent on your payments.

-J0N

tjbell
tjbell Reader
11/21/16 7:41 a.m.

I just did this, I had about 4500$ in credit card debt at 22.25% interest. I went to DCU and got a 5k personal loan. it is 139$ a month at 12.00% interest. so over the course of 5 years I'll pay it off and it will cost about 6800$ instead of a lot more. I would go for it

pinchvalve
pinchvalve MegaDork
11/21/16 8:52 a.m.
tjbell wrote: I just did this, I had about 4500$ in credit card debt at 22.25% interest. I went to DCU and got a 5k personal loan. it is 139$ a month at 12.00% interest. so over the course of 5 years I'll pay it off and it will cost about 6800$ instead of a lot more. I would go for it

Word of warning, I have seen people paying every last dime too cover their credit card debt. Then they get a loan of some sort, and they lower their monthly payment and interest Yeah! Just pay that for 5 years! But they suddenly have a little more money free, and completely open credit. Sticking to a budget is hard for a long time, and in 5 years they have not paid off the loan, they ran up a lot more credit card debt...but they have some cool new 4K TV and a nice car.

The MOST important part of any scheme to get out of credit card debt is getting rid of the Credit Cards once paid off! If you keep even one, you have to be disciplined enough to pay it off monthly, or have a set plan to pay off large purchases and STICK TO IT.

mtn
mtn MegaDork
11/21/16 9:13 a.m.
pinchvalve wrote:
tjbell wrote: I just did this, I had about 4500$ in credit card debt at 22.25% interest. I went to DCU and got a 5k personal loan. it is 139$ a month at 12.00% interest. so over the course of 5 years I'll pay it off and it will cost about 6800$ instead of a lot more. I would go for it

Word of warning, I have seen people paying every last dime too cover their credit card debt. Then they get a loan of some sort, and they lower their monthly payment and interest Yeah! Just pay that for 5 years! But they suddenly have a little more money free, and completely open credit. Sticking to a budget is hard for a long time, and in 5 years they have not paid off the loan, they ran up a lot more credit card debt...but they have some cool new 4K TV and a nice car.

The MOST important part of any scheme to get out of credit card debt is getting rid of the Credit Cards once paid off! If you keep even one, you have to be disciplined enough to pay it off monthly, or have a set plan to pay off large purchases and STICK TO IT.

This.

Hell, cut them up now. Keep one high limit one for emergencies. Keep it under lock and key.

Not that I'm the best example in the world, but I pay off my credit cards weekly. Sometimes daily. I use it as cash; the ONLY reason I use them is for rewards points or very specific "personal finance" reasons, such as when we were buying our house--everything went on the credit cards and only the minimum was paid since we needed to show a lot more capital than we actually needed to buy the house. I can't imagine another situation where that would happen again anytime soon. Oh, and as soon as we closed, I paid off the cards.

Johnboyjjb
Johnboyjjb Reader
11/21/16 9:18 a.m.

Refinancing to get away from a bad creditor is always an option.

I'd only look to consolidation if the term to payoff was less, the combined interest rate was less, and the credit cards were in pieces.

tjbell
tjbell Reader
11/21/16 9:24 a.m.
mtn wrote:
pinchvalve wrote:
tjbell wrote: I just did this, I had about 4500$ in credit card debt at 22.25% interest. I went to DCU and got a 5k personal loan. it is 139$ a month at 12.00% interest. so over the course of 5 years I'll pay it off and it will cost about 6800$ instead of a lot more. I would go for it

Word of warning, I have seen people paying every last dime too cover their credit card debt. Then they get a loan of some sort, and they lower their monthly payment and interest Yeah! Just pay that for 5 years! But they suddenly have a little more money free, and completely open credit. Sticking to a budget is hard for a long time, and in 5 years they have not paid off the loan, they ran up a lot more credit card debt...but they have some cool new 4K TV and a nice car.

The MOST important part of any scheme to get out of credit card debt is getting rid of the Credit Cards once paid off! If you keep even one, you have to be disciplined enough to pay it off monthly, or have a set plan to pay off large purchases and STICK TO IT.

This.

Hell, cut them up now. Keep one high limit one for emergencies. Keep it under lock and key.

Not that I'm the best example in the world, but I pay off my credit cards weekly. Sometimes daily. I use it as cash; the ONLY reason I use them is for rewards points or very specific "personal finance" reasons, such as when we were buying our house--everything went on the credit cards and only the minimum was paid since we needed to show a lot more capital than we actually needed to buy the house. I can't imagine another situation where that would happen again anytime soon. Oh, and as soon as we closed, I paid off the cards.

After I got my loan and paid off all my CC debt I cut 2 up, and have one with a 3k limit in my gun safe. I do not carry any of them for any reason. I am leaving them open though as it looks better on your credit report to have available credit and I have had all 3 cards for over 4 years.

Atleast that's what the guy at DCU said

APEowner
APEowner New Reader
11/21/16 9:34 a.m.

Certainly some plans are better than others but the important thing is to do the math, come up with a plan and then stick with it. The plan that you will stick with is the best one for you.

mtn
mtn MegaDork
11/21/16 9:38 a.m.
tjbell wrote:
mtn wrote:
pinchvalve wrote:
tjbell wrote: I just did this, I had about 4500$ in credit card debt at 22.25% interest. I went to DCU and got a 5k personal loan. it is 139$ a month at 12.00% interest. so over the course of 5 years I'll pay it off and it will cost about 6800$ instead of a lot more. I would go for it

Word of warning, I have seen people paying every last dime too cover their credit card debt. Then they get a loan of some sort, and they lower their monthly payment and interest Yeah! Just pay that for 5 years! But they suddenly have a little more money free, and completely open credit. Sticking to a budget is hard for a long time, and in 5 years they have not paid off the loan, they ran up a lot more credit card debt...but they have some cool new 4K TV and a nice car.

The MOST important part of any scheme to get out of credit card debt is getting rid of the Credit Cards once paid off! If you keep even one, you have to be disciplined enough to pay it off monthly, or have a set plan to pay off large purchases and STICK TO IT.

This.

Hell, cut them up now. Keep one high limit one for emergencies. Keep it under lock and key.

Not that I'm the best example in the world, but I pay off my credit cards weekly. Sometimes daily. I use it as cash; the ONLY reason I use them is for rewards points or very specific "personal finance" reasons, such as when we were buying our house--everything went on the credit cards and only the minimum was paid since we needed to show a lot more capital than we actually needed to buy the house. I can't imagine another situation where that would happen again anytime soon. Oh, and as soon as we closed, I paid off the cards.

After I got my loan and paid off all my CC debt I cut 2 up, and have one with a 3k limit in my gun safe. I do not carry any of them for any reason. I am leaving them open though as it looks better on your credit report to have available credit and I have had all 3 cards for over 4 years.

Atleast that's what the guy at DCU said

It is true, at least somewhat. Your credit score is helped by longer lasting lines of credit. I have one card that I put a purchase on about once every 3-4 months just to keep it "active". Not sure if it matters or not, but it is my oldest card.

ProDarwin
ProDarwin PowerDork
11/21/16 10:00 a.m.

This thread is shocking. Always do the math.

Anything over 10% interest = emergency. Anything under 5% interest = pay the minimum.

Keeping large savings for "big emergency" = bad, especially if you are carrying debt. Pay off the debt. You can always run up the debt again in the case of the emergency if you don't close the accounts.

I don't have debt, and I still don't keep liquid savings for a big emergency. What $10k+ payment will I need to make that I can't delay for a day or two?

mtn
mtn MegaDork
11/21/16 10:14 a.m.
ProDarwin wrote: This thread is shocking. Always do the math. Anything over 10% interest = emergency. Anything under 5% interest = pay the minimum. Keeping large savings for "big emergency" = bad, especially if you are carrying debt. Pay off the debt. You can always run up the debt again in the case of the emergency if you don't close the accounts. I don't have debt, and I still don't keep liquid savings for a big emergency. What $10k+ payment will I need to make that I can't delay for a day or two?

ProDarwin, I feel like we should start a blog together and become the next MrMoneyMustache.

My "cash" emergency fund is my Roth IRA. I can take out what I've put in penalty free. Or I could sell a guitar or a car or a kidney.

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