Author Topic: Debt consolidation loan to pay off credit cards  (Read 4354 times)

truman47

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Debt consolidation loan to pay off credit cards
« on: May 09, 2017, 03:45:13 AM »
Howdy folks. I have a few credit card debts and was wondering if I could get some advice from people on this forum?

Here is a list of my current credit cards, their limit, whats owed and weekly repayments

Card.          Limit        Amount owed     Repayments per week.
Card 1.         $8000.       $6450.                $50
Card 2.         $8000.       $2700                 $25
Card 3.         $1000.       $950.                  $25
Card 4.         $5000.       $3400.                $25

Total.       $22000.      $13500.              $125.00

Ive been pre approved for a debt consolidation loan of $13500 over 7 years at 13.99%. The repayments are about $65 per week. I know on paper it looks like a good deal. The amounts Im paying off on the credit cards are only just barely covering the minimum monthly payments. Card 1 is 3 years interest free for about $5000 on that card and then it reverts to a very high rate of around 23% which is why Im paying off so much of it and card 4 also has about $2000 that is interest free from a balance transfer but that only has 6 months to go.
So I thought rather than bother trying to worry about the interest free portions of those cards am I just better off putting the whole lot into the debt consolidation loan and cutting them all up, closing the accounts so at least I can start getting them all paid off?

TheAnonOne

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Re: Debt consolidation loan to pay off credit cards
« Reply #1 on: May 09, 2017, 04:12:37 AM »
I would only consider consolidation if the interest rate was better.

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former player

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Re: Debt consolidation loan to pay off credit cards
« Reply #2 on: May 09, 2017, 04:48:37 AM »
If all you can manage in repayments is about $500 a week, you are looking at 2 years 3 months to just pay back the principal.  Any interest or transfer charges will be on top of that, of course, so adding a still pretty high interest rate of 13.99% to that principal would extend that payback period considerably.

I think you need to crunch the numbers. There are two ways to get out of this hair on fire situation: one is to increase the amount you can pay, the other is to reduce the amount you need to pay.   So some questions you need the answers to are:

How much can you increase your income?
How much can you decrease your other expenses?
How much principal will be left on cards 1 and 2 by the time the 0% interest periods expire?
What are the current interest rates on cards 3 and 4? 
What is your credit rating, and can you get more 0% transfer offers?

There are people here who are great with spreadsheets and should be able to lay out a path to repayment for you.

On the other hand, if you are really stuck for income and don't have anything to lose (eg assets such as a house, or a job that depends on you maintaining your credit rating) you could look at some sort of credit arrangement or even bankruptcy.

Finally, if the cards you have aren't costing you anything on annual fees, instead of closing them when they are paid off you should consider keeping them (in a block of ice in the freezer if necessary to stop you using them) as having long-standing credit that you don't use will keep your credit score up and give you access to better interest rates.

nereo

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Re: Debt consolidation loan to pay off credit cards
« Reply #3 on: May 09, 2017, 06:24:09 AM »
I don't think the consolidation offer is a very good one for you.

You've said that, for the moment, cards 1 and 4 are mostly at 0% interest (until they revert back to higher rates)
What are the rates on cards 2 & 3?

If you are serious about getting this debt-monkey off your back you need to do the following:
i) realize this is a Hair On Fire Debt Emergency and treat it like such.
ii) Prioritize eliminating the card(s) with the highest interest rate right now.  Given the balance Card #3 looks to be a good candidate (rate?)
iii) Once you pay off that debt, focus on the card with the next highest rate.  This is called the "avalanche method". As soon as one card is eliminated those payments go towrads the next one, accelerating the payoff schedule. It accelerates as you go.

Treating this like the serious emergency that it is means you've got to cut spending, throw all excess cash at these cards and contemplate other measures (sell stuff, work more). Back-of-the-envelope calcs show you're paying ~$200/month just on interest.  That's money you owe to past self for screwing over current self.  Don't let future self suffer too.
« Last Edit: May 09, 2017, 06:25:51 AM by nereo »

Moonwaves

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Re: Debt consolidation loan to pay off credit cards
« Reply #4 on: May 09, 2017, 06:48:42 AM »
Regardless of whether you decide to take the loan or not, please do yourself the favour of cutting up all of these cards immediately. I spent a miserable few years doing the merrygoround of credit card debt -> spending all my money to pay off as much as possible as soon as I got paid then needing to use the cards again to buy groceries -> consolidation loans -> "needing" to use the card again to cover something or other that seemed important = loan to pay back plus credit card debt to pay back -> bigger loan -> using card to pay for something "important" I couldn't afford because of loan repyments and round and round and round. And then once I finally got things under control, it still took me five years to pay back the final huge consolidation loan.

plog

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Re: Debt consolidation loan to pay off credit cards
« Reply #5 on: May 09, 2017, 06:56:47 AM »
Quote
The amounts Im paying off on the credit cards are only just barely covering the minimum monthly payments


That statement alone is why I think you are a candidate for Dave Ramsey... or bankruptcy.  Why are you just barely covering the minimums?  Because you're pissing away money in other ways, or because you genuinely cannot scrap together that amount of money to put toward debt each month?  I think a case study is in order.

A consolidation loan is not the answer, especially one with such a bad interest rate.   

Ebrat

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Re: Debt consolidation loan to pay off credit cards
« Reply #6 on: May 09, 2017, 09:30:48 AM »
Have you addressed the reasons you got into debt in the first place? If not, getting the consolidation loan is setting yourself up to dig even deeper.

truman47

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Re: Debt consolidation loan to pay off credit cards
« Reply #7 on: May 10, 2017, 05:56:51 AM »
Ok well I checked on my interest rates and here is a break down of whats owed exactly and what % rate. As you can see card 1 and 4 are interest free for at least until 2018 on the major amounts.

I earn a decent amount of money ($100k per year) which works out to around $1170 take home after tax and child support are paid. I'm also paying back my mum $50 a week for a $6k loan I used to pay off another card.
I really don't know why I can't afford it other than I am pissing away money on other things I guess. I pay $405 a week rent but live in a 3 bedroom house on my own. I know I have to get out and find a smaller 2 bedroom unit which I could get for about $325-$350  a week.
I don't buy my lunch everyday or buy coffees and stuff which I limit to once a week. But the missus and I do got to the football (AFL) a lot and that costs at least $100 on tickets $20 for food $20 for a few beers.
I used to buy 2-3 craft beers everynight at around $12.00 a day but stopped that too. I just thought that with a consolidation loan I would have an extra $50 a week after the repayment and wouldn't have to worry about anything else to pay off.

What exactly is a case study?

nereo

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Re: Debt consolidation loan to pay off credit cards
« Reply #8 on: May 10, 2017, 06:24:00 AM »
The direct answer to your question is that you need to put all your resources towards eliminating card #3 immediately, then attack card #2.  That prioritizes them in order of interest rates, and convienently it eliminates the smallest loan first allowing you to also put more towards the other cards (a rare double-win; snowball + avalanche methods working together).

BUT - as you alluded to there's a more fundamental problem going on.  You have very good income yet you keep piling on debt - instead you could be on the fast-track towards financial independence.

Strongly encourage you to post a full case study and be ready for some face-punches for previous behavior. 
Also, spend a few hours archiving all the purchases you've made over the last few months.  Free software like Mine (www.mint.com) can auto-load and categorize purchases from your credit cards and bank accounts.

Good luck and don't lose hope.  I've seen a lot worse, but you could certainly be doing a LOT better....

former player

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Re: Debt consolidation loan to pay off credit cards
« Reply #9 on: May 10, 2017, 06:26:59 AM »
So is that $1170 net per week?

Out of that $405 on rent, $50 on debt repayment to your mum.  That leaves you with $765  per week.  You were spending $84 a week on beer, which you have stopped (phew).  You still buy lunch somedays and coffee "and stuff" (what stuff? - not healthy stuff, I bet) once a week. 

You go to the football a lot and pay $140 a time.  What does "a lot" mean?  Every week?  Every other week?  (By the way, if you are not living with the woman she is not your "missus".  She is a girlfriend.)

You haven't mentioned anything about any of the following: retirement contributions, utilities, groceries or transport costs.

You are a single man who appears to have a net income of over $4,000 a month but you are struggling to find $500 to put towards debt payments.  You should be finding at least $2,000 a month to put to debt repayments.  If you could do that, your credit cards would be gone in a little over 6 months and your mother could have at least some of her money back for Christmas.

My friend you are an exploding volcano of waste.  Please read the salient posts in the MMM blog, then come back here with a full case study.


Lady SA

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Re: Debt consolidation loan to pay off credit cards
« Reply #10 on: May 10, 2017, 07:56:47 AM »
Quote
What exactly is a case study?

Go over to the Case Study section of this forum and look at the featured posts at the top for directions.
A case study is where you go in depth and cover your assets, debts, and monthly expenses, and we can help you identify gaps and work on tightening things up and give advice on what to tackle first to get your feet under you.

nereo

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Re: Debt consolidation loan to pay off credit cards
« Reply #11 on: May 10, 2017, 08:21:47 AM »
Here are some relevant links for you:

How to write a case study:
https://forum.mrmoneymustache.com/case-studies/how-to-write-a-%27case-study%27-topic/

Mint: free software that will auto-import your spending habits and allow you to see where you money has gone:
https://www.mint.com/

Your debt is an emergency!
http://www.mrmoneymustache.com/2012/04/18/news-flash-your-debt-is-an-emergency/

Proud Foot

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Re: Debt consolidation loan to pay off credit cards
« Reply #12 on: May 10, 2017, 11:40:23 AM »
I pay $405 a week rent but live in a 3 bedroom house on my own. I know I have to get out and find a smaller 2 bedroom unit which I could get for about $325-$350  a week.

Have you considered renting out the other two bedrooms in your house? That would get you more than the $50 you would save by doing the consolidation loan.

While a consolidation loan may not be a bad idea eventually, your current effective rate is only around 4.3%. I honestly wouldn't consider consolidating until May, 2018 when the interest free period on the large chunk of card 1 expires. 

Dicey

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Re: Debt consolidation loan to pay off credit cards
« Reply #13 on: May 11, 2017, 09:38:44 PM »
You know how parents try to teach their kids that certain privileges must be earned?  You're thinking of this loan as a "Get out of jail free" card, but to me it looks like you want a privilege you haven't earned. The answer is no.

BTW, this is just an analogy, because 14% Debt Consolidation loans are a complete, face-punch worthy rip-off, not a privilege, unless you're the one with the money to lend.

truman47

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Re: Debt consolidation loan to pay off credit cards
« Reply #14 on: May 12, 2017, 04:12:58 AM »
Thanks for the replies and advice. I will do a case study and post it.

I considered renting out my two bedrooms but my sons come over once a weeknight and every second weekend so need a room to sleep in. 

@former player.. Yes that is $1170 per week net. I only live 10 kms from work so my car costs are probably about $40 a week on fuel and another $40 for service Insurance and maintenance.  But I will do the case study...and yes shes my GF..lol.  We go to the football every week when Saints are playing at Etihad. It's round 8 this week and we've only missed a game in WA and a game in Tassie so 6 games so far. 

Unfortunately Mint doesn't work in Australia as Ive waited years and years for it. My bank ANZ had an awesome money manager website which worked really well but they shut it down last year and I'm yet to find a free suitable alternative.

nereo

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Re: Debt consolidation loan to pay off credit cards
« Reply #15 on: May 12, 2017, 07:34:38 AM »
Thanks for the replies and advice. I will do a case study and post it.
.. 

Unfortunately Mint doesn't work in Australia as Ive waited years and years for it. My bank ANZ had an awesome money manager website which worked really well but they shut it down last year and I'm yet to find a free suitable alternative.
Ah, did not realize you were in Oz.
Hope you don't get discouraged posting a case-study.  People will pick through it with a fine-tooth comb and it can be a bit of an ego-bruise, but in the end the comments/criticisms can be used constructively and should help oyu out quite a bit.

In lieu of Mint you'll just have to spend a couple hours with credit-card statements etc. tallying what you spend on the various categories.  Not an overly challenging task, and one that will really elucidate where your money is going.  Ultimately what's important is that you spend money on things that bring meaning to your life, and reduce or eliminate all the crap that sucks money away without improving your happiness. 

albireo13

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Re: Debt consolidation loan to pay off credit cards
« Reply #16 on: May 12, 2017, 10:04:41 AM »
Can you get a HELOC to pay them off?
Interest would be tax deductible.

Goldielocks

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Re: Debt consolidation loan to pay off credit cards
« Reply #17 on: May 13, 2017, 01:32:55 AM »
A consolidation loan at 13.9% does not make any sense, with some cards currently at zero, and others at 13.99% now.  Only one card is higher, and it has a low balance.

Instead.  Pay of #3.  ASAP. Stop all other spending (other than minimums and paying your mum regularly what she expects... as long as you don't miss her payments, repaying her slowly is in your best interest) and pay off #3.  Cut up that card.  Eat rice and beans.  This card needs to be gone as fast as possible, so you can take down your 13.9% debt before it comes due, too.

Then start to tackle #2.  You can breathe a little, now, but continue to tackle it aggressively.
When #4 is due, keep paying #2 until it is gone, then double up on #4.  It has the same rate, so it does not matter which one you go for first. 

The plan is that you pay off all but #1 within 2 years, then snowball all your payments to #1. if you still have a bit left on it in 3 years, then you can look for a balance transfer card with a lower rate to move it to.  With all the paid off loans, you will be a better credit risk in 3 years, and can likely find something.

truman47

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Re: Debt consolidation loan to pay off credit cards
« Reply #18 on: May 13, 2017, 05:45:46 AM »
A consolidation loan at 13.9% does not make any sense, with some cards currently at zero, and others at 13.99% now.  Only one card is higher, and it has a low balance.

Instead.  Pay of #3.  ASAP. Stop all other spending (other than minimums and paying your mum regularly what she expects... as long as you don't miss her payments, repaying her slowly is in your best interest) and pay off #3.  Cut up that card.  Eat rice and beans.  This card needs to be gone as fast as possible, so you can take down your 13.9% debt before it comes due, too.

Then start to tackle #2.  You can breathe a little, now, but continue to tackle it aggressively.
When #4 is due, keep paying #2 until it is gone, then double up on #4.  It has the same rate, so it does not matter which one you go for first. 

The plan is that you pay off all but #1 within 2 years, then snowball all your payments to #1. if you still have a bit left on it in 3 years, then you can look for a balance transfer card with a lower rate to move it to.  With all the paid off loans, you will be a better credit risk in 3 years, and can likely find something.

Thanks for that. It sounds like a plan and I will work towards trying to achieve it.  I posted a case study to get some more advise on cutting down my spending.