I know debt consolidation loans aren't really recommended, but I was wondering if anyone has done one before, and with which company or bank, etc. I haven't done one before but I am wondering if it would be feasible to do it, once I get some feed back about it. Thanks everyone in advance!
Has anyone done a debt consolidation loan before?
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I haven't done a debt consolidated loan before but I have consolidated my debts into one loan. It was awful! I knew my debts were high but seeing it all together as one number was shocking. The amount I had to pay in interest alone, even with a lower interest rate, was depressing. It felt like it was going to take forever to wipe out that debt. Chipping away at it was difficult and the temptation to incur more debt was intense. The loan made my debt into something that was more "out of sight, out of mind," and completely out of my control. It became just another big bill to pay. I was devoid of any connection to HOW I got that balance to begin with.
Worse, I didn't learn my lesson! It was too easy to build up debt again.
I much, much, much prefer the snowball method. There is intense satisfaction in knocking off those balances one by one. I swear, that alone kept me motivated.
It was a pain negotiating with each credit card company to lower my interest rate and get better terms but at least I could use them against one another. I'd tell one company that wasn't budging about the great deal another company was giving me and ended up with them giving me a better deal (most of the time). Thanks to new laws the credit card company have even better plans available now than those that were available to me.
You see, there is a statute of limitations on your debt - usually around 4 years. Let's say you've been charging to your credit card since 2002 but haven't been paying down your balance beyond the minimum required payment. Now in 2015, there is a certain portion of your current balance that is older than 4 years. It is completely noncollectable. While negotiating with the credit card companies, they know this. At a minimum, they are willing to stop charging you interest on that portion of your balance if you only - hopefully - eventually pay it off. You could even end up with a big ol' credit on your balance, making it so much easier to pay off. You may or may not have to pay tax on that forgiven portion but a slightly bigger tax bill is never bigger than the amount they forgave.
If you get a consolidation loan, you reset that statute of limitations clock to 2015.
And the clincher is, you'll also end up with another creditor on your credit report! You see, currently you have CC company A, B, C & D on your credit report and they're reporting credit limit, credit balance, payment history, etc. Once you have a debt consolidation loan, you have all that PLUS another company reporting with a really high credit limit, credit balance, payment history, etc. Even if you are restricted from charging to your old cards until the consolidation loan is paid off, those accounts still show up on your credit report. Even if the account is "closed per customer request", they are still on your report and every creditor knows you can easily re-open them. That's not good.
The old axiom still holds true. You can't borrow your way out of debt.
Worse, I didn't learn my lesson! It was too easy to build up debt again.
I much, much, much prefer the snowball method. There is intense satisfaction in knocking off those balances one by one. I swear, that alone kept me motivated.
It was a pain negotiating with each credit card company to lower my interest rate and get better terms but at least I could use them against one another. I'd tell one company that wasn't budging about the great deal another company was giving me and ended up with them giving me a better deal (most of the time). Thanks to new laws the credit card company have even better plans available now than those that were available to me.
You see, there is a statute of limitations on your debt - usually around 4 years. Let's say you've been charging to your credit card since 2002 but haven't been paying down your balance beyond the minimum required payment. Now in 2015, there is a certain portion of your current balance that is older than 4 years. It is completely noncollectable. While negotiating with the credit card companies, they know this. At a minimum, they are willing to stop charging you interest on that portion of your balance if you only - hopefully - eventually pay it off. You could even end up with a big ol' credit on your balance, making it so much easier to pay off. You may or may not have to pay tax on that forgiven portion but a slightly bigger tax bill is never bigger than the amount they forgave.
If you get a consolidation loan, you reset that statute of limitations clock to 2015.
And the clincher is, you'll also end up with another creditor on your credit report! You see, currently you have CC company A, B, C & D on your credit report and they're reporting credit limit, credit balance, payment history, etc. Once you have a debt consolidation loan, you have all that PLUS another company reporting with a really high credit limit, credit balance, payment history, etc. Even if you are restricted from charging to your old cards until the consolidation loan is paid off, those accounts still show up on your credit report. Even if the account is "closed per customer request", they are still on your report and every creditor knows you can easily re-open them. That's not good.
The old axiom still holds true. You can't borrow your way out of debt.
Consolidation loans usually don't work. The only way that they do work is (1) you have an emergency fund, (2) you can comfortably afford to pay the monthly payments on the consolidated loan (3) you have changed the way you manage your finances so that you won't run up new bills (probably should be #1). What I generally have seen with this type of loan is the payment is so high people end up using credit again for living expenses. Of course, that makes everything much much worse.
In early 2000s, I lost my job at same time as health problem started. I ran through my IRAs and eventually started on the credit card, even using credit a little once the SSDI payments started. I refinanced my high interest rate mortgage, later ending up with a second mortgage loan from a credit union at 10%. Honestly, the need for a consolidation loan is a warning -- except for home equity loan for some repairs/renovations or creative use of home equity like paying for schooling if you desire to get further education down the road. You cannot afford your lifestyle any longer. Employment conditions and pay change everywhere, unfortunately it seems for the worst with pay going lower and lower resulting in homeowner being upside down on the house payment -- owing more than house is worth.
Unless you are willing to get a second job to speed up repayment or drastically cut your standard of living, a move to cheaper housing would be prudent. Really, if you have been floundering in your career for a long while, it may be time to cut losses on your current city and move to place with better job prospect for your line of work. If you stay to hang onto the house, most people end up in foreclosure, lose house and car and end up sleeping on someone's couch....Been there and done that. I only got older, nothing else to show for it except fewer employers who would hire me so I had to sell my place.
Unless you are willing to get a second job to speed up repayment or drastically cut your standard of living, a move to cheaper housing would be prudent. Really, if you have been floundering in your career for a long while, it may be time to cut losses on your current city and move to place with better job prospect for your line of work. If you stay to hang onto the house, most people end up in foreclosure, lose house and car and end up sleeping on someone's couch....Been there and done that. I only got older, nothing else to show for it except fewer employers who would hire me so I had to sell my place.
I’ve never done it once but I know that it does not make sense to have it. Certainly it’s attractive but the downside is that it will only pile up your debts more – like when you paid off your card debts, you thought there are no more bills to pay but the thing about debt consolidation loans is that they add another creditor to your pile of debts so you would pay off more debts again.
First and foremost, if you do this, do not use a company that charges you, especially any sort of monthly maintenance fee. Second, do not do this if you end up with higher interest rates on any of the debt.
A lot of these companies simply take a single monthly payment from you, and then send individual payments to your respective debts. The consolidation company doesn't lower any interest rates, don't really do anything other than charge you to write checks. It helps in that you don't have to keep track of making 5 payments a month yourself, but you're being charged to do something that a calendar would do for free.
A lot of these companies simply take a single monthly payment from you, and then send individual payments to your respective debts. The consolidation company doesn't lower any interest rates, don't really do anything other than charge you to write checks. It helps in that you don't have to keep track of making 5 payments a month yourself, but you're being charged to do something that a calendar would do for free.
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