Consolidating Credit

M

Mr. Longhorn

250+ Posts
Has anyone done this recently? What is the best way? i hear about those companies all the time, but are they legit? What about a personal loan? In about 3.5 years we got married, built a home, and have 2 toddlers. (Day Care payments are a *****, btw) Credit added up quick. Our scored are fine and we are able to make payments no problem, but I was wondering if we could just make one payment and skip all the interest. Any thoughts / suggestions?
 
No, no, no. Stay away from them. A significant number of them are simply scams. Even the legit ones cause problems. If you use one you are treated just like you filed for bankruptcy for mortgage lending purposes.

As far as a personal loan goes it's generally not a good idea. Most people that go this route lack financial self discipline - hence why they are in the position they are in. So, they get the big consolidation loan and then run the old credit cards back up. Before you know it you've double the problem.

In the grand scheme of things interest is not you problem. Being in debt is the problem. Many will disagree (and I did initially) but the easiest way out of a debt mess it the Dave Ramsey plan. The quick and dirty is to list your debt smallest to largest (regardless of interest rate) and attack them in order. Pay the minimums on everything but the smallest. Throw everything you can at the smallest and continue working your way through the list.

We did it and stuck with it and it took us 18 months to pay everything off except our mortgage. It's amazing how much free cash we have now that we don't have car payments, credit card payments, student loans, personal loans, etc.

Many disagree with Dave Ramsey but like he says, what you've been doing so far hasn't worked out so well, why not give it a try for a few months. If you don't like it you can always go back to your old ways.
 
A lot of debt consolidators are thinly veiled collection agencies. What a lot of them do is buy your debt for a percentage of what it is worth and put together a loan, giving them a huge profit margin in the process. They may buy the debt for 20 cents on the dollar but tell you 40 or 50. You could end up with a charge off on your credit report unless it is negotiated to have it not reported.

If you can make payments as you say, go with the Ramsey approach, or find a low interest loan if you insist on consolidating and pay off the debts in full.

If you can't make payments and know some of the debt will have to be charged off then do the negotiating yourself or hire an attorney to do it. If you haven't made payments for a while they may settle for something in the 5-20% range. You may be able to negotiate to keep it off your record or maybe not. If not, it's there for 7 years, so plan on being on a cash only basis for a while.
 
Also, remember that almost everything you do credit wise, including opening new accounts or closing existing accounts, consolidating loans, shopping for insurance, etc can have a negative impact of your credit score. That in turn effects how much you pay for credit, insurance, etc.
 
Due to a stretch of unemployment & a lot of stupidity, my wife & I ran up about $65,000 in credit card debt. We were paying about $2,300/month on over 20 credit cards & probably 75-80% of it was just interest. Pretty much every credit card we had was over 20% interest & many were up around 30%. We did everything we could to have our interest rates lowered, but the credit card companies just wouldn't work with us...even though we always made our payments on time every month & had never defaulted on a single loan. I guess that wasn't good enough.

So rather than declare bankruptcy or negotiate a settlement (which I've heard would stay on your credit report for 7 years), we decided to pay them off through Consumer Credit Counseling Services. The first few months sucked because we were instructed to stop making payments while the CCCS was negotiating to get our interest rates lowered., and we were getting bombarded by phone calls from the credit card companies. Within a few months, the majority of our credit cards were only charging us between 4-10%. I believe Dillards & Lowes were the only one's that didn't come down as much...continued to charge about 15.9%.

IMO, if you intend to pay the entire debt off & your debt is substantial enough, CCCS is not a bad option. It's obviously not for everybody. Here's the link to the site we used:
The Link

FWIW, we were able to finish paying off all our cards a few months ago, & now our credit score is back up around 700. It took us a little over 2 1/2 years to get them paid.
 
I was going to suggest Total Money Makeover too. LHF68 and I did it. It works. The book is very motivational... It's a lot of common sense stuff-- things that will leave you thinking "Why didn't I think of that". But his plan WORKS!

Getting the finances in order will improve your relationship tenfold.

It sounds Cliche, but this book changed my life. It can really help you.
 
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