Debt Consolidation?

[Mike D]

Well you are heading in the right direction. Getting your debt under control will do a lot for you. I know it helped me sleep better at night know I was no longer working for Sears, Mastercard, Visa, Discover, and the other plastic cards of death.

The one thing I did wrong was I closed all of my accounts and did not have a credit card for about 8 years. That hurt my credit score. I had to open two small accounts just to show some credit. We only have two credit cards and both have zero balance. I live off cash and if I cannot afford it I do not buy it.

I personally think debt consolidation should be a LAST resort. Basically, you are paying someone else(and the debt consolidation companies ARE NOT doing this for free) to negotiate with the creditors to forgive some of your debt. I think writing letters and talking with your creditors one on one is the best way to go.

So, has anyone here ever actually gotten a credit card company to dramatically lower their interest rate doing it themselves? I'm pretty sure there is an institutional bias to deal better with the consolidation companies because they know that all the other creditors are doing it too...I had an employee come to me once that was considering one of those consolidations...he had balances on a bunch of high interest cards...I was impressed...yeah, he was paying them $20 a month, but they got all his cards knocked down to 6-8% from 18-22% and the interest he saved EASILY paid their fee...

I just got through doing this myself with a company out of Las Vegas and here is how it works.

You contact them and they are liasons for you to creditors. They will discuss, with you, how much you make, how much you can pay, and if it comes down to it, run interference when you get tired of taking the phone calls from the collection agencies who call you. They're a crutch, really, and not necessary. You pay them for their services, and they do exactly what you can do by just finding the same letters on the internet and they charge a %age of what you owe the creditors. It affects your credit for 7 years after each one is completed. Citibank, and other agencies as well, does NOT work with these companies, and your interest will continue accruing until it is settled or paid off correctly.

If you get debt forgiven by creditors, you MAY be responsible to pay taxes on the forgiven debt, seen as earned income by the IRS, and they have the right to send you a 1099 for that debt if they decide to write it off for tax pruposes.

The best way to do it is by the snowball effect. Pay off the smallest cards first, then roll that payment into the next smallest, and work your way up the debt ladder. As long as you are paying something into your accounts, even if less than the minimum, most of the cards will not harrass you because they are receiving money and getting interest on it. If they start harrassing you, tell them that mail correspondense will be the only way you will discuss with them and stick to your decision.

Some very sage advice here. One point I disagree with 2050Z on is haveing to open a couple of small CC accounts to maintain your credit. I am working on my last one right now and I have been closing all of the others as they got completely paid off. I don't want or need them anymore. I will be cash/debit card only come Jan. 01, 2009. Life goes on without a high credit score.

And yes, you can negotiate your credit card interest down yourself, we've done it. And for the 1 card that didn't want to do it, we just applied for and got a 0% interest card and transfreered the balance and closed that account. Mighty funny now we get 0% offer from the same company that didn't want to reduce or interest rate.

As said above, do your best not to go the consolidation route, especially with one of the companies that advertise because it will remain on your credit report for 7 years. It is considered credit counseling. Also, please try not to do a hope equity loan or LOC. I am amazed at the number of people that call into Dave Ramsey that have 2nd and even 3rd mortgages on their homes.

[JTS]

Life goes on without a high credit score.

True, but you will be paying more for some things than others who maintain a good credit score.... for example, car insurance ratings also take your credit score into consideration.

and just as an example, hopefully there wont be any emergencies requiring an immediate $20,000 dollars and you only have $19,990 in the bank.

credit is a neccessity in todays world, using it all the time and irresponsibly is not.

[BrianL]

Debt consolidation is different than debt reduction plan. The most common consolidation is a home equity. It works fine, just don't do a 15 year note! A 1-5 year note is best. Shorter the better. HE loan interest is tax deductable. I paid off my 1st mortgage with a HE several years back. You hear a lot of people tell you not to use your home, but unless you are going to NOT pay your bills, it doesn't matter. Just don't convert short term debt to long term debt.

For a plan, most bankers/Credit Union loan officers should be able to help you put one together for free, or Dave Ramsey has a catch all plan for $100/year. Each person is different because of the types of debt one can have.

[2050z]

True, but you will be paying more for some things than others who maintain a good credit score.... for example, car insurance ratings also take your credit score into consideration.

and just as an example, hopefully there wont be any emergencies requiring an immediate $20,000 dollars and you only have $19,990 in the bank.

credit is a neccessity in todays world, using it all the time and irresponsibly is not.

That is the problem I ran into. Car note and insurance. I was debt free and no open accounts. That hurt me for awhile.

[greenflag]

I'm doing it the lazy way. We really could buckle down and make some sacrifices, get an extra job, etc. The wife and I have paid off thousands of dollars in debt just by focusing on the task at hand and not buying junk we don't need. The debt snowball thing works. Just get in a habit of working the plan and it doesn't hurt much at all. When you pay them off close the account.

As far as credit score. Who cares what your score is if you put yourself in the position to pay cash? I love the power of cash, it puts all the negotiating power in your hands. Very nice..


IMO the mortgage thing just transfers debt and you have the cards clean to max out again. You are just digging the hole deeper.

[Mike D]

True, but you will be paying more for some things than others who maintain a good credit score.... for example, car insurance ratings also take your credit score into consideration.

and just as an example, hopefully there wont be any emergencies requiring an immediate $20,000 dollars and you only have $19,990 in the bank.

credit is a neccessity in todays world, using it all the time and irresponsibly is not.

I'll take my chances in order to be debt free.

I'm doing it the lazy way. We really could buckle down and make some sacrifices, get an extra job, etc. The wife and I have paid off thousands of dollars in debt just by focusing on the task at hand and not buying junk we don't need. The debt snowball thing works. Just get in a habit of working the plan and it doesn't hurt much at all. When you pay them off close the account.

As far as credit score. Who cares what your score is if you put yourself in the position to pay cash? I love the power of cash, it puts all the negotiating power in your hands. Very nice..


IMO the mortgage thing just transfers debt and you have the cards clean to max out again. You are just digging the hole deeper.

Couldn't have said it better myself.

[DrenalinJunkie]

I haven't met anyone that has come out in the good doing this. Think I would just knuckle down.

[Goldeneagle]

Thanks guy's! First thing we are going to do is sit down and figure out just exactly where we stand. We have already thought of some things to cut back on so hopfully we'll get back on track fairly soon. I'm just getting tired of living paycheck to paycheck and it is all my doing for letting it happen. Thank's again.

[JTS]

I'll take my chances in order to be debt free.

Is a person that owns a credit card with a $0 balance for true emergencies, or uses a credit card and pays it off completely at the end of each month's billing cycle (and at the end of the year has a free week stay Disney World for the family using the points.. LOL).. not living debt free?

[Mike D]

Is a person that owns a credit card with a $0 balance for true emergencies, or uses a credit card and pays it off completely at the end of each month's billing cycle (and at the end of the year has a free week stay Disney World for the family using the points.. LOL).. not living debt free?

I suppose, but the temptation is always there (at least for me anyway). But I can share some insight on that.

The Truth About Credit Card Debt

Myth: Aren't there positive uses of a credit card? Like rebates and airline miles?
Truth: Responsible use of a credit card does not exist. Credit card debt is a major problem in America.

There is NO positive side to credit card use. You will spend more if you use credit cards. Even by paying the bills on time, you are not beating the system! But most families don't pay on time. The average family today carries $8,000 in credit card debt according to the American Bankers' Association.

Now let's talk about the rebates. If you were using a credit card at 5%, you would have had to have spent $80,000 to get $4,000 rebates on new cars that lost $6,000 of value when you drove them off the lot. That is not a good deal!


Cash vs. Credit Cards
When you pay cash, you can "feel" the money leaving you. This is not true with credit cards. Flipping a credit card up on a counter registers nothing emotionally. If you use credit cards instead of cash you will spend 12-18% more. This is money you could have saved.

If you "have to" use plastic, I suggest a debit card. I use them for travel and the occasional convenience of ordering something over the Internet or phone. Other than that, I use cash.

Personal finance is 80% behavior. You need to cut out habits that make you spend more. You do not build wealth with credit cards. Use common sense. When you play with a multi-billion dollar industry and you think you're going to win at their game, you are naive. You cannot beat the credit card companies.

I believe it.

[JTS]

I believe it also, it's like a drug.. you can abuse it. My only card now is AMEX and it has to be paid off each month, so I "feel it" every month instead of each transaction moment. Sometimes it really hurts.. LOL

[2050z]

The two cards we have have zero balance. We do not use them. We sticks to the budget.

[JHT]

I believe it also, it's like a drug.. you can abuse it. My only card now is AMEX and it has to be paid off each month, so I "feel it" every month instead of each transaction moment. Sometimes it really hurts.. LOL

X2. We did this years ago.

[HUNTNETIME]

You sound like you are on your way. They say admiitting you have a problem is the first step to tackling the solution. Remember, you need to keep a roof over your head, food in your stomach, and a way to get to and from work. All the rest is just fluff. Avoid the fluff and you will wipe your debts out sooner than you think. You need to check out Dave Ramsey's show on Fox Business every evening at 7pm Central. Or just get on his site. Good stuff. I'm not saying he's a god or something, I'm just saying has some very good fundemental advice on getting rid of debt. There are others who have different philosophies, but my beliefs are very much in line with his. My wife and I currently have no credit card debt or car notes. I am working on paying off my boat WAAAAAAAAAAY ahead of schedule then on to my wife's school loans. Dave Ramsey does not preach getting rich. He preaches getting out of debt. Now, he will admit that getting out of debt will help you achieve your financial goals and possibly become quite wealthy by retirement age, but that is not his focus. And that is what I like about him.

Thanks guy's! First thing we are going to do is sit down and figure out just exactly where we stand. We have already thought of some things to cut back on so hopfully we'll get back on track fairly soon. I'm just getting tired of living paycheck to paycheck and it is all my doing for letting it happen. Thank's again.

[OPC Patrick]

I have just read Dave's book and I hate to say it but he is right about credit cards. I have always paid off the full amount every month. This made me feel like I was living debt free (other than cars and house). I have also bought some nice things with my bass pro points. After reading his book I do believe I have been spending more that if I had been using cash. All those sausage BOBs at whataburger, and curse Sonic for those credit card things I used for more than one Route 44 cherry lime-aid.

Now that I am using the debt snowball trying to pay everything off early and live on a budget. I can see how everybody is pushing credit. Every store has a card, half the commercials are pushing credit of some kind. No interest, same as cash for 30 days, Angels card (victory's secret)... If they were not making money off it they wouldn't be pushing it so hard.

Back to the question... We were not in bad shape we just were not where we wanted to be. Its was just a matter of setting priorities. I found that having a plan in place reduces a lot of stress. Now we think about it before we buy something I mean really think about it, and we compare prices to get the best price we can if we need it. I have canceled a lot of fun spending to save for future fun.