Debt consolidation vs keep on keepin' on

KTdidit

Talk to me about debt consolidation, has anyone done it? DH and I have multiple small-ish loans/credit cards that we are working on paying off. The credit cards haven't been used in the last year and are safely locked away, so we are successfully out of the credit card frame of mind, thank goodness. I saw a debt consolidation program through Wells Fargo online and I'm wondering if that is a good way to go to get a lower interest rate on part of our debt and make it easier to pay one place rather than 5. We aren't late on any of our payments and they are in our monthly budget so we can just keep on keepin' on if that's the better bet.

What does MM say?

KTdidit

Two credit cards at 17% and 18%, two personal loans at 30%, a furniture store card at 25%. I'm not sure what fees you mean, like early payoff fees? If so, no. I'm not sure what the new interest rate would be yet. On all the examples and information screens they use a 13% rate, I would assume if might be a little higher. Obviously if it isn't lower than what we have now I wouldn't do it.

KatieCutie05

whats the loan balance on each of the cards and how much extra have you been able to put toward principal everymonth?

Unless they are a very high balance and the interest rate is significantly lower you won't save enough to make it worth it. 

brij2006

Call your current CC and personal loan companies and negotiate the interest.  Then begin with the smallest balance (only paying minimums on the others) and put as much toward that one as you can, then move your way up through the balances.

Once you consolidate then the loan looks even larger than having these multiple separate loans and it can hinder the motivation to keep plugging away at them.

KTdidit

CC1    $4,100   17%

CC2    $2,900   18%

PL1    $2,000   30%   22 months left

PL2    $1,400   30%   14 months left

Furniture  $1,100  25%

@KatieCutie05 We have only been able to pay the minimum on all of these, we pay a total of $510/mo in minimums. Which really gets us nowhere right now on the principle because most of our payments are going toward interest.

We have been waiting it out until my car loan is paid off next year so that we can put that amount toward debt to start a snowball. In my head right now I'm thinking if we got an interest rate at 15% or lower for 24 months it would be beneficial. Considering that only the 2 personal loans have a payoff date before the 24 months and the credit cards will take much much longer than that to pay off, even with a snowball. Am I missing something in my line of thinking though?

brij2006

First I would call all of these companies and negotiate the rates.  They're insane!

Then get on a very strict, rice and beans, budget. Cut out anything and everything extra, and start with the smallest debt first.  Take on 2nd jobs, overtime at work, sell things, anything to bring in some extra money.  

$510/month is quite a bit on this high interest of debt. It's going to take quite a bit more than just the interest payments to gain any traction.

I will always recommend Dave Ramsey's Total Money Makeover for you and your H to read to get on track with paying off the debts.  Or taking his Financial Peace University classes.  

KTdidit

brij2006 said:

First I would call all of these companies and negotiate the rates.  They're insane!

Then get on a very strict, rice and beans, budget. Cut out anything and everything extra, and start with the smallest debt first.  Take on 2nd jobs, overtime at work, sell things, anything to bring in some extra money.  

$510/month is quite a bit on this high interest of debt. It's going to take quite a bit more than just the interest payments to gain any traction.

I will always recommend Dave Ramsey's Total Money Makeover for you and your H to read to get on track with paying off the debts.  Or taking his Financial Peace University classes.  

Thank you for the response but we've already gone through making the budget, cutting where we can, discussed second jobs and overtime for DH. This isn't a budget question, I'm just looking for advice on consolidating the debt we do still have vs our bills in general.

As for negotiating the rates, I've tried that and they won't budge. The two personal loans are set and there's no changing it. The credit cards say that we don't qualify for their promotional offerings so there's nothing they can do.

brij2006

KTdidit said:

brij2006 said:

First I would call all of these companies and negotiate the rates.  They're insane!

Then get on a very strict, rice and beans, budget. Cut out anything and everything extra, and start with the smallest debt first.  Take on 2nd jobs, overtime at work, sell things, anything to bring in some extra money.  

$510/month is quite a bit on this high interest of debt. It's going to take quite a bit more than just the interest payments to gain any traction.

I will always recommend Dave Ramsey's Total Money Makeover for you and your H to read to get on track with paying off the debts.  Or taking his Financial Peace University classes.  

Thank you for the response but we've already gone through making the budget, cutting where we can, discussed second jobs and overtime for DH. This isn't a budget question, I'm just looking for advice on consolidating the debt we do still have vs our bills in general.

I know you feel this isn't a budget question, but if you aren't able to make anything more than the minimum payments on these until a year from now when another debt is paid off.  Then something needs to give in order for the outlook to be different.

Yes, consolidating them may make your interest across the board average 15%, but it doesn't get you any further out of debt. To where right now you have most of these with CC companies.  To which the rates can be negotiated.  If you were to consolidate them all into a personal loan then that rate is locked in until they're all paid off.  Which may be a term of 36 or 48 months.  To where now at least your personal loans are set up to be paid off in 14 and 22 months.  In the long run you would end up paying more in interest because the term is spread out.  

formerlyGDaisy09

KTdidit said:

brij2006 said:

First I would call all of these companies and negotiate the rates.  They're insane!

Then get on a very strict, rice and beans, budget. Cut out anything and everything extra, and start with the smallest debt first.  Take on 2nd jobs, overtime at work, sell things, anything to bring in some extra money.  

$510/month is quite a bit on this high interest of debt. It's going to take quite a bit more than just the interest payments to gain any traction.

I will always recommend Dave Ramsey's Total Money Makeover for you and your H to read to get on track with paying off the debts.  Or taking his Financial Peace University classes.  

Thank you for the response but we've already gone through making the budget, cutting where we can, discussed second jobs and overtime for DH. This isn't a budget question, I'm just looking for advice on consolidating the debt we do still have vs our bills in general.

As for negotiating the rates, I've tried that and they won't budge. The two personal loans are set and there's no changing it. The credit cards say that we don't qualify for their promotional offerings so there's nothing they can do.

consolidating the debt probably won't do much, usually they just take a weighted average of the interest rates, so you'll end-up with essentially the same rate and maybe have a few more fees built in there. 

I agree those interest rates are INSANE, definitely call to negotiate. 

this is a budget problem, not a consolidation problem, you need to get back to basics and consider a year or two of working extra to get on top of it.

abrewer5

Have you done the calculations to see how long it will take you to pay off these debts on your current plan versus doing a consolidation loan? Considered any/all fees you might get hit with? And also taken into account how much interest you'll be paying on the current plan versus the consolidated plan?

Once you do the math I would go with which ever one will get paid off earlier/incur less expenses in interest or any additional fees.

You'll also want to verify what interest rate you'll get with the consolidation loan if I could be higher than 13%.

And I'd highly recommend once you pay off your car loan you put that entire payment to paying off these debts. These interest rates are crazy high.

CuriousKiddosMama

Honestly one of the things I would do would be to keep calling the cc companies until you find someone who will lower your rate. If you've I it called once it may take more calls than that.

But i agree with brij2006, debt and your budget go hand in hand. If you are already on a budget that is a great step in the right direction, but you now need to figure out how to either get your spending down so you can make extra payments on this, or your income up so you can make extra payments. And the total money makeover is a great resource, I would totally recommend you get a copy or rent it from the library.

If you do want to post your budget people can give you an unbiased opinion. Maybe your car insurance is super high and you don't even know it- that is the type if thing that we can sometimes point out.

short+sassy

I'm not sure if this is the same thing or similar, but I did something that sounds like this years ago.  It wasn't so much debt consolidation as it was trying to use one of those "programs" to lower my credit card interest rate.  It was a HUGE mistake. 

It tanked my credit score...after I was specifically told it wouldn't.  They DO charge a fee...though the fee was disclosed to me before I signed up.  And they only lowered my rate by about 4%.  I mean, even with the fee, I saved a little money.  But nothing that was worth having my credit score torpedoed for years.

It might be the right choice for you all, but I just wanted to warn that these debt consolidation companies have the reputation of being pretty slimy.  And there are a lot of negatives to using them.

Xstatic3333

I'm with Bri and most other PPs on this one; I'd skip consolidation and take another look at the budget to try to start your snowball ASAP. It sounds like you've already made big cuts and lifestyle changes, which is great! But, there must be some other way to either make a little extra or save more somewhere. The good news is that your individual debts are small, so it wouldn't take too much to knock one out. An extra $100 a month (babysitting? Mowing lawns? Direct sales if you're savvy?) could knock out the furniture loan in under a year, and it would only get easier from there.

hoffse

Those balances are small enough that I would first start by trying to knock them out the traditional way.

I've done debt consolidation before, and it was fine.  But I was doing a cash-out consolidation for my law loans, and that was a different animal since federal loans have no pre-payment penalty.  I cut my interest rate in half, and it didn't cost me anything so it was a good deal.  I'm also comfortable reading cardholder agreements and loan documents.  Are you?

Watch out for consolidation companies because they are far more likely to screw you over than a traditional bank.  That said, Wells Fargo is usually not the best rate.  Do your homework if you decide to go that direction, and make sure that the term and payments for the payoff loan is something you can handle. Many personal loans are around 60 months, and that could actually make your monthly payment go up.

vlagrl29

do you own a home?  Would it be possible to pay them off thru a home equity line of credit?  Their rates are pretty cheap.  I think ours are around 2% if we opened one at our credit union.

oneplusoneistwo

The best way to look at this would be by the actual numbers - it would help you determine what would work best for you.  If you can list what the minumums are on each of your debts and what month your car will be paid off next year and how much that opens up to snowball, I can run the math for you and give you an exact reason why you should go one way or the other. 

KTdidit

@vlagrl29 we do own our home but are hoping to list it within the year so a HELOC doesn't make sense to me. Am I wrong? (we are currently living in my gma's old house, not paying rent, and fixing water damage and mold issues in our old home before we can sell)

@oneplusoneistwo:

CC1    $4,100   17% - min pmt $82

CC2    $2,900   18% - min pmt  $62

PL1    $2,000   30%   22 months left - min pmt $115

PL2    $1,400   30%   14 months left - min pmt $140

Furniture  $1,100  25% - min pmt $41

My last car payment will be December 2015, that opens up $310/mo

I called WF and rates on a personal loan of $12k to cover all of these small debts would be 7.25%-16.46% for 24 months. My thinking was that even on the highest end the interest rate is still lower than any of the small debts I have. And if I still pay only the minimums (not considering the snowball starting next December) it would take us years to pay it off versus the 24 months for the personal loan. The CS rep quoted a monthly payment on the high end of $438/mo

DH has been working a ton of overtime to fund the work to our old home (see above: mold and water damage) so that extra can't go to debt right now. I've been working a catering job on Saturday nights which gives us cash throughout the week for gas and groceries but it isn't a steady weekly engagement

formerlyGDaisy09

how much money are you pouring into the old home right now? how long can you stay in your grandma's old home rent free? 

what if you put repairs on the home that no one is living in on hold to pay off the debts? it might delay selling a little bit, but if you could jump on the debt quickly it would probably be worth it. 

Does that minimum payment get the personal loan paid off in 24 months? what happens to the interest rate if you don't pay it off?

What does the rest of your budget look like? groceries, utilities, cell phones, insurance, mortgage payments, etc?

formerlyGDaisy09

AprilH81 said:

Gdaisy09 said:

how much money are you pouring into the old home right now? how long can you stay in your grandma's old home rent free? 

what if you put repairs on the home that no one is living in on hold to pay off the debts? it might delay selling a little bit, but if you could jump on the debt quickly it would probably be worth it. 

Does that minimum payment get the personal loan paid off in 24 months? what happens to the interest rate if you don't pay it off?

What does the rest of your budget look like? groceries, utilities, cell phones, insurance, mortgage payments, etc?

With the damage being water and mold related I'm not so sure that delaying the repairs won't cause MORE damage.  I am NOT an expert, but I think the damage could get worse and the mold could spread if it isn't fixed as soon as possible.

Some repairs may not be delayable...but there may be a point where work could be stopped, especially if no one is living there...remove mold and damange, delay re-building..or something, just a thought.

brij2006

Gdaisy09 said:

how much money are you pouring into the old home right now? how long can you stay in your grandma's old home rent free? 

what if you put repairs on the home that no one is living in on hold to pay off the debts? it might delay selling a little bit, but if you could jump on the debt quickly it would probably be worth it. 

Does that minimum payment get the personal loan paid off in 24 months? what happens to the interest rate if you don't pay it off?

What does the rest of your budget look like? groceries, utilities, cell phones, insurance, mortgage payments, etc?

These are all great questions that can give many more options besides consolidating.  Debt consolidation is viewed in the money world (mostly with creditors and your credit score) as a last chance survival before bankruptcy.  Which it sounds like you are nowhere near.

Post your budget and we can help out to point out places to cut or things to do differently to get ahead.

Have you ever thought about not fixing the home and just selling it?  It sounds like it's quite the cash cow right now, and your income doesn't have the wiggle room for it.  What about selling it in a short sale if you owe more than it's worth at this point?  It will take a hit to your credit, but just be sure you aren't taking out any extra loans after that, and it won't be a problem (mostly another mortgage).

KatieCutie05

Not paying a dime over minimum payment isn't going to do anything for you... you don't have a snowball but in real motivated debt repayoff - the "payment" plan really shouldn't mean anything to you. Start with the lowest balance card - and just do everything possible to just get one loan paid off - that will atleast give you a small snowball to snowball the rest. I mean you don't need a lot even. 1100 dollars changes your life. 

and i just realized you said car payment - so this isn't even all your debts. how much do you owe on your car?

I think you need to either cut costs elsewhere - or take some money out of the mold/water repair fund each month. Or maybe just taking one month off of home repairs -  It shouldn't be an option to stick to those "payment plans" with that level of interest. 

oneplusoneistwo

KTdidit said:

@vlagrl29 we do own our home but are hoping to list it within the year so a HELOC doesn't make sense to me. Am I wrong? (we are currently living in my gma's old house, not paying rent, and fixing water damage and mold issues in our old home before we can sell)

@oneplusoneistwo:

CC1    $4,100   17% - min pmt $82

CC2    $2,900   18% - min pmt  $62

PL1    $2,000   30%   22 months left - min pmt $115

PL2    $1,400   30%   14 months left - min pmt $140

Furniture  $1,100  25% - min pmt $41

My last car payment will be December 2015, that opens up $310/mo

I called WF and rates on a personal loan of $12k to cover all of these small debts would be 7.25%-16.46% for 24 months. My thinking was that even on the highest end the interest rate is still lower than any of the small debts I have. And if I still pay only the minimums (not considering the snowball starting next December) it would take us years to pay it off versus the 24 months for the personal loan. The CS rep quoted a monthly payment on the high end of $438/mo

DH has been working a ton of overtime to fund the work to our old home (see above: mold and water damage) so that extra can't go to debt right now. I've been working a catering job on Saturday nights which gives us cash throughout the week for gas and groceries but it isn't a steady weekly engagement

This doesn't make sense to me.  At $438 a month for 24 months you are not even paying back the full principle, never mind interest ($438*24=$10,512) on a $12K loan.  At 15% for 24 months you are looking at a payment of $582 a month.  Your minimums on your current debts add up to $440.  So if you are looking to keep the same payment, here is the deal:

IF you were able to get a 36 month loan at 15% for $12K and you paid $440 a month until your car payment was gone and then paid $750 a month, you would have all these debts paid off in 26 months.  Total interest would be ~$2,400.

If you kept on keeping on now, and then snowballed once your car payment was gone, you would pay off your debt around the same time (26 months).  Total interest would be ~$3,200.

I think your decision really needs to be based on the details of the possible loan.  There is probably an origination fee involved which can be anywhere from 3%-6% or more...basically voiding the  interest savings and taking the hit to your credit for no reason. 

Numbers don't lie - I think you are better off doing what you can right now and snowballing your car payment when the time comes.  But in the meantime, try really hard to put every little bit you can towards your debts to keep them moving. 

As far as a HELOC...if there is more than enough equity in the home and you can get a low single digits rate, that could be a possible consideration, but again, gotta do the math. :-)

vlagrl29

KTdidit said:

@vlagrl29 we do own our home but are hoping to list it within the year so a HELOC doesn't make sense to me. Am I wrong? (we are currently living in my gma's old house, not paying rent, and fixing water damage and mold issues in our old home before we can sell)

@oneplusoneistwo:

CC1    $4,100   17% - min pmt $82

CC2    $2,900   18% - min pmt  $62

PL1    $2,000   30%   22 months left - min pmt $115

PL2    $1,400   30%   14 months left - min pmt $140

Furniture  $1,100  25% - min pmt $41

My last car payment will be December 2015, that opens up $310/mo

I called WF and rates on a personal loan of $12k to cover all of these small debts would be 7.25%-16.46% for 24 months. My thinking was that even on the highest end the interest rate is still lower than any of the small debts I have. And if I still pay only the minimums (not considering the snowball starting next December) it would take us years to pay it off versus the 24 months for the personal loan. The CS rep quoted a monthly payment on the high end of $438/mo

DH has been working a ton of overtime to fund the work to our old home (see above: mold and water damage) so that extra can't go to debt right now. I've been working a catering job on Saturday nights which gives us cash throughout the week for gas and groceries but it isn't a steady weekly engagement

IDK - I would look into it especially if you can get it paid off within a year at a low interest rate.

beetee123

I'll give my opinion on the matter. It may not be the popular MM opinion, but this is what we found worked for us. My SO and I had a combined $6,000 in CC debt, and our minimum monthly payments added up to $300 per month. That's about all the more we can afford to put towards debt since I'm still in school, so we weren't even making a dent in it. We searched our options and decided to go with a personal loan. We found one with a 10% interest rate (our CC were all closer to 20%), and decided to go with that. Now our minimum payment is $195, and it'll all be taken care of in 3 years, but we plan to continue putting the entire $300 into it just to get rid of it faster. We put all of our cards in a safe, and it is a lot less stressful now. I think the best part is having one payment to make rather than six. Good luck with whatever you choose!

ToastieSimons

We balance transferred our debt into one credit card. I am not sure if this is an option for you. We used discover and they gave us 0% interest for 15 months but we paid a 3% fee. The fee was about 3 months of interest on our debt and we couldn't pay it off that fast so transferring seemed right. We transferred 6600 and paid a fee of 198. Our minimum payment was about $150. This was really helpful because this minimum was a lot less than all our small debts mins added up. We have almost paid it all off in less than 6 months so you just have to be diligent. It worked for us rather than snowballing because of my kids health issues and unexpected medical costs.

formerlyGDaisy09

ToastieSimons said:

We balance transferred our debt into one credit card. I am not sure if this is an option for you. We used discover and they gave us 0% interest for 15 months but we paid a 3% fee. The fee was about 3 months of interest on our debt and we couldn't pay it off that fast so transferring seemed right. We transferred 6600 and paid a fee of 198. Our minimum payment was about $150. This was really helpful because this minimum was a lot less than all our small debts mins added up. We have almost paid it all off in less than 6 months so you just have to be diligent. It worked for us rather than snowballing because of my kids health issues and unexpected medical costs.

We have also done this (we paid off $24K in CC debt in 22 months. However, MANY MANY words of caution...you have to have fairly decent credit to get a good promotional period with a high-enough limit to do a balance transfer. your credit score will take a hit. that said, if you can pay it off within the promotional period and avoid accruing any additional debts, you can come out smiling on the other end.

That said based on OP's really high interest rates I'm not sure they'll qualify for that kind of promotional offer.