Anyone have any advice?

bethicacon

DH is thinking of making an appoint at the bank to see about taking out a loan to pay off all of our credit cards. Once they are all payed off we will be cancelling all but I think two of them. We are trying to find some way to get out from under the debt that we both brought into this marriage. I'm thinking that this might be a good idea because we might actually start to see the light at the end of the tunnel. We will still have my school loan which has a low interest rate as well as the house payment. We would really like to build on to the house within the next five years so there is room for a family. I'm not sure if this is a good idea or not we would be making one payment instead of 6 or 7 minimum payments that aren't getting us anywhere. Any advice would be much appreciated.

jlk0219

Have you tried talking to a credit counseling company? They can negotiate lower interest rates from your CC companies and then they lump your debt into one monthly payment. My mom did this cause she was thousands into debt with CCs. It worked really well for her and she got them paid off in 5 years (total $35,000).

juangela

I was always told to NEVER cancel a credit card - just cut it up and don't use it. It can actually damage your credit score to close it.

I agree with jlk0219, though, talk to a credit counselor. They are the experts.

Future.Mrs.Shawty

The problem with credit counselors/debt consolidation programs is that you get behind on your payments while they're negotiating with the companies.  Your creditors will more than likely close out your account for you while you continue to pay on the outstanding balances.  IT LOOKS WORSE ON YOUR CREDIT IF THE CREDITOR CLOSES IT OUT VS. YOU CLOSING IT OUT.

 Either way, talk to several people and figure out what's best for you and your family.

munkii

It's true, you don't want to cancel your cards.  Also, you don't want the banks to cancel them on you.

jlk0219

True, you want to keep CC accounts open, but it also depends on how many you have. It's recommended you have 3-4 CCs max.  You don't want to have too many CCs or it lowers your credit score. You also want to have a high credit limit and a low balance on the card. I went through this cause I bought a new car almost exactly a year ago. I had several CCs from college and wanted to get them paid off or close to paid off before I bought the car. Even though it seems counterintuitive, the fastest way to get them paid down is to get the cards with the higher interest rates paid off first, not the cards with the highest balance first.  I did this, decided which cards to keep (cards with high credit limits & low APR, and which I had open for a long time) and canceled the others (mainly dept. store CCs). This improved my credit rating substantially and I was able to secure a good APR for my auto loan. I guess the best option for you will depend on exactly how many CCs you have and the amount of debt. If there's no way for you to pay more than the minimum amount due each month and get them paid off by yourself, then CC counseling might be an option. The loan you're thinking of getting through the bank- are you thinking of applying for a home equity loan or just a private loan?

kelnyc

Future.Mrs.Shawty:

The problem with credit counselors/debt consolidation programs is that you get behind on your payments while they're negotiating with the companies.  Your creditors will more than likely close out your account for you while you continue to pay on the outstanding balances.  IT LOOKS WORSE ON YOUR CREDIT IF THE CREDITOR CLOSES IT OUT VS. YOU CLOSING IT OUT.

 

 

While these agencies can be helpful when people are in dire situations, if a credit counselling company is involved in fixing your credit, it will show up on and adversely affect your credit report. I think your original plan of having the bank pay off the debt you no longer want and then making just that payment, the mortgage payment, your student loan, and the one or two cards you decide to keep, is a sound and frugal one. You can close out whatever cards you want and it does not have a measurable affect on your score. In fact, it looks better if it says "closed by consumer", meaning you paid it off with your loan money. just be conservative in your spending and diligent about making payments on time (and even throw in an extra $20 on the payments here and there when you can) and it will be much more managable and go down faster. The quick fix is not always the right solution for everyone.

 Oh, and I should mention that I had been in banking for over 10 years as a lending specialist and financial planner, so that's the basis for my info.

Good luck!

bethicacon

Thanks for your input everyone.

Kelnyc, we really want to do what will be in our best interest since we want to build an addition on to our house in the future and don't want to be restricted with what we can do because of a massive amount of debt. We also don't want to feel like we are constantly being buried. I know we will never be completely debt free but we would like to at least get to where we feel comfortable.

kelnyc

Well I think the fact that you're planning ahead and really taking a close look at things means you're on the right track. Just be patient. Debt doesn't disappear overnight, no matter which way you go about it. You can do it though!

Now go have a drink. It's happy hour!

2dBride

It is worth talking to the bank.  The only issue is whether you can get a loan that will carry a lower interest rate than what you are now paying.

If that does not work, you should definitely talk to a credit counseling company.  There are a lot of shady ones.  However, Money Management International is really good.  Essentially, they are a nonprofit that works with the credit card companies to get you a debt management plan.  You get lower interest rates, and make one payment to MMI, which MMI then disburses for you. However, you would have to give up all of your credit cards as part of the plan.