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Author: Moya0359 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308881  
Subject: Consolidating credit debt Date: 11/4/2003 9:02 AM
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I am considering consolidating some of my credit card debt.
If I can get a loan for $20000, I can write off a
small loan - $3800,
Sears - $2100,
Office Max - $1800,
MasterCard - $11800,
Micron - $1800.

I have already cut up the cards associated with these amounts. My remaining cards have a total balance of $5000. Should I consolidate?
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Author: alicemcd26 Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172704 of 308881
Subject: Re: Consolidating credit debt Date: 11/4/2003 9:06 AM
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I'm not sure what the answer should be, but my DH and I are considering doing the same thing. It would be nice to have just one bill to pay every month too.

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Author: agg97 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172706 of 308881
Subject: Re: Consolidating credit debt Date: 11/4/2003 9:22 AM
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What kind of loan are you consolidating into? What is the interest rate on the loan, and the various cards? Minimum payments? With the information you've given, it seems that the only thing gained is to simplify who the payments are going to...and saving a few cents on stamps.

Also, I don't think any of us here would consider $3800 a "small loan" as you say. Who is this from? A relative?

-Agg97

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Author: ArgentLupe One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172707 of 308881
Subject: Re: Consolidating credit debt Date: 11/4/2003 9:24 AM
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I think the first question should be, "Have you changed your spending habits?"

All too often, people will "consolidate", which frees up their cards, and back up it goes. Also, what will the interest rate be on the consolidation? How are you getting this loan? Is it a "signature" loan, or are you taking the loan against some asset, such as your house. Many loan sharks will say "consolidation loan" when what they mean is 2nd mortgage. It is generally considered ill-advised to change unsecured debt to secured debt.

You (both the reply and the OP) don't have to answer these questions on the boards, but please do consider them.

Also, to the OP, you said that you would still have $5,000 remaining of debt. You need to be sure that you're not leaving high-rate debt out there. ie: if $2,500 of the "to-be-consolidated" debt is at at 9%, and the $5,000 is at 15%, please consider it may be more advantageous to include $2,500 of the 15% debt in the consolidation. I don't know if this is going to make sense to you, but it's just something to consider.

To both posters, something further is the ammount of monthly payments. Normally, consolidation loans would reduce your monthly debt-service costs. However, if you are looking at sub-prime lenders, this may actually increase the monthly ammount you pay out to service your debt. This could put you in a further crunch. Just something to be aware of...

Hopefully some of this helped, but I'm sure the rest of the board will chime in Real Soon Now. :)

ArgentLupe

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Author: windyelliott Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172708 of 308881
Subject: Re: Consolidating credit debt Date: 11/4/2003 9:32 AM
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I agree with ArgentLupe.

If you haven't changed your spending habits, consolidation is a bad idea. If on the other hand you have been able to stop spending then I would consider a consolidation loan only if it is thru a reputable bank for a fixed interest rate. I would then put ALL my debt into the consolidation so that you only have one payment for debt reduction a month. I would then try to make double payments on that loan until it was gone. This should save you a significant amount of interest and get your debt paid off much faster then a typical snowball.

As it has been stated, doing this before you have reformed yourself if a bad idea. Many folks will see the consolidation loan as free money and instead of paying off the debts and closing the accounts, will either forgo paying some of them off for a shopping spree, or they will not close the paid off accounts and then run them back up.

I looked at paying off my debt as a learning process. Yes it was hard and painful and is taking what seems like forever. But I was a habitual shopper and it took that kind of lesson to make me scared enough of charging to stop me.



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Author: jmcjls Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172709 of 308881
Subject: Re: Consolidating credit debt Date: 11/4/2003 9:57 AM
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I agree with ArgentLupe.

If you haven't changed your spending habits, consolidation is a bad idea. If on the other hand you have been able to stop spending then I would consider a consolidation loan only if it is thru a reputable bank for a fixed interest rate. I would then put ALL my debt into the consolidation so that you only have one payment for debt reduction a month. I would then try to make double payments on that loan until it was gone. This should save you a significant amount of interest and get your debt paid off much faster then a typical snowball.


What no one seems to have noticed is that the OP has cut up all the cards associated with the debt that she's wanting to consolidate. This doesn't mean, of course, that the underlying spending habits have changed. However, what it does tell me is that OP is aware that the spending habits need to change.

It is a bit difficult to swipe a card that is cut up. Even more difficult than waiting for frozen credit cards to thaw.

jmc


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Author: agg97 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172710 of 308881
Subject: Re: Consolidating credit debt Date: 11/4/2003 10:01 AM
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What no one seems to have noticed is that the OP has cut up all the cards associated with the debt that she's wanting to consolidate. This doesn't mean, of course, that the underlying spending habits have changed. However, what it does tell me is that OP is aware that the spending habits need to change.

Exactly. While cutting up your cards is a good symbolic act in itself, without the required follow-through, it's meaningless. The CC companies will gladly replace all of those cards with just one quick phone call from you. We are just cautioning the OP to make sure they are 100% committed to this. This goes back to our proposed board's slogan:

You can't borrow your way out of debt!

-Agg97

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Author: Bweaver Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172712 of 308881
Subject: Re: Consolidating credit debt Date: 11/4/2003 10:26 AM
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The CC companies will gladly replace all of those cards with just one quick phone call from you.

Yep, cards are easily replaced. But even more easily used via web and telephone. When I froze my cards (literally, in ice in water-filled ziploc in the freezer) I quickly realized it wasn't the plastic, but instead my willingness to use credit, that was my problem. Unless my account was closed, I could still easily use the account over the phone and on the web.

Symbolic acts are great when reducing overspending. But they're hardly a solution, just reminders of resolution.

They're also great for celebrating debt freedom.

Consolidation? To simplify, sure. To ease cash flow by extending length of repayment in a crisis, yes. To create a sense of progress to allow overspending to continue until hitting rock-bottom? Likely.

Good luck,

Bruce

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Author: windyelliott Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172713 of 308881
Subject: Re: Consolidating credit debt Date: 11/4/2003 10:29 AM
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It is a bit difficult to swipe a card that is cut up. Even more difficult than waiting for frozen credit cards to thaw.

This is true, but if the accounts are open it is easy enough to call the credit card company and request a new card.

When I was 20 I got a consolidation loan to pay off some debt, about $7000 in credit card charges. I didn't close the accounts, but rather just cut them up. When I wanted to charge something I just called the company, got new cards and charged them up again. Either that or I applied for new cards to cover my new spending. By the time I started my new debt plan I was over $30K in debt and finally had learned my lesson. Now the idea of going into more CC debt gives me hives and I am $4K away from being out of CC debt completely.

It is not enough to consolidate the debt and cut up the cards. The OP needs to determine if they are adequately tired of being in debt at all.



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Author: uwalum Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172769 of 308881
Subject: Re: Consolidating credit debt Date: 11/4/2003 11:59 PM
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"What no one seems to have noticed is that the OP has cut up all the cards associated with the debt that she's wanting to consolidate."


The mass majority of folks who consolidate end up right back into cc debt, except now they also have the consolidation loan back too. It happened to everyone that I knew who consolidated, and it's proven to be true over and over again.

I encourage those to not consolidate but rather to play the BT game and snowball in addition to no longer using cc.

L

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