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[wilbrish]

What do you think of this idea: I have 3 credit cards now, two are high interest.  I was offered a consolidation loan which would pay off two of them.  If I took the loan paid them off (will cancel these credit cards, don't care about credit score, they are shortening my life), my monthly payment would drop approx $200-$250 per month.  The loan is at a lower interest than my credit cards, and is long-term (6 years), but no pre-payment penalty.  I am seriously considering this as a way to dig out.  I have home equity, but will probably not sell the house for 4 years at least.  Taking a second is not a consideration.

Thanks for your feedback.

[clean]

I hope that you are not using your house to turn an unsecured loan into a secured loan. 

Before you try to consolodate and trade unsecured for secured debt, have you asked them to lower the rate on your cards?  Have you tried to surf the balances?


More details might help us, though.  How much do you owe?  What are the details on the consolidation loan?

[dr_seuss]

What fees are associated with this loan?  Is this a HELOC or a home equity loan, by any chance? (If so, that really is the same as a second mortgage on your home.)  How much lower is the interest rate on the consolidation loan than the rates on your credit cards?  You can use the calculators at www.bankrate.com to figure out whether this makes financial sense for you.  Clean's suggestion about asking for lower rates is excellent.  It can help if you have another credit card offer in front of you that you ask your current creditor to match.

One very important factor to consider:  why did you get into credit card debt in the first place?  Are you generally a very disciplined person financially, and is this a unique situation that has to do with medical or unusual personal circumstances?  I ask because it would be really, really bad to jeopardize the equity in your house if there's even a chance that you might run up the balances on those cards, or any cards, again.  Have you already made moves to reduce your spending and to pay-as-you-go for expenses?  Are your cards out of your wallet and in a huge block of ice in your freezer?

I ask these questions as a fellow-debtor, and wish you the best in resolving the situation!

[wilbrish]

Thanks for the feedback.  This is not an equity loan; as far as I can tell, it is unsecured. 

I was not responsible; I am not using the cards now and making more money, which helps. 

I made one payment late on a card, and my interest rate shot up.  That's why I felt it was impossible to negotiate a lower rate. 

At this point it may just be best to bite the bullet and pay down this debt.

[jacaranda_]

I would be very wary of doing any this, because the one financial institution that takes on all your credit could jack up your APR without justification, or find something in the fine print of whatever agreement they make with you.  One credit card company adds 10% points to my APR every 6 months and then I have to "talk them out of it."  It's a huge hassle.  You may end up at their mercy in a much worse situation.  I've had an offer from BofA to consolidate, and fortunately, they have done so many things to try to *(#&$ me that I would never do it.  But I suppose any credit card company could do this to you. 

And if you decide to go ahead with the consolidation loan, do NOT cancel the other cards (cancelling them actually negatively affects your credit score, as discussed on another thread).  Then you will really be in a corner, since you will have nowhere to move the debt if something goes wrong with your main creditor.  Try paying off just one of those cards with a balance transfer but keep the account open.  There's a good chance that within a couple months they will send you an offer for a lower APR on balance transfers to get you back as a customer, especially if you have a good payment history with them.

Also: if one of the cards is an Amex card, they may lower your APR to 12-13% if you change to a gold card.  I think.  I was waiting for a hitch, but I haven't seen one in the past 4 months.  They're generally a much less predatory company.

[wilbrish]

Good advice here; I will take it and with good planning and discipline, will pay the debt off sooner than with a cons loan. Thanks

[jacaranda_]

For further reference, there was an episode of the NPR show "On Point" earlier this week about credit card debt:

http://www.onpointradio.org/shows/2008/08/the-next-credit-crisis/

They discuss debt consolidation (around 27:00 min), but only briefly -- too bad it wasn't discussed further.  The guest expert, a law professor at Harvard named Elizabeth Warren, nearly crawled through the telephone line when a caller asked about doing debt consolidation, comparing it to stepping into a pond full of sharks, or something like that.  The rest of the episode is just ok, a lot of rather common sense things I think most people already know.

[prytania3]

I personally like consolidation loans. You can always pay them off early. They lower payments and interest rates. BUT if you run up the credit cards again, it totally defeats the purpose.

[dr_zack]

Credit card companies/banks are EVIL - and they're hard to work with right now!  I'd certainly try to consolidate - but first ask them to lower your interest rate and then monitor it closely (they cannot be trusted). If that is unsuccessful, I'd take the offer and pay them off -as long as it's not trading unsecured for secured (and it sounds like it wouldn't be).  I had a situation similar to yours, but fortunately could borrow from my partner (at 3% interest) to pay them off - and am now paying him back (through payroll deduction).