Author Topic: Debt Consolidation  (Read 848 times)

Offline Sunflash

Debt Consolidation
« on: November 07, 2016, 02:58:56 PM »
I'm currently paying down a credit card with 21% APR, balance $11,800; and another 13.5% APR, balance $2,723.  :-[ :-[ :-[ :-[


I filled out form on Upstart and they claim that I qualify for a debt consolidation loan of $15,000 11.34% APR (7.4 % interest $840 origination fee). It seems like a no-brainer to me, but I'm looking to see what you guys think.

Offline Joel

Re: Debt Consolidation
« Reply #1 on: November 07, 2016, 03:15:31 PM »
How much are you paying towards these debts each month? When do you expect them to be paid off (if you don't do anything)? How does that change if you do consolidate? I would look at the total interest paid using the two different methods and use that to determine the approach I make. (I would include the origination fee in the interest being paid for the consolidation loan)

Do you have the ability to open a new credit card that has an introductory period with 0% interest? When my parents were paying down their debt (of 25k+) they cycled through several different credit cards and ended up paying only a 3% balance transfer fee on the balance once every 12-18 months.
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Offline Sunflash

Re: Debt Consolidation
« Reply #2 on: November 07, 2016, 03:52:34 PM »
Well I guess I need to give a full picture. The two cards I mentioned are my highest percentage rates. All of the credit card debt I've accrued was while I was in law school; I used cards instead of taking on private student loans. Really, I miscalculated what my expenses were going to be. Now that I'm out and employed, I'm looking to pay it down quickly / save on interest.

Here is what I've got:

Card 1: 0 (just paid off, was around $800)
Card 2: $699.55 at 12.24% APR
Card 3: $2,722.73 at 13.24% APR
Card 4: $4,193.25 at 11.15% APR
Card 5: $5,104.50 at 0% APR (I have roughly six more months at this rate)
Card 6: $11,795.20 at 21.15% APR (ouch)

I'm not including my student loans because they are not yet due. I have been budgeting for the payment though (around $350 / month).

I do not qualify for any balance transfer card, however, one of the cards I'm considering paying off with the debt consolidation loan has a 0% offer. The plan would be to take advantage of that in order to lower all interest rates, as well as simplify payments.

I'm paying minimum payments + interest-accrued on the two cards I was hoping to consolidate while I was/am paying down Card 1 and Card 2 . . . around $400 I think. Right now I'm trying to build my emergency fund, once that is where I want it I plan on increasing payments.

The rest of my financial picture isn't so bad. My wife (who I married while in school) has zero debt and her business is booming. The job I got out of school supposedly provides highly-sought-after experience and should accelerate my career and earning potential. I've also got around $30k in a rollover IRA from my old job which makes me a little happy.

Considering I just started working again in August, I'm pretty happy with my progress.

Offline unimike

Re: Debt Consolidation
« Reply #3 on: November 07, 2016, 05:07:53 PM »
I have been down this road before. One advice I can tell you from my experience, it is so easy to refinance the debt into loans. Biggest issue is not to keep using the credit cards to create new debts. This habit will push you deeper into the debt. I am victim of that.

What you need to decide is if this is best approach for you and how will you prevent from creating new debts if you do decide to refinance these into a new loan.

Offline Joel

Re: Debt Consolidation
« Reply #4 on: November 07, 2016, 05:26:33 PM »
So how much are you paying each month? When will each debt be paid off using the current payment methods? How does the original fee work for the consolidation? Is it a percentage of the balance transferred? Maybe it makes sense to consolidate the 20% card but not the 13% card. It's hard to say with what you have provided thus far.


Vertex has a really good debt paydown calculator for you to run some scenarios:
http://www.vertex42.com/Calculators/debt-reduction-calculator.html
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Offline Sunflash

Re: Debt Consolidation
« Reply #5 on: November 08, 2016, 08:23:47 AM »
Quote
"What you need to decide is if this is best approach for you and how will you prevent from creating new debts if you do decide to refinance these into a new loan."

I agree this is key. I no longer have the physical cards, nor do I have the cards entered for any bill payments or anything like that. I used this strategy with some success prior to going back to school.


Quote
"So how much are you paying each month? When will each debt be paid off using the current payment methods? How does the original fee work for the consolidation? Is it a percentage of the balance transferred? Maybe it makes sense to consolidate the 20% card but not the 13% card. It's hard to say with what you have provided thus far."


I'm paying $1,200 per month toward the cards. At this rate I will have paid all off by December 2018, paying a total of $4,400 in interest (using the snowball method). I think $4,000 of that is the 21% card and around $111 of that is the 13% card. My wife gets some decent-sized bonuses that we plan to use to pay off chunks at a time to speed the process up a bit.


The origination fee is a percentage of the total loan amount. It comes out of the provided loan; so, $15,000 - the fee.


That Vertex calculator makes things a bit easier by removing a lot of the guess work. Also, knowing the right questions to ask/answer helps a lot. Thanks. Overall, it looks like your suspicion about consolidating the 21% card but not the 13% could be the best method.

« Last Edit: November 08, 2016, 08:41:03 AM by Sunflash »