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Debt Consolidation Loans
Over Our Heads My husband and I made the mistake of getting in debt to far over our heads. We are considering consolidating our bills and don't know how it works or even where to start. Can you address this issue in your newsletter. Any help you give us would be greatly appreciated. About five years ago, my husband and I found ourselves with $20,000 of credit card debt. At first, I consolidated the debt into two credit cards. I watched the mail for those "3.9 for 6 months" cards. As the introductory period would come to a close, I would find another card with a low interest rate. My husband was skeptical of my "money juggling", but I'm happy to say that the only debt we now have are our house and car payments. Never pay only the minimum amount due. After deducting all your expenses (except for credit cards) from your income, pay as much as you can on that line of credit. Just be sure to close out accounts that you are no longer using. Having too many can be a bad thing. I also made some bad choices and my debt load became more than I could handle. I finally swallowed my pride and talked to a loan officer at my bank. Admitting that I couldn't handle my money was one of the hardest things I have ever had to do. She took my bills and calculated how much I owed. She then talked to me about getting one loan to pay off everything except my mortgage. I ended up with one payment to my local bank. I also got rid of check blanks. They were just to easy to use. I have a harder time handing over cash. Now I thought about a purchase longer instead of just buying. One more thing that she did was to take my credit cards and make me cut them up in front of her. She then put the little plastic pieces in an envelope and kept them in my file at the bank. This actually worked as a kind of shock treatment for me. It took me 3 years to pay back the loan but I will always be grateful to her for helping me get back on the right track. One of the biggest advantages of using cash all the time--I never have to show my ID!! My recommendation is to forego the bill consolidation unless you have tremendous willpower, which if you got yourself deeply into debt, you may not have when it comes to spending. My husband and I believed that we would be in a much better position if we only had to pay one bill, but at the time we didn't have the willpower to stop spending. We did good at first, but pulling out the credit card for immediate satisfaction was too easy. I am happy to say that we now have that consolidation loan paid off along with all of the other bills that accumulated. Our strategy was to attack one credit card at a time and pay more than the minimum amount. Pay off as much as you can each month. When one card is paid off, use the money that you were paying on that card and put it towards the next. We don't use credit cards very much now, but if we do, we pay them off every month to prevent any finance charges. You will be shocked at how much extra money you have once you stop paying monthly credit card bills. Now we can get the immediate satisfaction by paying cash and not have to mess with the finance charges.
Behavior modification was the most necessary ingredient in solving my credit card debt problem. Here is what I did: I got a debit card attached to Master Card. This was provided by my bank. Every place that accepts MC also accepts my debit card. I never write checks or charge anything, I simply hand the cashier my debit card and my purchase is automatically deducted from my CHECKING account. I record the transaction in my checkbook register and always know just how much my balance is and how much I can continue to spend. I am never tempted to spend over my account balance (although the card would allow me to do this) because the overdraft would automatically be deducted from my next checking account deposit and would not leave me enough to pay my regular monthly bills. This system works for me because there is no abstract, someday-I-will-pay-this-off fantasy -- it is a great deterrent to spending my future away. Using the debit card is convenient and satisfies the psychological and actual need to have proof of creditability, but there is no accumulation of debt. I cut up every other credit card, moved my $12,000 balance into a 3.9% account and marked my calendar in red when the introductory rate was about to expire. I then transferred the balance into another 3.9% account and will continue this pattern until all my debt is paid off. In less than six months I have brought my balance down to $7,900 from the original $12,000 and have always paid only the 3.9% interest rate. Even though I have made lots of progress, I'm no angel. Impulse buying is still a threat to my becoming debt free so I made a deal with myself. I allow myself to make at least two impulse buys a week as long as they are under $10 each. It's important that I make these two unplanned purchases because the rebellious impulse to buy is satisfied and I'm not going broke. Finally, I keep in mind that when some slick lending company representative is hissing "yessssssss" at me on TV and bombarding me with junk mail, I think about how happy he would be if I borrowed the money and then couldn't make my payments. In fact, that's exactly what he's counting on because foreclosure and repossessions are his real business. In response to M.C. who is in debt over her ears, my wife and I went through with a Debt Consolidation which was managed by one of our local Consumer Credit Services. They helped us by first having us cut up our credit cards, then they negotiated with the various creditors to keep the rates low while we were paying them off. We considered a consolidation loan, but we didn't have enough equity in our house at the time. The service also helped us to evaluate our expenses and showed us where to minimize expenses. It feels good to be able to breathe again. And also keep a fairly frugal life on top of all this. If she can't locate a service, she should start by paying off some of the smaller debts and then applying the money to the larger debts. Having fewer bills coming into the house is a GREAT morale booster. Do you have a time or money saving idea that wasn't included in this article? Please send it to tips @stretcher.com. We get the best ideas from our readers!
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"The Dollar Stretcher, Inc." does not assume responsibility for advice given. All advice should be weighed against your own abilities and circumstances and applied accordingly. It is up to the reader to determine if advice is safe and suitable for their own situation.
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