I owe about 22,000 between 2 credit cards. I am wondering would it be wise to get a personal loan, using a website like bestegg, and get a much lower interest rate than what I am paying between the 2 cards. Any thoughts or strategies??? 

leon harris

Original Post

Absolutely a good idea if you can get a lower interest loan with probably lower monthly payments as well.   You can also check the peer to peer lenders such as lendingclub and prosper.

THE DANGER: (And I know because I've been there - done that).  You get the loan, transfer the money and are good to go.  But guess what, your credit cards with their same limits (at least $22,000) are just sitting there and not being used.  You get a bill and put it on the card and pay it off.  No problem.  You buy a few more things and put them on the card or cards and suddenly can't pay it all off at the end of the month so you pay the minimum, swearing you will catch up next month.  Of course you know the end result.  You owe $20k+ on your debt consolidation loan and you owe another $5k, 10k, 20k again on credit cards. 

Best thing to do after transfer would be to cancel all but one of the cards (I know you will show less credit available and take a little hit on your score for a while) and just keep it for emergencies.  Takes willpower but you can do it. 

Good luck!

 

Last edited by DipperDave

Thanks for the advice. That is something I didn't even consider so I will take that advice and analyze what the best way to go. I only have 2 credit cards, so you think I should cancel one or both?

I would not cancel both.  Its good to have some available credit on your report and peace of mind for a (real) emergency that comes up.  Keep it in a drawer or other safe place if you are tempted with it. 

If one of your cards has any annual fee just to have it, that is the one I would cancel, else I would keep the one with the largest limit.

@Leon, listen to DipperDave...I fell in that boat once, paid off credit cards, then while paying off the loan, started using the freed-up cards. You really do have to be disciplined.

 

Thanks for the replies. I think I will just suck it up and try to pay more each month. I normally try and pay about $20-$50 more than what's due, but I am going to try to increase that number. 

I had $22000 spread over 5 cards. I am in the process of paying it off and have done the loan without success. The small loan companies charge more interest and it’s not worth it. I have made a payment schedule and paying down the highest interest cards first. It’s working and it feels great!

I second dipper Dave, however, I would not cancel the cards. There are other ways to go about not getting further into debt by using them without having to compromise your credit score. You could put them in a safe for instance or wrap them up like a present. This way, you would have to unwrap it to use it. The best course of action, in my opinion, is to ensure you don’t have them on you. This way, it’s less tempting to pull it out. Locking it up I find is easier too. Once you have made up your mind not to use it unless it’s an emergency, you will find that emergencies are far and in between. I did the whole prosper thing to consolidate mine and it worked great for me. As long as you can get the lower interest rate, that’s the way to go. I’m glad to hear you also put a little extra. Very good. hope this helps! Also, to tie up the first part, don’t close the accounts, just don’t use them. If you feel you’re better off closing them, then sure, but try first to put them in another location out of immediate reach. Better to take the hit then get further in debt, but best would be to put them away and forget about it so you’re not taking the hit on your score. Also, they’ll eventually send you a letter saying they’ll close the account if you don’t use it. Let them close it or buy a tank of gas (and that’s it) to keep it going but then put it back in a safe place for a couple years until you get another letter. Your choice.

I compared on a spreadsheet, and the credit card consolidation loan only turned out to save $10 a month from my budget, although I would be done paying it off sooner sooner.  I also decided to try to pay it down without taking out another loan, and reaching out to the credit card companies to lower the interest rates.

It's always a good strategy to pay a bit more each month when you can. I would highly recommend checking your statements and see if your payment is more than what you're paying in interest each month. That's the problem I had - while my payments were more than the minimum, they weren't enough to actually cover the interest and make a dent in the principal amount I owed. Now if that's all you can afford, then do your best. 

Good luck!

I went to a local federal credit union to get my loan - it had better rates and was easier. They also don't punish you for paying your loan off early.

I also was able to pay a ton of my debt down this year by going through my house and selling items on ebay and facebook marketplace. I just went through my Christmas decorations and found a ton I don't use/want so I've put them online for sale this weekend.

Also, for me, paying cash makes a huge difference so maybe trying that? I have two tricks. First, I put every $5 bill I receive back into a personal bank/savings that I don't access. It can add up to $50-$100 by the end of the month.  And also, when I have to purchase a big item, having all of that cash in hand makes me think twice about if I really want it versus just swiping that credit card.

Above all else, don't get made/frustrated/disappointed if it doesn't happen right away. I've been working hard all year and not having a social life but it's paying off finally. And that is making it all worthwhile.

 

Thanks for all the replies. I really appreciate it. I think my main focus will just to try and pay an additional amount as much as possible each month. Also, I will try to make additional payments throughout the month on each card. I also may try to set up recurring payments of a certain amount each week to be withdrawn from my account.

A personal loan is definitely considered as one of the best ways to consolidate credit card debt. If you can get one with low interest, you'll definitely take advantage of it.

I had a credit card  of $15K that I just could never get down because interest was so high. (And I could only really afford to pay the minimum.) So I took out a personal loan, paid off the credit card, and then automatically set up payments every 2 weeks to pay half of the minimum payment and within 3 months, I see a difference already! I don't feel too stretched out for money. I still have the credit card and then I dared myself to ask to increase the limit on that same credit card. Now, my credit card limit is $20K, I've put it aside and don't use it at all. (I like to know that in case something major happens, I can just swipe the card) AND my credit score rose by 50 points! I'm now in the 700s club. So yeah, I say go for the personal loan but discipline yourself enough to not use that credit card so frivolously. 

Leon posted:

Thanks for the advice. That is something I didn't even consider so I will take that advice and analyze what the best way to go. I only have 2 credit cards, so you think I should cancel one or both?

Keep one credit card. Also, never cancel more than one card every 2 years. It will hit your credit score hard if you do. Personal  experience .

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