I have about $16,000 in credit card debt, which I know is a lot. I got medically retired from my job and will be getting a pension of around $4,000. Plus, I can still work. I’m thinking about getting a loan to consolidate my debt since I haven’t used my credit cards at all since summer while paying them down. Would that be a good choice? Once I get a job, I plan on using my pension to pay it off early.
If you can get a personal loan at a lower interest rate than your credit cards, then sure, but really you should stop using credit cards altogether.
Bran said:
If you can get a personal loan at a lower interest rate than your credit cards, then sure, but really you should stop using credit cards altogether.
Yeah, that’s the only way to go if the interest is better. But a lot of those loans aren’t much better than credit cards, unfortunately.
Don’t do it. I made that mistake. I was shocked to find out that my $38,000 debt consolidation loan meant paying $1,000 a month, with only $600 going toward the actual debt. I can’t handle this bill anymore and I’m filing for bankruptcy soon.
@Ira
That $38,000 credit card debt is racking up about $700 a month in interest alone. If you hadn’t consolidated, a $1,000 payment would have only paid off $300 of the principal. Going bankrupt over this is a huge mistake. It will wreck your credit for a decade and make renting really hard.
@Ari
I have other debts too, around $24,000. I’ve dug myself deep, and my wife has too. We were financially responsible until COVID. Bankruptcy is the only option. It’s not as dramatic as it sounds. Lots of people buy homes three years after filing, and many find places to rent a year after.
I think it’s better to close the cards to stop the interest and set up a payment plan instead of taking another loan. Those consolidation loans can be pretty shady, right?
Yes, make sure you really save more on interest than what you’re paying on the cards. Otherwise, it’s not worth it.
Consolidation loans can really help if done right. Figure out what you spend on credit cards each month. They have much higher interest rates than a personal loan. If you can get a good rate on a loan and your payments are less than what you’re paying now, it could be a smart move. Also, compare your expenses to your income. If you’re still spending more than you make, you need to cut back. Don’t start using the credit cards again after paying them off, or you’ll just end up in trouble again.
I did this before, and my credit card debt ended up increasing because I didn’t develop good spending habits; I just took out a loan. I ended up in even more debt. So I recommend not doing this unless you’re confident you can keep those credit cards at a low balance.
@Corey
I’ve already cut up my credit cards.
Micah said:
@Corey
I’ve already cut up my credit cards.
I was going to suggest reaching out to the credit card companies to see if you could arrange a lower interest payment plan. I did this with two cards in 2009, and both companies froze the cards and cut the interest rate in half as long as I made my payments on time. Whether they’d do that now is a different story.
@Grady
With how COVID affected many people’s finances, they will likely work with you. Any payment is better than none for them, considering how many have defaulted.
The key is to not use your credit cards again. If you find a lower interest rate, then maybe it makes sense.
Not a good idea. Using debt to solve a debt problem is like trying to use gasoline to put out a fire. It just makes things worse. You have a spending issue and using debt to fund your lifestyle won’t help. You’ll just start using your credit cards again and go deeper into debt. Instead, the best way is to: 1. Cut your expenses to the bare minimum. 2. Work overtime or get a second job to maximize your income. 3. Cut up all your credit cards so you stop using them. 4. Pay every extra dollar to the highest interest debt until it’s paid off, then move to the next highest. 5. Learn from this so you don’t get trapped in debt again. Easy credit is a trap set by lenders to keep you paying them forever. Credit is easy to get, but paying it back is tough. Use debt wisely and for your benefit, not theirs.
I’m guessing you’re older to be medically retired. If you can, consider accessing your 401k to pay it off. If someone approved a loan while you aren’t working, it will likely have a high interest rate, which wouldn’t be worth it if it’s the same as your credit cards.
I did this and did save money. It felt less stressful paying off a loan compared to credit cards. But it requires just as much, if not more, discipline. If you’re not careful, seeing those cards with no balance can get tempting.
When my ex maxed out my cards, I called and struck a deal. They canceled the cards, stopped interest and late fees, and I paid off the balances. That helped clear the debt without any extra charges. It wasn’t good for my credit score, but my ex already ruined that.
Yes, if the interest rate is lower.