When my wife and I finally decided that we had had enough of debt and we wanted out we decided to do a little debt consolidation. At the time, we had two credit card bills—one with two different balances fixed at 3.99% and 4.99% and one with a variable percent. We were getting deals for 0% cards all the time in the mail, so we decided to transfer all of our debt to one of those, and vow to pay it off before that started to accrue interest a year later.
That meant that the transfer fee was the last fee we paid, and we didn’t have to pay any more interest—that was definitely a blessing.
The nice thing about debt consolidation programs is that they stabilize the amount of interest you are paying. Interest payments can vary wildly between accounts and depend on the way you’ve made payments.
However, you cannot take advantage of the psychological impact of debt snowballs because you won’t have debts that you are getting rid of—just one big one. You’re also limited based on the amount of your debt.
To me, I think it’s a matter of principle to avoid bankruptcy at all costs. The borrower is the servant to the lender, and that does not give the borrower the right to not repay the lender.
For me, I’d rather you not take a loan in the first place.
So, should you use a debt consolidation load as a tool to help you get out of debt? I think it depends on your goals and your cash flow. I also think that you need to shop around and get good advice before proceeding. The last thing that you want to do is to end up with a service that trashes your credit record as bad (or worse) than declaring bankruptcy on your way to get out of debt. If possible, you’ll want to negotiate with your lenders to see if they can lower your rates, or help with payment plans from them.
The important thing to remember is that you’ve borrowed your money, and the morally right thing to do is to pay them back what you’ve promised.
I think what you guys did is smart – rolling over to zero balance and being firm in paying it off in a year.
I’ve never had any experience with this, but one thing that concerns me about debt consolidation on a card is the fact that a person who has problems with credit cards is rolling their balance onto another card. True, it’s good for the interest rate, but then that person (or persons) must implement strict adherence to a budget and self control. The problem will not go away without those things.
I don’t know anything about the national credit counseling agencies, but I don’t really trust them. I think they could do more harm than good.
And whatever – WHATEVER – you do (despite what your supposedly savvy banker is telling you to do), DO NOT roll your debt onto your mortgage. Your house is the best thing going for you. Don’t encumber it with irresponsible spending just to take advantage of a lower rate.
Just my 2 cents.
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Posted by Rachel | October 16, 2008, 12:11 pmMIN,
I completely agree with you about not paying it back. We have too many people using bankruptcy as a “get out of jail free” card. From the studies I have done, I think you are right that the biblically correct thing to do is to pay it back.
As far as debt consolidation, I was a little bit confused at first reading this post, because I thought you were referring to the typical debt consolidation, where a company helps you manage your debt, deals with creditors, etc…
What you guys did is a lot better as far as your credit score goes. Using debt consolidation companies can really put a hurt on your credit, but it is, of course, better than bankruptcy.
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Posted by Christian Finances | October 16, 2008, 3:37 pm@Rachel: With our roll over, we got the card and put it in a drawer. I don’t even remember if we activated them, but we may have so someone else didn’t. I’ve heard of some people freezing their cards in a jello mold or something so that they can get to them if they need them, but that it will be difficult.
@Christian Finances: What happened to calling yourself Bob? Right– big difference between seeking out a debt agency and doing it yourself. Debt agencies sound good, but can end up trashing your credit. Best to ask a lot of questions when even considering these guys.
And yes, even that’s better than bankruptcy.
Posted by MInTheGap | October 17, 2008, 11:46 am