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Old 05-15-2017, 10:44 AM
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Default For those who have credit card debt, and own cars, this might help you.

I hope this doesn't come across as spam or anything, but I've worked at a credit union for over 8 years and thought this might help those with credit card debt they're trying to pay off. Not everyone is going to be able to do it, but for those that can, it could save thousands of dollars in interest.

The short and simple of it is to use vehicle equity to pay off your credit cards. So someone with $10K in CC debt @ 15% but owns their car free and clear or has a low amount left on their loan, they can transfer most, if not all, of their debt onto the car loan which should be a MUCH lower rate than the CC's. You don't OWE less, but you will pay less in the long run. At the credit union, a 680 or higher would get 2.7%. Heck, a 600 got you 6.5%. So if you've got decent credit, and you're looking for alternative ways of getting rid of the CC debt, Consider using that strategy. Hope this helps in some way. This is the link for the video I made about it.

https://youtu.be/CMXupUoWyFk
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Old 05-15-2017, 10:57 AM
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I don't think it is a good idea because you would be turning unsecured debt into secured debt and could lose your car which could have then have the domino effect of costing you your job because you can't get to work.
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Old 05-15-2017, 11:13 AM
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I don't think it is a good idea because you would be turning unsecured debt into secured debt and could lose your car which could have then have the domino effect of costing you your job because you can't get to work.
This is exactly what I was going to say. This is an awful idea.

In addition to what AJ444 mentioned, what happens when you use your car's equity to pay off your credit card and then total your car? The insurance is only going to pay what the car is worth (minus your deductible). They won't care how much you owe. If there's a gap, you're out of luck, plus you'll have no money to put toward a new car.
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Old 05-15-2017, 11:40 AM
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IF you have credit card debt, budget, pay yourself first, then take every extra penny you can and pay them down.

Sadly there are not easy answers, Live below your means and tackle High interest loans like they are a robbing you blind, because they are.

just my 2 cents. I'll have to charge interest on my next 2 cents
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Old 05-15-2017, 12:51 PM
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Originally Posted by commoncentsmike View Post
I hope this doesn't come across as spam or anything, but I've worked at a credit union for over 8 years
The credit card belongs to another financial institution so your credit union has trained you to offer car loans to individuals in order to make money off their cc debt?

Are there other ways a credit union could help - HELOC? Personal Loan?
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Old 05-15-2017, 12:53 PM
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This is exactly what I was going to say. This is an awful idea.

In addition to what AJ444 mentioned, what happens when you use your car's equity to pay off your credit card and then total your car? The insurance is only going to pay what the car is worth (minus your deductible). They won't care how much you owe. If there's a gap, you're out of luck, plus you'll have no money to put toward a new car.
So when I had the conversation with the members, I wanted to make sure they understood loan to value ratio. Yall' are correct in this point. When people do this, you wouldn't want to do the loan for MORE than what the car is worth. Thus, if the car is totaled, it will still cover the full amount.
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Old 05-15-2017, 12:58 PM
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The credit card belongs to another financial institution so your credit union has trained you to offer car loans to individuals in order to make money off their cc debt?

Are there other ways a credit union could help - HELOC? Personal Loan?
No, actually I wasn't trained at all. I would see people paying other debts, ask them what rate it's at and try to help them lower it. If someone had CC debt at 29% (Home depot, Lowes, dept. store cards) I would speak to them about different options. Sometimes its a CC balance transfer to a lower rate, other times I would use the car method.

There were some months where I quite literally helped people save HUNDREDS of thousands in interest.

HELOC's weren't something I personally worked with, plus they were higher rates than our autos. I wouldn't recommend a personal loan to anyone. Ever. They are unsecured and have crappy rates for the most part. Using the auto method, I could take someone from 20+% to 1.5% if they had a high enough credit score.
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Old 05-15-2017, 01:01 PM
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I don't think it is a good idea because you would be turning unsecured debt into secured debt and could lose your car which could have then have the domino effect of costing you your job because you can't get to work.
I suppose there is some merit to this, but being 100% honest I never saw that happen. Not once.

The WORST thing that would happen is people running up their CC again after it was paid off. That frustrated me beyond words when that happened.
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Old 05-15-2017, 03:41 PM
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I suppose there is some merit to this, but being 100% honest I never saw that happen. Not once.

The WORST thing that would happen is people running up their CC again after it was paid off. That frustrated me beyond words when that happened.
That is quite likely - running up the cards again - but it's certainly not the worst thing that can happen. The worst thing, as AJ said, is the person defaulting on the debt. When you don't pay a CC, it wrecks your credit but that's about it. When you don't pay a secured debt, you lose the asset be it your car or house or whatever. Maybe you never saw it happen but it happens all the time.

Look at what happened during the real estate bust. Millions of people used their home equity as a personal ATM doing cash out refinances. Then their home values dropped and they found themselves upside down and screwed.

All it takes in your scenario is for someone to lose their job and miss a couple of payments on the car loan before the repo guy comes around.
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Old 05-15-2017, 03:49 PM
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As a general rule, it is a bad idea to convert unsecured debt to secured debt. Most people who are buried in credit card debt haven't fixed the issues that got them there, so transferring the debt to another place (car loan, HEL, etc.) doesn't solve anything. It might lower the interest rate but that's just a band-aid, and more often than not, a year later they're back in credit card debt AND have the HEL to deal with so they're way worse off than they started.
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Old 05-15-2017, 04:01 PM
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That is quite likely - running up the cards again - but it's certainly not the worst thing that can happen. The worst thing, as AJ said, is the person defaulting on the debt. When you don't pay a CC, it wrecks your credit but that's about it. When you don't pay a secured debt, you lose the asset be it your car or house or whatever. Maybe you never saw it happen but it happens all the time.

Look at what happened during the real estate bust. Millions of people used their home equity as a personal ATM doing cash out refinances. Then their home values dropped and they found themselves upside down and screwed.

All it takes in your scenario is for someone to lose their job and miss a couple of payments on the car loan before the repo guy comes around.
Honestly, the concerns you point out are legitimate, but all I can speak on is my personal experience doing this. I don't want anyone to be placed in a poor financial position, let alone have me be part of it. But I've helped countless people do this, and it can really be a catalyst for change for some people. Again, I see the concern, but when people can literally pay NOTHING in the form of a fee/charge and save over $5000 in interest- it should at least be understood that it's an option to consider.

Like I said, I just wanted to post for those who might be in a situation where they could benefit from this. Clearly it may not be for everyone, but to say that it's a terrible idea no matter what would be a mistake.
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Old 05-15-2017, 08:30 PM
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as already mentioned, the only reason why this kinda stuff works and the bank goes for it is because you're securitizing unsecured debt.

Pretty much the same thing as opening a HELOC, then paying off your credit card bill with the LOC. Main difference is securing the debt with real property versus a depreciating asset.

I'd agree that it makes sense from an overall debt perspective by someone who is financially prudent.. However, there is the risk, which is a real risk that you'll lose your personal asset if you default. It would place you in a much worse position than if the debt was unsecured. People with these types of problems tend to be poor money managers in the first place. By offloading the debt into their vehicle loan, you're now allowing them to run up their credit cards again, placing them in an even worse position.

I'd agree with the other posters in that the individual should work on paying down their debt balances as is and not focus on refinancing gimmicks. The only time this should even be considered is if the individual is financially prudent and knows the risks.
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Old 05-15-2017, 08:40 PM
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That is quite likely - running up the cards again - but it's certainly not the worst thing that can happen. The worst thing, as AJ said, is the person defaulting on the debt. When you don't pay a CC, it wrecks your credit but that's about it. When you don't pay a secured debt, you lose the asset be it your car or house or whatever. Maybe you never saw it happen but it happens all the time.

Look at what happened during the real estate bust. Millions of people used their home equity as a personal ATM doing cash out refinances. Then their home values dropped and they found themselves upside down and screwed.

All it takes in your scenario is for someone to lose their job and miss a couple of payments on the car loan before the repo guy comes around.
In a strong economy, the house of cards appears strong and stable. You have a lot of people leveraged to the hilt, and all appears fine. But as Warren Buffet once said:

It is only when the tide goes out, do you discover who's been swimming naked.


And I'm afraid many people haven't learned their lessons from 9 years ago.
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Old 05-16-2017, 06:37 AM
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I wonder about something.

If someone's credit is good enough for them to qualify for one of these low interest title loans, couldn't they also qualify for a 0% balance transfer credit card? That would be a far safer way to go because it would keep the debt unsecured. There would be a 2% fee but the risk is much lower.

Of course, they would still have the risk of running up the balance on the paid off card again, but there's no way around that unless they close the account.
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Old 05-16-2017, 06:56 AM
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I like the outside the box thinking, but someone with a bunch of credit card debt probably isn't thinking this way. And as already stated, if you have a lot of credit card debt and a decent score, then you could probably transfer to a 0% interest card.
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Old 05-16-2017, 07:11 AM
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I think we call this .... Borrowing from Peter to pay Paul.

Not a good idea.
Better idea would be to sell your car, buy something cheaper to drive, then use excess $$ to pay down CC. Or, simply get serious about paying down your CC with any excess funds, taking on extra work, etc.
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Old 05-16-2017, 07:42 AM
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I wonder about something.

If someone's credit is good enough for them to qualify for one of these low interest title loans, couldn't they also qualify for a 0% balance transfer credit card? That would be a far safer way to go because it would keep the debt unsecured. There would be a 2% fee but the risk is much lower.

Of course, they would still have the risk of running up the balance on the paid off card again, but there's no way around that unless they close the account.
Some members could go that route, but for others, they wouldn't be able to pay off the full amount in the 0% promotional period and then the rate would jump up to something crazy again.

I would also ask you something as well. If this were a bad idea to do (considering you could lose your job and thus lose your car etc.), by that same logic, wouldn't you be recommending people to purchase a vehicle through a credit card instead of getting a lower rate car loan? The scenarios are different, but the end result would be the same. You would own the car free and clear but you would have credit card debt and possibly at a very high rate.

Obviously it's best for people to spend less and hopefully pay for the car in cash and I wish people did that more often. Working at a credit union, I saw firsthand how much most individuals saddle themselves with needless debt.
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Old 05-16-2017, 07:45 AM
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I think we call this .... Borrowing from Peter to pay Paul.

Not a good idea.
Better idea would be to sell your car, buy something cheaper to drive, then use excess $$ to pay down CC. Or, simply get serious about paying down your CC with any excess funds, taking on extra work, etc.
I agree with this 100%. I interviewed a woman a few weeks bad for a video and she did this. She didn't own the car outright, but had a couple thousand in equity. She went to the dealership, traded it in, and said "what can I get for $3000?". After that she went on to pay off her student loan debt in like 16 months.
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Old 05-16-2017, 07:53 AM
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I suppose there is some merit to this, but being 100% honest I never saw that happen. Not once.

The WORST thing that would happen is people running up their CC again after it was paid off. That frustrated me beyond words when that happened.
How long you have been in banking? Just wondering if you have been through something like the 08/09 recession in your current role. I'll admit from a personal finance standpoint I am very conservative in no small part due to seeing how people were impacted by the 02 and 09 recessions. I remember as a kid wondering why my great grandfather was impacted by the Great Depression decades later and now I understand.
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Old 05-16-2017, 08:06 AM
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How long you have been in banking? Just wondering if you have been through something like the 08/09 recession in your current role. I'll admit from a personal finance standpoint I am very conservative in no small part due to seeing how people were impacted by the 02 and 09 recessions. I remember as a kid wondering why my great grandfather was impacted by the Great Depression decades later and now I understand.
I started June 2008 so I picked an interesting time to join a financial institution.

Trust me, I'm conservative as well. I've never paid a single penny in credit card or personal loan interest. The only car loan I've ever had was for $6000 @ 1.9%. I put over 20% down on my condo.

I don't say this to pat myself on the back. I say this because the only reason I posted this idea is to help and I wouldn't suggest something insanely risky. Someone can absolutely get themselves into trouble if they use it the wrong way, but that is going to be THEIR choice. I speak with them about how much the can save in interest, repair their credit, and pay off their debt obligations faster.
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