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Debt Consolodation Question

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  • Debt Consolodation Question

    I have 6 credit cards totaling $6000, some of which have high interest rates. My bank will give me a consolodated loan with a low interest rate. I would like to do this and pay the bills off quicker.

    However, I'm worried if this is the best choice at this time because I also owe taxes (state and federal) that I'm working with to do either an offer and compromise or a payment plan. My concern is they'll ask me to max out the credit cards again, which I can't afford.

    Since my husband has had 2 surgeries, we're now living paycheck to paycheck and I can't seem to get the cards paid down, let alone the taxes paid off.

    My plan is to consolidate the credit cards, get on a payment plan that allows me to build credit and then I can offer the taxes a plan that's feasible.

    Is this a a good plan or does someone have another suggestion?

    Thank you in advance.

  • #2
    There is nothing wrong with consolidating or shifting debt to save interest, but you must not run your credit cards back up. Otherwise, you won't have solved anything.

    I agree with artwest. Cut your budget back, pick up extra work, and sell what you don't need. If you do consolidate your debt, then DO NOT use your credit cards anymore!

    I also agree that the govt. probably won't force you to pay them all at once via a credit card. You will be able to work out a payment plan with them.


    • #3
      Vote #3 for the budget being the root issue here.

      There are a lot of people here who are great with budgeting and trimming things down. Can you post your budget for a review?

      Income and Expenses

      If you can fix your budget, I see no issue with the debt consolidation. But where do you think you'll be in 3-5 years if you don't fix your budget?


      • #4
        Back to the basics...

        I am talking generally as I obviously do not know anything about your situations.

        First and foremost, six credit cards with a balance of $6,000 is often looked at as someone that does not know how to properly spend their money. (Thus everyone telling you as they would tell anyone, to get into your budget and fix the spending issue).

        Most people get focused on the large amount of debt (In this case $6,000) when they should be focusing on not getting themselves more into debt by ensuring they have a zero based budget (Assign a name to every dollar before you receive it, have an emergency fund etc).

        As for the consolidation loan, there is only one thing wrong with them (That I know of). Many people that get a consolidation loan, go even further into debt... sounds like the opposite of what we want to do but here is what happens.

        Let's assume you have six cards each with $1000 for a total of $6,000 in debt.

        The cc monthly payments are a minimum of $300 a month and your monthly bills are $2,700 and your monthly income is $3,000.

        What you have here is a locked budget, thus no way to improve your situation.

        You then get a bill consolidation loan, this loan consolidates your debt into one bill, thus you now pay out $100 each month freeing up $200 per month.

        This is where most people have a problem. If you do not fix your budget, you will either charge up your credit cards again (Because you have the extra $200 per month it will seem like you can afford it).

        My suggestion would be:

        1) Balance your budget.
        2) Get the bill consolidation loan.
        3) Re balance your budget using the extra money that you save with the consolidation to pay off your loan faster.
        4) Cut up and get rid of 5 of your cc's, keep the lowest interest rate (Any fixed card if you can). Then only use the card to spend money you already have. Meaning, if you have money in the bank to pay for food and gas, then charge them and then pay the cc off.

        In a best case scenario you will not use the CC at all and pay cash for everything.



        • #5
          I'm sorry DH is ill and understand this adds worry atop of reduces income. It's critical to know exactly where you are spending your money and if there is any leakage or items/spending you can stop for the short term while you get the current problem fixed. I suggest you keep a small notebook and write down every single spend no matter how small. If you are willing to offer details of spending like rent, utilities, cell ph., food, CC balances and interest rates, taxes owed, penalties & interest perhaps we can offer ideas not yet discussed.


          • #6
            sorry, dbl post
            Last edited by snafu; 06-08-2013, 01:01 PM. Reason: DBL post