by spacechrist777
I’m a credit analyst / financial advisor on wall st.
My clients often turn to me after going through some type of hardship and racking up the credit cards, trying to find a REASONABLE loan offer to consolidate Unsecured credit card debt.
Now, chances are, if you’re going to consolidate, it’s because your payments are all over the place and hard to keep track of. Fair enough. One payment, easier to maintain. I would ONLY suggest taking a loan to pay it off if, you cut up the cards, and get a good APR on the loan. Depending on the finances, good would be between 10-8%. Anything lower, no longer exists.
Brief history lesson, banks stopped providing these loans around 2009 after the recession due to everyone being in debt. Around this time, people were taking consolidation loans left n right, and led to 73% of these loans being defaulted on.
So, now that we have that covered, looking for a low apr consolidation loan for unsecured debt with a LOWER monthly payment that what your current minimums are collectively, is simply a unicorn. It does not exist.
Think about it this way. Let’s say you have oh idk. 20k in credit card debt. With 3 cards And you’re only able to afford your minimums which come out to 600 ish per month.
The APRs collectively will average out at around 24%. And these minimum payments are based on a 27 year payment plan considering you no longer accrue a balance.
With that being said, let’s consolidate that 27 year plan down to 5 With the same APR of 24%.
Congrats! Your new monthly payment is $1800! And now your stuck paying that until you make a better decision.
If you’re at the point where you CANNOT AFFORD DOUBLE YOUR MINIMUM PAYMENT, you gotta wake tf up.
Your paying $600 per month and the balance barely comes down because the interest rates eat up most of the payments. So, you’re bleeding yourself dry, to “preserve your credit score” but your score does not improve with each payment. In facts, you may notice it’s dropped a bit.
News flash, this is because you cannot afford to pay the debt back.
If you can only afford a little over the minimums, the truth of the matter is, you can only afford to not be sued for the debt.
So, what do we do now?
You settle the debt. You’re going to call a company that does this and the first thing they tell you is that you have to go delinquent on the accounts. This is ABSOLUTELY necessary. The reason? A) so you don’t continue to rack up more debt while they help you pay it back. And B) because the creditors will not drop the balance if you’re still lying them all of that interest. It’s nothing but profit and they will not work with you. If they say they’ll drop the APR to 0% for a year and make the payment like 75 per month, understand that you will not pay that debt down in one year at 75 per month.
( all of my numerical values in terms of dollars are extremely soft. I typically deal with clients with 40-160k in credit debt )
Debt settlement is not a bad thing. It’s not a good thing. It’s simply a thing. Yes the credit will be impacted heavily in the beginning. But the truth is, you were going to end up that low either way, after paying the minimums. This adds to your utilization and high utilization impacts your credit score. So you’re looking at the same out come, but your pride won’t let you go delinquent on the accounts because the typical understanding of a credit score is your “grade” as a person or level of self worth.
CHANGE THIS MENTALITY. It will bleed you dry. Your credit score means absolutely nothing if you have the cash. What sense does a 705 credit score make when you can’t even finance a snickers bar? I’ve told people with a score of 700+ that have utilization over 50% that their score may as well be a 500 because realistically, there’s nothing they can use their credit for without FAIR interest.
Now. Yes, settling debt fucks your credit up temporarily. But understand. It’s not debt settlement that ruins your score, it’s the spending habits or emergencies charged to credit cards that ruined it for you.
How to get your credit back. It’s simple. As the debt starts settling, accounts become resolved, the score comes back up. Leave that to the company you’re working with. Don’t negotiate debt on your own, you’re not as smart as you think and these wall st assholes will walk all over you.
Whole the accounts become resolved, open a secured credit card and ONLY spend 30% of the limit at the most, and pay it in full each month. 5% is even better.
Maintain this practice for 6 months, open a new one. A year later you’re back to 630-650 ish, because by then, debts have already been resolved and you’re maintaining a healthy utilization.
2 years later. You’re score is at a healthy 660-680 and you will most likely receive offers from those very same credit card companies with new cards coming in the main so they can roll you back into the cycle all over again.
Never feel guilty about settling debt. 9/10 times, you’ve already paid back what you borrowed, the rest is just interest. These companies prey on people who feel credit worthiness defines them.
I’m 27 years old. More often than not, it’s our parents that engrained into our brain, that credit worthiness is everything.
If you were raised believing this. Your parents are wrong.
Cash is king, if you have no cash, wtf you using credit for?
Credit cards can be useful to build credit. But in terms of using them habitually, that gets nasty really quickly depending on the spending.
What sense does it make to have a perfect credit score, but you can’t get a home loan because you have a high utilization?
I hope this doesn’t offend anyone because i said that our parents were wrong, and if you’re parents are in this situation, get them to call someone and get a quote.
Make it easier on yourself. Credit goes up comes down as we go through life. We can always work to get it back.
Cold hard cash, youll never get back from these companies. And it’s a hard thing to wrap your head around, but I’ve seen so many families suffer simply because the head of household does not want to impact their credit score.
You’re putting your families and your own life in danger to hang on to your credit score.
If you need or know someone who needs this and want a private discussion, I love reddit so I’ll take the time and give my advice to anyone I can.
TLDR; loans to pay off credit cards is counterintuitive. Credit scores aren’t everything. Settle the debt if it’s difficult to maintain.