HELP!I'm pouring my heart out here, need advice!*Updated 6/12/07*

[dvcgirl]

I was referring to the author of the book - not dvcgirl! I do agree the big ticket items save more money.

No worries, I didn't take it personally or anything. I do think the author has a valid point. Many spend so much time looking for bargains on the little things. I know a few people who are having financial troubles and they do this to the point of obsession. They're living in houses that they can't afford, driving cars that they have no business leasing and run all over the place looking for the cheapest gallon of gas, or the great deal on paper towels. I guess in some sense it makes people feel that they are in control....when in reality they are spiraling out of control.

One interesting point in All Your Worth is how the authors suggest you pay down CC debt and loans that you are obligated to pay. They have you use all of your savings (except $1,000 for emergencies and 401K/IRA money) to pay it off. Personally, I agree, except I'd have someone continue to contribute to their 401K up until the point that there's a match from the employer.

Once that is paid off you go to Tier 2, which is to build 6 months of your "Must Haves". That's interesting because lots of financial types call for a straight 6 months of salary, whereas they have you build enough to pay the bills you must pay for six months. I think that makes more sense actually. For so many people, the thought of saving six whole months of their salary is overwhelming. This plan has you save half that, because your "Must Haves" should never go beyond 50% of your take home pay.

Once you reach that point, they break down the 20% of your take-home pay that is to go into savings. 10% to retirement. 5% to go towards paying off your mortgage more quickly. And the other 5% is your "Dream Money". They throw college into that category. I'm sure that some people will disagree with that.

These authors say it's *never* a good idea to do a cash-out finance or home equity loan. And in 95% of the cases I'd say that's true....unless you're a savvy financial type. 2/3 of the people who pull out equity to pay off CC debt are back in trouble within 2 years. That's our OP to a tee...

They also hate borrowing against the home just because interest rates are low to use the money to invest elsewhere. They just don't advocate borrowing against your home because it's simply too risky in most cases.

They use the Dave Ramsey argument to answer the question for those who ask whether it's best to pay off your house... "what about the tax write-off for mortgage interest?" They answer...

"A tax credit is no reason to prolong your mortgage payments! Think of it this way....if you were a professional gambler, your gamgling losses would be tax-deductible. But does that mean a gambler wants to lose money? No way!"

They go on...

"Still not convinced? Consider the math. Let's say you're paying $1,000 a month, $700 goes to interest and $300 goes to principle. You would save $200 on your taxes. So you want to keep paying $1,000 to the bank so that you can save $200? Of course not. Math like that will drive you to the poorhouse in a hurry."

 

[dvcgirl]

When I got home yesterday there was a letter to DH from SallieMae. It turns out it was an offer for a preapproved non-student loan consolidation loan. We were approved for 25K and could take out the loan for any where from 36 months to 72 months. The 36 month term our payment would be $816 dollars a month. That is just about what we are paying now. The 60month term was $586. The APR was fixed at 6.99% for the term of the loan and would only increase if we were late or missed a payment. (Which I will NOT do!) This would cover all the cc debt and only leave us with the signature loan which is an automatic deduction from our bank account each month. I thought this would be a terrific opportunity. I know some of you have said that we shouldn't consolidate because we will just get ourselves back into the same hole. Well, let me be the first to say NO WAY! As soon as the cc's were paid they would be canceled, save one. And that one's limit would be lowered to like $500 so there is no way it could get out of hand. Please let me know what you think. We have to respond to the SallieMae offer within 14 days.

What are the rates on your cards now? If the rates are higher then I'd say it may be worth it. I know that some of your CC minimums have increased. Have any of the others gone up? If not, your minimum payments could get out of reach and you may have to go down the road to consolidation. If you do consolidate, I definitely would go this route and not the home equity route. And you're right...you positively can't allow yourself to get into this trouble again...or you'll be filing for bankruptcy and risk losing your home.

Also, have you looked at your 401K contributions and inquired about what your employer match is (if any)? You may think about dropping your contributions down to match and throw that money at your debt as well.

 

[MAGICX2]

What are the rates on your cards now? If the rates are higher then I'd say it may be worth it. I know that some of your CC minimums have increased. Have any of the others gone up? If not, your minimum payments could get out of reach and you may have to go down the road to consolidation. If you do consolidate, I definitely would go this route and not the home equity route. And you're right...you positively can't allow yourself to get into this trouble again...or you'll be filing for bankruptcy and risk losing your home.

Also, have you looked at your 401K contributions and inquired about what your employer match is (if any)? You may think about dropping your contributions down to match and throw that money at your debt as well.

The lowest rate on any one of the cards is 10.49%. The other payments have not gone up, yet. When I called those cc's they said it would probably be the Nov. or Dec. billing cycle when we see the increase. I absolutely would not allow myself to do this again. This thread has been a real eye opener. I was hesitant to put it all out there, but I was at my wits end. You guys don't know me from Eve so that made it a little easier. But I can swear to you that I will not let myself get back in the same mess. I think it is a good offer. DH says that on Dave Ramsey's radio show he is always putting down SallieMae and saying we should boot them to the curb. I am not sure why though.
tlbwriter---I am close. One cc only has about $700 and the next lowest is about $980. I am not sure if I should include them, but if I don't then I need to make the SallieMae payment, plus the sig loan payment (which is automatic and I don't have to worry over), plus these two payments. I am afraid that I would keep paying the min. on these two and never get them paid down. If I go ahead and lump them in I know they will be gone within three years.
As for the 401k we reduced our contributions to just what our employers match which is 6% for both of us. We did this at the end of Sept. but I didn't see a major change in either of our paychecks. Slight increase but not major.

 

[tinaluis]

I think it's a good offer ONLY if you don't use the credit cards again. It seems that you've made some very good progress with your budget and canceling expenses. Most importantly, it seems that something has clicked in your thought process and you realize that having access to credit is bad for you. That's a good thing. I would say go ahead and consolidate the debt but make sure you don't use the credit cards for anything other than an EXTREME EMERGENCY. Good luck to you.

 

[nowellsl]

I also agree that it sounds like a good offer. If there is anyway you can hang on to your credit cards (have someone you trust keep them for you) it will really hurt your fico score if you close them - I would avoid that if you can. Keep them open but don't use them. It would affect your credit history and your debt to credit ratio (drastically, especially with the new loan). Also, sign up the for highest payment since you're already used to paying that amount!! Good luck!

 

[dvcgirl]

The lowest rate on any one of the cards is 10.49%. The other payments have not gone up, yet. When I called those cc's they said it would probably be the Nov. or Dec. billing cycle when we see the increase. I absolutely would not allow myself to do this again. This thread has been a real eye opener. I was hesitant to put it all out there, but I was at my wits end. You guys don't know me from Eve so that made it a little easier. But I can swear to you that I will not let myself get back in the same mess. I think it is a good offer. DH says that on Dave Ramsey's radio show he is always putting down SallieMae and saying we should boot them to the curb. I am not sure why though.
tlbwriter---I am close. One cc only has about $700 and the next lowest is about $980. I am not sure if I should include them, but if I don't then I need to make the SallieMae payment, plus the sig loan payment (which is automatic and I don't have to worry over), plus these two payments. I am afraid that I would keep paying the min. on these two and never get them paid down. If I go ahead and lump them in I know they will be gone within three years.
As for the 401k we reduced our contributions to just what our employers match which is 6% for both of us. We did this at the end of Sept. but I didn't see a major change in either of our paychecks. Slight increase but not major.

I think it was very brave of you to put all of your personal finances out here like you did. Also, I think it was a *big* eye opener for you....because you saw how most of us reacted. With fright and horror...lol! Seriously, it's not funny but sometimes it's *great* to hear these things from total strangers...because we don't know you....and we're not judging you *personally*....just evaluating your finances and some of the choices you've made. And many of us can see exactly where you're headed unless you make drastic changes, even if you can't see it yourself.

If your lowest card is 10.something percent, and they can adjust up further...then yes, the deal that you've been offered seems to be a good one. Is there a penalty for pre-payment? I'd love to see you put more than that $816 toward it if you can.....like if you get some extra hours. Again, you must make a solemn pledge (you and DH) to not use a credit card...not through Christmas...not during your upcoming trip to Disney. And be proud of the home that you already have...sell some stuff on Ebay to give yourselves extra room....because you'll need to stay there awhile.

I'd also work on getting that $1,000 emergency fund if you can scrape it together...and get then get hard-core intense about paying down that CC debt. The book I just read calls CC debt..."Steal from Tomorrow" Debt...and that's exactly what it is. Think of every single solitary CC transaction as taking out a mini-loan from your bank. Because that's exactly what you're doing. Best of luck to you!

 

[Lulu's Mom]

correct me if I am wrong.... but a student loan consolidation can only be used for a student loan. Sallie would acctual contact your original loan people and have the loan transfered to them, that is of course if this is a student loan consolidation. Now if Sallie approved you for a loan to do what ever with that this would work, but if it is strickly for SL than you could not pay your credit cards with it because you would actually never recieve a check, the cjeck would get mailed to your current loan holder.

Again correct me if I am wrong, but I just consolidated my own SL and this is how it worked.

 

[tlbwriter]

correct me if I am wrong.... but a student loan consolidation can only be used for a student loan. Sallie would acctual contact your original loan people and have the loan transfered to them, that is of course if this is a student loan consolidation. Now if Sallie approved you for a loan to do what ever with that this would work, but if it is strickly for SL than you could not pay your credit cards with it because you would actually never recieve a check, the cjeck would get mailed to your current loan holder.

Sallie Mae has gotten into the non-student loan credit market - the post specified that this was for consolidation of debts other than student loans.

 

[Lulu's Mom]

I just read it again more carefully and I see that it says non - student loan. My appologies.

 

[disneysteve]

As soon as the cc's were paid they would be canceled, save one. And that one's limit would be lowered to like $500 so there is no way it could get out of hand.

I just wanted to comment on this. There are issues you need to keep in mind with regard to your FICO credit score. Try to keep the CC that you have had the longest. Also, be careful about dropping the limit really low. It is best to never charge more than 30% of your credit limit. If you drop your limit to $500, that means not exceeding $150 in charges which really won't get you much. I'd suggest keeping a higher limit to avoid damaging your credit score any further.

 

[WonderWomanDC]

Figure out how much it will save you. Seems like a significant amount - so I think it's a good idea. However I think it would be best to cut up all the cards except an emergency one (which you should truly only have for emergencies, maybe your husband could hold it if he's less prone to spending and on board with the plan). Don't cancel them though - no need to destroy your FICO score. Later when and if you feel you could be responsible you could order replacement cards, maybe close some of the newer smaller credit lines, but not the older ones.

 

[adisneymama]

I also agree that it sounds like a good offer. If there is anyway you can hang on to your credit cards (have someone you trust keep them for you) it will really hurt your fico score if you close them - I would avoid that if you can. Keep them open but don't use them. It would affect your credit history and your debt to credit ratio (drastically, especially with the new loan). Also, sign up the for highest payment since you're already used to paying that amount!! Good luck!

This isn't correct. It will help her FICO score if she does close them. Creditors look at open credit cards as potential debt that you could get. Even if the card has a zero balance, if you have a lot of debt like in this debtors case it pulls down your score. The best thing to do is to close any credit cards with zero balances except for maybe one for emergencies. This card will need to have a low balance.

To OP, as far as the Sallie mae loan goes if you just can't pay off these debts any other way, then since the interest rate is fixed and is lower than your current rates it may be worth it for you. However, since you owe so little on the two cards, I really feel you would be making things worse. Figure out adding 3 more years of 6% interest to those amts and you will see just how much more you are spending. Do you have any other way that you could pay off those cards sooner? Would really be your best choice.

DH works for a bank in the credit area and prior to being home with DD I have worked as both a creditor and for the bankruptcy court. So I do have some expertise in this field. Good Luck to you!

 

[nowellsl]

This isn't correct. It will help her FICO score if she does close them. Creditors look at open credit cards as potential debt that you could get. Even if the card has a zero balance, if you have a lot of debt like in this debtors case it pulls down your score. The best thing to do is to close any credit cards with zero balances except for maybe one for emergencies. This card will need to have a low balance.

To OP, as far as the Sallie mae loan goes if you just can't pay off these debts any other way, then since the interest rate is fixed and is lower than your current rates it may be worth it for you. However, since you owe so little on the two cards, I really feel you would be making things worse. Figure out adding 3 more years of 6% interest to those amts and you will see just how much more you are spending. Do you have any other way that you could pay off those cards sooner? Would really be your best choice.

DH works for a bank in the credit area and prior to being home with DD I have worked as both a creditor and for the bankruptcy court. So I do have some expertise in this field. Good Luck to you!

According to Suze Orman (some people can't stand her, but I like her) your debt to credit ratio counts for 30% of your FICO score. If you close down your available credit it totally blows your ratio.
She says never close a credit card account. If the OP closed all her accounts and borrows $25,000 her credit utilization would be 100%. You don't think that would affect her FICO score? (Just curious)

 

[minnie1928]

According to Suze Orman (some people can't stand her, but I like her) your debt to credit ratio counts for 30% of your FICO score. If you close down your available credit it totally blows your ratio.
She says never close a credit card account. If the OP closed all her accounts and borrows $25,000 her debt to credit ratio would be 100%. You don't think that would affect her FICO score? (Just curious)

I've been doing a lot of credit repair for my mother and with that comes a LOT of research. Anyway, from what I've seen the above mentioned information is true. I heard the "don't have open cards with $0 balance warning" too, but that was MANY years ago. Lately I'm seeing advice that is more along the lines of keep your cards, particularly the oldest history cards. History itself has value too! I would keep the cards, either put them in a safe deposit box (mentioned by someone else earlier) or cut them up. If you cut them up, you can always call and say you lost them and need to have new cards reissued. The point being that you need to make them very difficult to get to.

To the OP-Congratulations! I've been following your thread everyday and am always glad to see you post how things are going. I loved your trip to Kohls where you walked out with more money than when you walked in! I think the consolidation loan is probably the way to go, as long as you keep the motivation that you obviously have right now. Best of luck!

 

[solgent]

I think OP should do what is best for her financial future, not what is best for her FICO score. We have all agreed that she should not take on any more debt. She has excess debt as it is. So why does she need a great FICO score at this point?

If she needs to close accounts to avoid using them, if she needs to lower the limit to limit herself, that is more important than her FICO score.

By the time that she is in a position to borrow more, she will be in much better financial shape based on her actions and her FICO will reflect that.

I personally have no debt other than my mortgage and perhaps I do not understand fully the role a FICO score plays in one's life. Please correct me if I am mistaken.

 

[nowellsl]

I've been doing a lot of credit repair for my mother and with that comes a LOT of research. Anyway, from what I've seen the above mentioned information is true. I heard the "don't have open cards with $0 balance warning" too, but that was MANY years ago. Lately I'm seeing advice that is more along the lines of keep your cards, particularly the oldest history cards. History itself has value too! I would keep the cards, either put them in a safe deposit box (mentioned by someone else earlier) or cut them up. If you cut them up, you can always call and say you lost them and need to have new cards reissued. The point being that you need to make them very difficult to get to.

To the OP-Congratulations! I've been following your thread everyday and am always glad to see you post how things are going. I loved your trip to Kohls where you walked out with more money than when you walked in! I think the consolidation loan is probably the way to go, as long as you keep the motivation that you obviously have right now. Best of luck!

That's the advice I've been getting as well. I have probably 30 credit cards (not sure how I got so many!) but only have a balance on one. My credit utililization is around 5% or less. My FICO is 811. I really don't think the 0 balance cards hurt my score in the least! If a person is using a majority of their available credit then he/she is probably in trouble!

 

[MAGICX2]

To OP, as far as the Sallie mae loan goes if you just can't pay off these debts any other way, then since the interest rate is fixed and is lower than your current rates it may be worth it for you. However, since you owe so little on the two cards, I really feel you would be making things worse. Figure out adding 3 more years of 6% interest to those amts and you will see just how much more you are spending. Do you have any other way that you could pay off those cards sooner? Would really be your best choice.

DH works for a bank in the credit area and prior to being home with DD I have worked as both a creditor and for the bankruptcy court. So I do have some expertise in this field. Good Luck to you!

We owe so little on just the two. We owe thousands on the others. I just thought that it would be easier to track and easier to pay if we consolidated them all, even the low balance ones. That way I don't have to worry about the seperate payments and I KNOW it will be paid off in three years. I have opened up to my Dad about this problem (mom and dad divorced when I was 6). He has agreed to hold our cc's for us instead of closing the accounts. We will be closing all but two or three. We have had these few cc's over eight years. We have to go through him to access these cc's and he will decide if it is a true enough "emergency" to have to utilize the cards. My dad is very frugal and only has one cc for holding ressies. I think this will be the best way for us. He was very shocked to learn about our situation but he is being very supportive and is "on board" with helping to whip us into shape!
PS--Just found out yesterday. My FICO score is 673. Not bad, but not great.

 

[nowellsl]

I think OP should do what is best for her financial future, not what is best for her FICO score. We have all agreed that she should not take on any more debt. She has excess debt as it is. So why does she need a great FICO score at this point?

If she needs to close accounts to avoid using them, if she needs to lower the limit to limit herself, that is more important than her FICO score.

By the time that she is in a position to borrow more, she will be in much better financial shape based on her actions and her FICO will reflect that.

I personally have no debt other than my mortgage and perhaps I do not understand fully the role a FICO score plays in one's life. Please correct me if I am mistaken.

I personally feel like the OP must have a fairly good FICO score or she wouldn't be getting as good an interest rate on the loan offer. FICO or your credit report affects a lot that you probably don't realize - interest rates, insurance rates, when you rent an apt., or apply for a cell phone, even applying for jobs nowadays (lots of prospective employers check your credit report). If that's the only way she can be sure not to charge on them, then maybe it is the right thing for her. I just wouldn't do it otherwise.

 

[nowellsl]

We owe so little on just the two. We owe thousands on the others. I just thought that it would be easier to track and easier to pay if we consolidated them all, even the low balance ones. That way I don't have to worry about the seperate payments and I KNOW it will be paid off in three years. I have opened up to my Dad about this problem (mom and dad divorced when I was 6). He has agreed to hold our cc's for us instead of closing the accounts. We will be closing all but two or three. We have had these few cc's over eight years. We have to go through him to access these cc's and he will decide if it is a true enough "emergency" to have to utilize the cards. My dad is very frugal and only has one cc for holding ressies. I think this will be the best way for us. He was very shocked to learn about our situation but he is being very supportive and is "on board" with helping to whip us into shape!
PS--Just found out yesterday. My FICO score is 673. Not bad, but not great.

I would throw those in with the rest and pay them all off. Just one payment would be much easier and the interest rate would be lower even for the shorter amount of time it would have taken you to pay them off.

 

[dvcgirl]

I think OP should do what is best for her financial future, not what is best for her FICO score. We have all agreed that she should not take on any more debt. She has excess debt as it is. So why does she need a great FICO score at this point?

If she needs to close accounts to avoid using them, if she needs to lower the limit to limit herself, that is more important than her FICO score.

By the time that she is in a position to borrow more, she will be in much better financial shape based on her actions and her FICO will reflect that.

I personally have no debt other than my mortgage and perhaps I do not understand fully the role a FICO score plays in one's life. Please correct me if I am mistaken.

I have to agree with solgent....if I was the OP I wouldn't worry all that much about what her FICO number is right now. If she believes that there will be continued temptation to use those CCs after they are consolidated (if that's what they decide to do), then by all means....close those accounts down. FICO scores are important for people looking to take on debt, or additional debt. Something the OP doesn't need to be doing. They own a home and postively can't afford to upgrade now...so they shouldn't worry about mortgage shopping. Her DH has a company car and she has a relatively new car...so no new car payments coming down the pike. And...there should be no CCs in her life at all until she can get those "Wants" under control. And the one she does keep should be for emergencies only.

We have no debt at all, not even a mortgage. I have no idea what my credit score is...and frankly, I don't care. I can't tell you how great that feels.