Is it Better to Get a Loan or Just Pay

iVillage Member
Registered: 06-08-2003
Is it Better to Get a Loan or Just Pay
4
Thu, 06-12-2003 - 6:07pm
I have about 4 credit cards that I owe money on. Is it better to get a personal loan and consolidate all of the card bills, pay them off and then just make payments on the loan which will mean jst one payment for me other than rent, and it will cut out the interest rates of the credit cards and there's a fixed amount I would pay each month for like 4 years. If I keep trying to pay off the credit cards like I am now, I will be paying them off forever because I can only pay a little above the minimun and the interest rate is killing my progress. Is a personal loan better? I owe about $8,000, with a loan I can have that payed off in 4yrs or less and I would only have the loan to pay plus rent. That seems easier than dealing with each card seperately and dealing with different due dates and plus the interest rates. Does a loan sound like the best way to go?
iVillage Member
Registered: 08-14-2002
Fri, 06-13-2003 - 1:17am
I agree that, in this situation, a loan might be the best way to go for all the reasons you mentioned. However, this only works IF the cards are not charged up again - it seems to be a natural process that once CC debt is paid off (by whatever means), we just go back to charging them again. To prevent this, I would close the accounts and cut up those cards - except one for emergencies, and put THAT one on "ice."

Here's an idea - when my fiance and I did this (consolidated CC debt into our refinanced mortgage), we saved two cards (ones with the best interest rates), and put them in a ziploc baggie. Then we put that baggie in a coffee can, filled the can up with water and put it in the freezer. Anytime we were tempted to charge, we had to wait for the ice to thaw! By that time, we had usually found a different way to deal with it or decided we didn't need it after all.

In our house, that's called "putting the charge cards on ice" to let them cool off. We've used this trick again later when a card was getting used too much. Works for us.

Good luck!

Msfit

                  &nbs

Avatar for mymartes
iVillage Member
Registered: 03-26-2003
Fri, 06-13-2003 - 11:14am
have you thought about consolidating your 4 ccs into one cc w/a low interest, no annual fee and no transaction fee?

if you can't consolidate them into one cc, i would definitely try getting a personal loan. hopefully, it's a low interest loan.

good luck.

mym

iVillage Member
Registered: 03-26-2003
Fri, 06-13-2003 - 12:16pm
I agree with the others that this strategy can work, but you have to be very careful.

DH and I got a personal loan from our bank to pay $15,000 in credit card debt (if you belong to a credit union, check with them first since their interest rates are lower). We paid off the cards and closed all accounts but one. We only used the remaining card for DH's business expenses, which were reimbursed by his company.

In order to make this work (no more charging), we had to build up an emergency fund. Without it, unexpected expenses would have made us reach for the credit card (and then we would have been paying on credit cards AND a loan). That trap, of getting a loan to repay debt and then feeling so relieved that you reach for the credit cards again, is the road to disaster. A loan doesn't make the debt go away - it just moves it. I had to remind myself of that over and over again!

One thing you might ask about is a loan with "no prepayment penalty". With this kind of loan, you can make additional payments if you want to (or if you get a financial windfall, such as a tax refund, bonus, gift, inheritance or overtime pay). This is the type of loan we got. Although our loan was for 5 years, we repaid it in 30 months. This saved us a lot of interest, and it felt really good to be out of debt sooner than we orginally expected.

I wish you the best and good luck with your plans!

iVillage Member
Registered: 06-08-2003
Fri, 06-13-2003 - 6:58pm
Okay thanks for your replies ladies. : - ) Yes I will definately close out all of the accounts except for one or two and I like the putting them on ice idea! LOL! I think that would work perfectly for me because I am usually an impulse buyer, having to wait will keep me from using the cards again. I will also be sure to get a loan that allows for early or extra payments whe I can make them. Thanks for the good advice! : - )