Advice on Consolidation

Discussion in 'Credit Talk' started by jfpruitt, Jun 19, 2001.

  1. jfpruitt

    jfpruitt Well-Known Member

    I have accumulated a 30,000 credit debt in the 4 years I was in college b/c I was not eligible for student loans. 24K is credit cards alone and the other 6k is in a personal loan. The credit card interest rates are between 9% and 23%. I have 3 accounts that are now closed by the cards themselves. Now, I pay nearly 800 in payments a month with no results. My debt to income ratio is nearly 80%. Well, I have decided to return to school and received a 30,000 private student loan. Should I use the 30,000 to become totally debt free and pay off everything, or should I pay all my credit cards off and save the extra $6000?? If I pay off everything except my car my debt ratio will be a 24%. I was thinking of getting another federal student loan and paying off my extra $6000 personal loan with that. Is this a good idea? Then I'll have 2 student loan payments and have a nice savings account. What do you think? 2 payments 290 and 50 with no other debt, or, 2 payments of 290 and 120 with an open unsecured loan of 6000??? I dont know what route I should take. Also, how are student loans looked at on my credit report? I currently have a C rating on my report b/c I have to much credit card debt. But, if I transfer the debt to a low interest student loan, will this increase my score? I'm wanting to buy a house in a few years and I'm wondering if I'll be able to if I have no credit cards, but 30K in student loans? Please email your responses to : PLEASE HELP ME!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
  2. marci

    marci Well-Known Member

    It seems as if you're wanting to pay off your CC balances and your personal loan with a private student loan for $30K.

    It sounds like a very good move, since student loans are much easier to pay than CC loans (stable interest rates around 7% right now). They can also be pais out for a longer time and they do less damage on your credit reports b/c they are rated as installment loans. Besides, if problems arise - you can get forbearances as well as deferments if you're in school.

    I'm unclear as to who is giving you the $30K student loan. Is this a federally guaranteed student loan (i.e Stafford...) or is this a personal student loan through a bank (i.e. Citibank or Plato...).

    If it were a federal student loan I'd pay off the $24K with the student loan money and put the $6K in a money market (getting 5%+ interest) as an emergency savings. I'd then negotiate with my CC companies (they'll like you a lot once the $24K is gone) and get them to give me a balance transfer deal at 1.9 or 2.9% APR preferably for the life of the transfer. I'd then transfer the $6K personal loan to the CC and pay that off over time. Your credit score should increase a huge amount. And you'll feel good about having the $6K in emergency savings.

    If this is a personal bank student loan, I can't offer advice on that, but anything installment has GOT to be better than all that revolving. I'd still do it.

    Hope this helps,
  3. marci

    marci Well-Known Member

    btw, what will you live on? Will you still be earning an income while you're in school? If not, you may want to rethink paying off all the CCs with living expenses money...
  4. jfpruitt

    jfpruitt Well-Known Member

    Hi Marci

    Yes, your advice makes since....Actually, the loan is a private student loan through Bank One. My bro had to cosign for me, but I can take him off of the loan in 2 years. I'm planning on closing ALL my CC accounts but 3. Sears, Best Buy, and Next Card. The rest are getting CUT UP and Paid off. I'm confused, what is an installment loan? I've never heard that term before? I've heard of secured and unsecured, but not installment. I thought about filing BK and starting over, but, I think this is a better route, don't you? Yes, I'm going to be working FT and earning my same income. The amazing part will be how much EXTRA money I will have. Right now, I have about 50 extra a paycheck for 2 weeks. Now, I'll have nearly 300 extra a paycheck. This is a great thing, seriously, I don't want to sound funny, but, if your wanting to pay off some debt and consolidate, I would encourage people to take a few classes at the local college and get one of these loans. They have a great rate of 9% and the best part is the funds go directly to you and not the school. It will be the best decision I've made plus I'll be getting a degree at the same time.
  5. KristyW

    KristyW Well-Known Member

    Installment just means that you pay off a debt in a certain period of time, and there will be a fixed numbers of payments, like a car loan.
  6. marci

    marci Well-Known Member

    I can't offer much advice about personal bank student loans, but I'd make sure that the 9% interest is fixed (i.e. it won't go up, or if it does there's a cap), and that it offers the same benefits as a federal loan wrt deferment, forbearance, and 6 month grace period after course completion. Also, see what types of payment plans they have available (i.e. 10 year, 15 year, 25 year, income dependent plans...)

    Before you close your CC accounts, you may want to see which of those cards offer the best balance transfer options, if you choose to BT that personal loan to a credit card. Pit them against each other. Tell Card A "Nextcard offered me ________ BT promotion. I haven't acted on the promotion yet, and I need to close at least one revolving card. I like your company a lot; what can you offer me to keep my business with you? What about a BT for the life of the transfer?". You get the picture. And depending on how old these accounts are, I wouldn't simply close them indiscriminately. Use some wisdom and think of how your actions might help or hurt your credit (FICO) score. Personally, I'd leave them all open - unless I would be tempted to charge them up again.

    If you're getting $300 a paycheck extra, please don't spend it. Pre-pay as much as you can on your deferred student loan (the $30K) - as long as Bank One doesn't penalize you for a pre-pay. You'll thank yourself when you finish school. :)

    Best wishes,
  7. jfpruitt

    jfpruitt Well-Known Member

    Well, I think that 3 cards open is better than the 10 I have now, I thought that the more open accounts you have the worse it shows on your FICO score? My score is currently a 642, is that bad or good? or average? Will it go up when I consolidate? I've checked with the bank, and they said it is a fixed 9.17% for 30 years w/ 3 payment options. But, I'm not deferring, I'm going to start paying it now. They also have no penalty for prepayment.
  8. marci

    marci Well-Known Member

    Yes, three is better than 10. :) You really should have more than 5 open. But I made my suggestion based on your wanting to close all but the Sears, Bestbuy and Nextcard. The first two you can only use in a store for store products. They are called "revolving retail". The last you can obviously use anywhere and that is called a "revolving bankcard". Here's my reasoning for keeping some of the "revolving bankcards" open: I don't know if you want to do a BT from your personal loan, but there are two good reasons why you may want to:

    1. If your personal loan is from a finance company (i.e Citibank Financial, Norwest, etc...) your score is negatively affected by having it open. If the personal loan is from a bank, then that is better. But you want to make sure this personal loan is coded as a "closed end installment" and not a "line of credit".

    2. Usually interest rates on personal loans are high (10%+). Many current BT offers are at 1.9 to 2.9% APR. Some are at higher APRS (i.e 8.9% but they are there for the life of the transfer until it is paid off.

    In order to get such good BT offers, it helps to have leverage in makiing the cards compete for your business per my example above. If you have only one bankcard (i.e Nextcard) they don't have to offer you anything if they don't want to b/c there's no one else to compete with (Sears and Bestbuy don't count). Also, it's alwasy good to have more than one card open so that you can negotiate your non-BT interest rates, if you choose to carry a balance. CC companies will screw with you if they think they can. Make each CC company aware that you don't have to get screwed, that you can take your business elsewhere. In order to have that leverage keep more than one "revolving bankcard" open.

    Having said that:

    It will help your FICO to get rid of a finance company loan.

    It will help your financial leverage by having 2-3 "revolving bankcard" accounts open.

    It will make more money for you if you are paying less interest on a BT (as opposed to the personal loan account) than you are earning in a money market (paying 1.9% APR on $6K and earning 6% on $6K = net earning of 4%APR on $6K). You will CREATE wealth for yourself.

    You will keep your CC accounts in active status, and one account will be especially nice to you b/c you carry one balance. This will raise your credit limits which in turn will give you a higher FICO.

    These are my thoughts, and just that. Please don't rely on my posts for your final decision.
  9. marci

    marci Well-Known Member

    "You really should have more than 5 open."

    Should read, " You really should NOT have more than 5 open."

    BTW, 642 is below average but not altogether terrible. It will go much, much higher once your revolving debt turns in to installment debt.

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