I've got about 33k in credit card debt. Almost all of that is from a really nasty divorce a few years ago, and sporadic usage over the last few years as I got my legs back under me.
I've got a good job, but I'm salary so no ability to make overtime. I've budgeted and I've been paying pay extra towards my highest interest card. But it's been demoralizing not seeing the balance come down faster. I've also tried calling the hardship departments for both cards, multiple times, and they weren't willing to work with me on lowering my interest.
I recently got approved for consolidation loan (actually approved, not a random email or letter "approved"). I think the terms are good, not great, and I think seeing the balance go down would help my mindset that I'm actually making progress. But for some reason, I've got cold feet.
My high credit usage is weighing down my credit score and I have anxiety about paying both credit cards on time (which hasn't been an issue, but I still stress). Why I'm getting scared now when it seems like I have a good option right in front of me?
Card 1: $22,182 @ 13.4%. Paying the minimum of $450 +/-
Card 2: $11,479.57 @ 20.4%. Paying $450 a month.
The loan is five years at 12.48%. My plan is to continue paying what I've been paying towards the CC towards the loan to get it knocked out faster. One payment, less stress, and drops my CC usage.
I just don't know why I'm suddenly so scared to do it.
Getting cold feet on debt consolidation loan
byu/SunshineCamo inpersonalfinance
Posted by SunshineCamo
5 Comments
Do you need advice or is this just a journal entry?
Many people who get consolidation loans just end up in more debt because they haven’t actually solved the cause of the issue, which is spending habits. It’s easier for people to blame credit card interest as the reason they’re still in debt rather than having to make meaningful sacrifices in their life.
Doesn’t seem like the new interest rate is that much lower. The problem with consolidation loans is people often just run the cards back up and you end up in a worse place in the end. If you really have your spending under control, it would be a slight help.
Debt should be scary. Taking out new debt should scare you. That is the healthy response. If you do get the consolidation loan, you should cancel card 2 and put card 1 someplace you cannot easily use it. Remove it from your phone and online accounts and only use for absolute emergencies.
You’re thinking emotionally, instead of logically.
Logically: your blended interest rate is 15-16%. Purely on interest savings the consolidated plan wins.
Emotionally: what if I regret this? This is a big time commitment. What if something else happens and I can’t pay this?
You will need to maintain the $900/mo to really feel it and see the benefit. You’ll save about 6-12/mo of payments and 4000-6000 in interest. Only downside is losing flexibility.
Personally I would probably keep the $22k as-is and use the loan to refinance the $11k for a lower rate. The savings on 1% is marginal.