Consolidating Debt?

Hey folks,

The next big thing on my financial to do list is to consolidate my credit debt. I have three cards left with sizable amounts (3-7k each.) I feel like I don’t make progress in getting down the debt since I feel like I am throwing money in so many different directions. I feel like getting down one mountain of debt at one interest rate would be best for me.

I wanted to get other thoughts. Has anyone done this? Is it recommended? If you did it, what was/is your experience like? Any and all thoughts/feedback/advice is appreciated. Thank you!

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I have not done this

It sounds like you are looking at doing this for emotional reasons. Ideally I think you’d be addressing both the emotional and the math side of things, so consolidating the three cards to something with a lower rate so you are paying less interest over time.

My guess is that if you consolidated you would need to have one card that you paid off monthly for the day to day spending, so you didn’t accrue any additional interest on that, and then have your consolidated debt in a second spot which you only pay down and never use.

This would only work if you have your spending under control enough to use those two cards as above, and you’ve addressed whatever it was that ended up with over 10k in cc debt.

I’m guessing the other approach is to snowball in some way - take the card, put them in an order that is pleasing to you (smallest amount to highest, or highest rate to lowest, or most emotionally draining to least, whatever you think will work from a motivation perspective), pay off the minimum in each card, and put everything additional into the card that is first on the list. Then when you have paid the first one down, do the same with the next card, and then when you get to the final one, you have all the money going there.

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We refinanced our mortgage a few years back. Part of the credit union’s requirement was that we eliminate all the cc debt, or most of it, so we rolled the $ into the mortgage.

Yes, that turns it into long-term rather than a short-term debt, but at the time it cut our interest rate in about 1/2 too. All of a sudden we had almost no cc debit and have overpaid the mortgage since the refi.

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I haven’t done this, but I think it is a good idea, and there are a lot of great cards out there that eliminate interest for rollovers (assuming you qualify for something like that). You’d need to have a very specific plan outlined for how you will avoid debt in the future, specifically for the time you are paying down the rollovers, but ideally long term as well. Have you thought good long and hard about how you got to this place?

My one caveat (as a person with almost nil risk tolerance)—What if an emergency happens? Do you have an emergency fund you can pull from rather than add to debt?

ETA: have you tried negotiating interest rates for the debt at all? I did this twice when paying down my last CC and it made a difference—almost 5% in interest removed with a single easy phone call.

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I have found the snowball method has stressed me out because of still trying to maintain the different payments. I have and am planning to review an updated YTD report of my spending so I have an accurate budget and know where to trim because you’re spot on. I have to ask myself what caused the spending. And yep, lower interest rate and one payment is the goal. Ideally I would like to not spend on a CC at all but I do have a few items that get billed to a cc regularly but I can budget for those in cash so I can pay it off each month.

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I think you will need to have a second card for those items that you are buying on credit, because otherwise you will start paying interest on them right away, even if you are paying off those individual items each month. You have no grace period for any items purchased once you are carrying a balance.

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