My husband and I consolidated our credit last spring and then he was laid off, so we ended up building it right back up using it for groceries, gas, clothes, bills, etc. I would like to consolidate them again, and we have been approved for a loan, but the bank wants us to close the cards if we take the loan. Basically that was the plan, but I'm not sure if that is good or not. If we do that, it will only leave us with $1800 available in case of emergencies. It would be nice to not being able to use credit anymore...but it scares me also. We are doing the Dave Ramsey snowball effect on our budget, and even if I get the loan they will be paid off around the same time, but the loan will let me put $ into savings faster as well as avoid about $500 in interest payments. My dad and husband are not answering their phones right now so just looking to see if anyone has done this and had success or horror stories.
My friend told me about the basics of the Dave Ramsey plan...so we are doing it off of her and I have the spreadsheets and all. We don't buy or use credit anymore at all. And we didn't build our credit up by being overly stupid - somewhat yes, but keeping the house and paying the bills and putting food on the table were all necessary expenses when my husband was out of work for 5 months. We are working on building our 6 months worth of living expenses in savings and paying off all of our debt. But I spoke with our contact at the bank and we are NOT going to do the loan. We are working on some other options with her to give us some breathing room...but I do have savings planned for things that we need - like summer day care.
If you were "doing" Dave Ramsay, then you know that ALL credit cards should have been cut up long ago--when you started. That's a basic step with DR.
The kind of repeat consolidation you're doing is a.k.a. "financial suicide" by almost ALL financial planners. Never a good idea. Clean it up the old fashioned way--stop spending on credit and pay them off!
You're not AT the "savings step yet.
You indicate that you are using Dave Ramsey's snowball effect on your debt... however, he also advocates that you not do consolidation loans or keep credit cards; he also advocates taking second jobs until you pay off the debt or selling off items (cars, RVs, boats, having garage sales) or turning off services (cable, internet) that you can't afford.
I don't know your personal situation, but I would shy away from borrowing more and creating more debt and focus on ways to increase your income any way you can.
Good luck, I know this is not an easy decision for you.
Did you plan on running the cards up last time you consolidated? Answer that and you have your answer.
Edit: I thought I would explain the above comment. See you said in your post if you close the credit cards you will only have $1,800 available in case of emergencies. Thing is regardless you only have $1,800 available in case of emergencies. That mindset got you in trouble when your husband lost his job and it will get you in trouble again if you don't close those credit cards.
I used to be in banking but it has changed a lot since then. When calculating someone's debt ratio back in the day we had to consider the debt load with credit cards maxed out. If that debt ratio was too high they were required to close the credit cards out as part of the loan agreement.
Hey there!! I know you've already decided NOT to do the loan! YAY for you!!! In 2000, we took out a 2nd on our home to pay off the credit cards and do somethings around the house.....my husband didn't become unemployed - however, we got our credit cards right back up there....
In 2006 we made the decision to be debt free - no more credit cards - 6 months savings and we WERE going to do this.
We did. Was it easy? Nope? Is it still hard not having credit cards? Yep. You get USED to being able to pull those little bad boys out and pay for things.
We didn't use a Dave Ramsey plan - we sat back and said "okay- enough is enough". We made changes - we changed our way of thinking...that's the hard part - CHANGING THE WAY YOU THINK.
I realize that when your husband was unemployed they were a necessity - but now - you DON'T need them. And you will learn how to improvise, adapt, overcome and NOT NEED them.
Go through EVERY single cent of your spending. Coffee Breaks, lunches, etc. go through your bills - can you cut out a cell phone that really isn't being used? Can you downsize on the cable? When you shop for groceries - use coupons - take a list with you ONLY buy from the list - if you can't stop your "impulse buys" then shop on-line and have your groceries delivered.
Living with credit cards is a false sense of security. It is money you do not have. Go back to the basics. Buy kids clothes or even your clothes from Goodwill or some other second hand store (I got a brand new Nautica jacket WITH TAGS for my son for $8 at a consignment shop - in the store - it would've cost me $75).
Take your lunches to work - both of you. That saves $100 a week on average right there.
Call around on cell phone plans - you might be able to get a better deal elsewhere.
While I understand the need for savings - right now - I don't know Dave Ramsey's plan - but I can tell you that I would be putting more into the debt to get it paid off faster before putting more into savings....we put SOME money away - but not as much as we applied to the credit cards (please note we had one credit card with $35k available and about $25K on it). Our only debt now is the house. We make 13 payments a year on it and it's getting paid off quicker. No car payments. No credit cards.
I really recommend actually reading Dave Ramsey's book. It will help you a lot more than just getting the basic idea from a friend. If you don't have time to read, get the audio version. That's what we did. I actually think it has more impact that way.
Also go to D.R.'s website. You can listen to his radio show- live or archives- free from there. My DH and I love it! It really helps us stay motivated, and we learn a lot.
http://www.daveramsey.com/radio/home/
Very best wishes!!
I am in the mortgage business and that has become standard. If you pay off revolving debt you have to close the account. It is a Fannie Mae requirement. I would ask them if they have a Freddie Mac option for you. Freddie does not always require them to be closed out like Fannie does. Hope this helps you a little!
Close them, but don't do another consolidation. i know it's scary to not have that cushion to fall back on but it is honestly such a relief to not have the debt over your head. My husband was off for over a year. Cards were maxed out and we closed them. We are still working on paying them off but now we don't do/buy anything unless its with cash and it fits into our budget. I look back and am appaled at how "tight" things were and how much we used credit when he was working and our income was well over 6 figures, then I look to today and how we have kept our house cars, kids activities etc all on my little salary...what a waste of his income those past years. Go for it, cut them up and pay them off, then you save....it will feel so much better!
