Best Way To Consolidate Debt?
11-28-2007, 09:17 PM
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I've got a couple cc's, two seperate student loans, bank loan, and my wife has a student loan.
Whats the best way to get all this on one payment w/ a good interest rate?
Whats the best way to get all this on one payment w/ a good interest rate?
11-29-2007, 07:19 AM
#2
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Oooh, I'm gonna add some details to his questions since it's basically the same topic and I need the same info.
I need to consolidate JUST student loans into one payment. Of course I'm getting tons of junkmail from companies wanting to do this for me. But can you recommend 1 or 2 good companies for this, and what's a "good" rate going by the average credit score.
I need to consolidate JUST student loans into one payment. Of course I'm getting tons of junkmail from companies wanting to do this for me. But can you recommend 1 or 2 good companies for this, and what's a "good" rate going by the average credit score.
11-29-2007, 08:38 AM
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Jon - I'll answer your question first since I can do so easily and quickly.
I consolidated my students loans, and I talked with 3 companies on the phone before doing so. They all seemed to be offering the same rate, which was calculated by averaging all of my interst rates together. I had 3 at 5% and one at 6%, I think I got them all for 5.25%...
Reasons to consolidate student loans:
Lower Payments
Lock in interest rate
Easier to pay one company than 4 or 5.
Be careful though... they told me how my payments would be much lower because of combining them and paying on them all in one payment...yadda yadda yadda... but they will take your 10 year loans and make them 20 year... so of course you'll be paying less per month, but you'll be paying til you're 45! One way to get around it is to double up on the minimum payments, or ask them to charge your more in a 10 year loan.
I consolidated through Great Lakes (mygreatlakes.com) and I'm not overly impressed, but nothing to complain about (except they didn't tell me it would be a 20 year loan, but I assumed it was and that's what everyone does).
My credit score had nothing to do with consolidating student loans.
Spart --- from my experience and observations, it seems like large banks actually have higher rates than online or small financial institutions.
What are you trying to accompish by consolidating?
-- Easier to manage your money with fewer institutions?
-- Reduce rates?
-- Improve credit score?
Are you worried about your credit score? Here's why I ask:
Your credit score is affected somewhat by your credit cards, the percentage of available credit on those cards (they monitor if you're using 10%, 20%, 90%, etc. of your limit). If you're cutting it close to hitting your limit, call them up and ask if they'll increase your limit (BUT DON'T PUT MORE ON IT JUST BECAUSE YOU CAN!). If you're looking to pay it off REAL soon (6 months or less) then find a credit card that will let you transfer with no interest for 6 months. No reason to pay interest if you don't have to.
Here's what's tricky. Your credit score is also affected by how long you've had your credit cards. Three or more years is GOOD. Opening Three in One year is BAD. If you've had your current credit cards for several years, then don't close them out. If you want to transfer them to another card to make it easier to pay off, do so, then close the new card after you've paid it off.
I would consolidate student loans together, but I don't know if I'd throw anything else into that mix. Student loans are usually consolidated based on a weighted average of your current loans. If you have one that's a noticeably higher percentage, find a way to drop that percentage.
One trick to try: If you're racking up fees or rates are rising, call the credit card company. Tell them you're trying to pay off the card but need help. Tell them you're facing bankruptcy and want to do anything to avoid it. Ask their help in paying off the loans (they may write a portion of it off, drop rates, waive fees, or set up other options). If you file bankruptcy, they might not get their money, so they want you to pay them as long as you can (student loans are different, you can't avoid them through bankruptcy). DO NOT, however, tell them you're filing for bankruptcy and then ask for a credit line increase. That may confuse them. Figure out what you want to gain from this and go that route.
I need to write up an article on credit cards. There are so many credit cards out there with good programs (Cash back, free hotel stays, airline miles, etc) that there isn't much point to putting money on credit cards and NOT getting something in return!
Let me know what your goals are and purpose for consolidating. That may change the direction of my advice.
I don't necessarily agree with all of what Dave Ramsey says (Financial Peace author, radio talk show host, etc.) but here are one of his philosophies:
Let's say these are your balances:
CC# 1: Owe $5,000 with 21% interest - Paying $250/mo.
CC# 2: Owe $1,200 with 8% interest - Paying $80/mo.
Student Loan #1: Owe $8,000 at 5% - Paying $100/mo.
Student Loan #2: Owe $750 at 6% - Paying $75/mo.
Bank Loan: Owe $12,000 at 7.9% - Paying $700/mo.
What you're doing is making monthly payments on all of these. Payments may range from $50-$300 or more. Dave Ramsey's philosophy is to pay off the smallest debt first ($750 student loan) and use that monthly payment (let's say $75) to put towards the next smallest loan ($1,200 CC #2). Now, your SL#2 is paid off, and you ADD that $75 to what you WERE paying on the $1,200 loan ($80+$75=$155). That extra money will help you pay off that loan, and once it's paid off, you'd move to the $5,000 CC balance. Add the $155 to that monthly payment, and it will help drive that debt down.
He says to ignore the interest rates, and just pay off any small loans as fast as possible to help you pay down your larger loans. I agree to some extent, but I would also strongly urge you to do whatever you can to reduce those rates. If your student loans are already below 6.5%, you might not be able to reduce them much more. Credit cards rates are usually very high, so do what you can to get those rates reduced, and pay them off.
Getting them into one payment would make life a lot easier, but may not be the best way to get your rates down. You don't want to combine a 5% $10,000 loan with a 15% $2,000 loan, because you may end up paying 12% on a $12,000 balance. That just doesn't make sense.
Who do you bank with? If your goal is do make your payments easier, set up online withdrawals through whoever your loans are through... or set up online payments through your bank. AUTOMATION is GOOD! You're a techy person, you should be all over that.
By the way... I have Bank of America, and they have an AWESOME way to manage your loans, credit cards, even mortgage through their website. It provides updated balances everytime you log in, and they make it easy to set up automatic payments. It's AWESOME... check out their "My Portfolio" feature they added a few months ago.
Again, let me know the reason you're wanting to do this and what you hope to accomplish by consolidating. If you want, send me more details in a PM with balances and interest rates, and I may be able to provide more help.
I consolidated my students loans, and I talked with 3 companies on the phone before doing so. They all seemed to be offering the same rate, which was calculated by averaging all of my interst rates together. I had 3 at 5% and one at 6%, I think I got them all for 5.25%...
Reasons to consolidate student loans:
Lower Payments
Lock in interest rate
Easier to pay one company than 4 or 5.
Be careful though... they told me how my payments would be much lower because of combining them and paying on them all in one payment...yadda yadda yadda... but they will take your 10 year loans and make them 20 year... so of course you'll be paying less per month, but you'll be paying til you're 45! One way to get around it is to double up on the minimum payments, or ask them to charge your more in a 10 year loan.
I consolidated through Great Lakes (mygreatlakes.com) and I'm not overly impressed, but nothing to complain about (except they didn't tell me it would be a 20 year loan, but I assumed it was and that's what everyone does).
My credit score had nothing to do with consolidating student loans.
Spart --- from my experience and observations, it seems like large banks actually have higher rates than online or small financial institutions.
What are you trying to accompish by consolidating?
-- Easier to manage your money with fewer institutions?
-- Reduce rates?
-- Improve credit score?
Are you worried about your credit score? Here's why I ask:
Your credit score is affected somewhat by your credit cards, the percentage of available credit on those cards (they monitor if you're using 10%, 20%, 90%, etc. of your limit). If you're cutting it close to hitting your limit, call them up and ask if they'll increase your limit (BUT DON'T PUT MORE ON IT JUST BECAUSE YOU CAN!). If you're looking to pay it off REAL soon (6 months or less) then find a credit card that will let you transfer with no interest for 6 months. No reason to pay interest if you don't have to.
Here's what's tricky. Your credit score is also affected by how long you've had your credit cards. Three or more years is GOOD. Opening Three in One year is BAD. If you've had your current credit cards for several years, then don't close them out. If you want to transfer them to another card to make it easier to pay off, do so, then close the new card after you've paid it off.
I would consolidate student loans together, but I don't know if I'd throw anything else into that mix. Student loans are usually consolidated based on a weighted average of your current loans. If you have one that's a noticeably higher percentage, find a way to drop that percentage.
One trick to try: If you're racking up fees or rates are rising, call the credit card company. Tell them you're trying to pay off the card but need help. Tell them you're facing bankruptcy and want to do anything to avoid it. Ask their help in paying off the loans (they may write a portion of it off, drop rates, waive fees, or set up other options). If you file bankruptcy, they might not get their money, so they want you to pay them as long as you can (student loans are different, you can't avoid them through bankruptcy). DO NOT, however, tell them you're filing for bankruptcy and then ask for a credit line increase. That may confuse them. Figure out what you want to gain from this and go that route.
I need to write up an article on credit cards. There are so many credit cards out there with good programs (Cash back, free hotel stays, airline miles, etc) that there isn't much point to putting money on credit cards and NOT getting something in return!
Let me know what your goals are and purpose for consolidating. That may change the direction of my advice.
I don't necessarily agree with all of what Dave Ramsey says (Financial Peace author, radio talk show host, etc.) but here are one of his philosophies:
Let's say these are your balances:
CC# 1: Owe $5,000 with 21% interest - Paying $250/mo.
CC# 2: Owe $1,200 with 8% interest - Paying $80/mo.
Student Loan #1: Owe $8,000 at 5% - Paying $100/mo.
Student Loan #2: Owe $750 at 6% - Paying $75/mo.
Bank Loan: Owe $12,000 at 7.9% - Paying $700/mo.
What you're doing is making monthly payments on all of these. Payments may range from $50-$300 or more. Dave Ramsey's philosophy is to pay off the smallest debt first ($750 student loan) and use that monthly payment (let's say $75) to put towards the next smallest loan ($1,200 CC #2). Now, your SL#2 is paid off, and you ADD that $75 to what you WERE paying on the $1,200 loan ($80+$75=$155). That extra money will help you pay off that loan, and once it's paid off, you'd move to the $5,000 CC balance. Add the $155 to that monthly payment, and it will help drive that debt down.
He says to ignore the interest rates, and just pay off any small loans as fast as possible to help you pay down your larger loans. I agree to some extent, but I would also strongly urge you to do whatever you can to reduce those rates. If your student loans are already below 6.5%, you might not be able to reduce them much more. Credit cards rates are usually very high, so do what you can to get those rates reduced, and pay them off.
Getting them into one payment would make life a lot easier, but may not be the best way to get your rates down. You don't want to combine a 5% $10,000 loan with a 15% $2,000 loan, because you may end up paying 12% on a $12,000 balance. That just doesn't make sense.
Who do you bank with? If your goal is do make your payments easier, set up online withdrawals through whoever your loans are through... or set up online payments through your bank. AUTOMATION is GOOD! You're a techy person, you should be all over that.
By the way... I have Bank of America, and they have an AWESOME way to manage your loans, credit cards, even mortgage through their website. It provides updated balances everytime you log in, and they make it easy to set up automatic payments. It's AWESOME... check out their "My Portfolio" feature they added a few months ago.
Again, let me know the reason you're wanting to do this and what you hope to accomplish by consolidating. If you want, send me more details in a PM with balances and interest rates, and I may be able to provide more help.
11-29-2007, 09:03 AM
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My current loans are through Nelnet. Are you saying that most loan companies are gonna give you the same rate anyways? Then would it be beneficial to just go through Nelnet to have them consolidate the loans they already have?
11-29-2007, 10:35 AM
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In my experience, they all offered the same rate. Trying NELnet might be your best option, at least to start with. Contact them and ask if you can consolidate your loans, and if you did could you get a better interest rate. Verify that it is a FIXED rate, not variable... you don't want it shooting up to 12%.
I would also follow up with a few other companies. I'm not sure who, but they were contacting me like crazy my last year of school ('06). Some might say they can offer you a lower monthly payment but the same interest rate as other companies - if they do, they're just giving you a 20 year loan instead of 10.
Here's another angle you can shoot from: If you are good with your money situation right now, I would suggest going with the 20 year loan. What this will do is charge you less interest per month, but more interest overall since it's over 20 years not 10. BUT, if you do this, I STRONGLY urge you not to make the regular payments, but rather double it.
One of my loans is for about $23,000 at 5.25% or something like that. They got my rates down to $152/mo. but it's over the next 20 years. I don't want to be paying off my student loans for the next 20 years!! However, the interest I'm paying every month will be less on a 20yr. loan than on the 10yr. So what I've chosen to do is pay $300 every month (which is closer to what the 10yr loan payments would be). I'll pay less interest over time, but pay down my principal faster, thus paying it off after about 11 years. In doing this, I'm paying less interest with the 20yr. loan, but paying on it as if it's the 10 year loan, saving me money on the interest side of things and still paying it off in about 10 years. I threw a lot in there, am I making sense?
Summary: Start with NelNet, and get the following information, then call other places and compare:
-- Percentage Rates
-- Monthly payment amounts
-- determine whether fixed or variable
-- determine length of loan
-- Make sure there are no fees for paying it off early if you were to inherit a large amount of money tomorrow
-- Also, check to see if they have automatic payments through their website so you don't have to worry about writing a check every month, that makes it a lot easier
-- and also ask if the website allows you to make additional payments towards the principal FROM their website (mine doesn't and I wish they did)
If anyone wants to contribute their experiences or suggestions, or has a different opinion, please feel free to give input. We're all here to help.
I would also follow up with a few other companies. I'm not sure who, but they were contacting me like crazy my last year of school ('06). Some might say they can offer you a lower monthly payment but the same interest rate as other companies - if they do, they're just giving you a 20 year loan instead of 10.
Here's another angle you can shoot from: If you are good with your money situation right now, I would suggest going with the 20 year loan. What this will do is charge you less interest per month, but more interest overall since it's over 20 years not 10. BUT, if you do this, I STRONGLY urge you not to make the regular payments, but rather double it.
One of my loans is for about $23,000 at 5.25% or something like that. They got my rates down to $152/mo. but it's over the next 20 years. I don't want to be paying off my student loans for the next 20 years!! However, the interest I'm paying every month will be less on a 20yr. loan than on the 10yr. So what I've chosen to do is pay $300 every month (which is closer to what the 10yr loan payments would be). I'll pay less interest over time, but pay down my principal faster, thus paying it off after about 11 years. In doing this, I'm paying less interest with the 20yr. loan, but paying on it as if it's the 10 year loan, saving me money on the interest side of things and still paying it off in about 10 years. I threw a lot in there, am I making sense?
Summary: Start with NelNet, and get the following information, then call other places and compare:
-- Percentage Rates
-- Monthly payment amounts
-- determine whether fixed or variable
-- determine length of loan
-- Make sure there are no fees for paying it off early if you were to inherit a large amount of money tomorrow
-- Also, check to see if they have automatic payments through their website so you don't have to worry about writing a check every month, that makes it a lot easier
-- and also ask if the website allows you to make additional payments towards the principal FROM their website (mine doesn't and I wish they did)
If anyone wants to contribute their experiences or suggestions, or has a different opinion, please feel free to give input. We're all here to help.
12-05-2007, 08:26 AM
#6
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I called Nelnet and got quite a bit of info.
- The interest rate would be 6.5% right now over 30yrs. I'm not sure if getting it to 20yrs would lower or drop the rate. But I would like it to be 30yrs to get the lowest payments in case of an emergency, and pay an extra $100-200/mo. to pay it off early.
- The rate is fixed.
- No fees to pay off early.
- You can make payments on their website, and even make larger payments.
- He mentioned that since the goverment changed parties, the democrats may lower the rates next year. So he says I might want to wait to consolodate until mid next year. The rate could go from 6.5% to 5.5% at that time.
So far it looks good to me. What do you think?
- The interest rate would be 6.5% right now over 30yrs. I'm not sure if getting it to 20yrs would lower or drop the rate. But I would like it to be 30yrs to get the lowest payments in case of an emergency, and pay an extra $100-200/mo. to pay it off early.
- The rate is fixed.
- No fees to pay off early.
- You can make payments on their website, and even make larger payments.
- He mentioned that since the goverment changed parties, the democrats may lower the rates next year. So he says I might want to wait to consolodate until mid next year. The rate could go from 6.5% to 5.5% at that time.
So far it looks good to me. What do you think?
12-05-2007, 09:32 AM
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I agree... I'd go with the 30yr plan and double up on the payments if you can. If payments are $100, pay $300 if you're able to.
Do you know what your current rates are, and are those fixed? I don't know if Dems vs. Rep would really effect the interest rates, but 6.5% is still pretty good from what I hear from the older generations... it's not normal to be that low.
I wonder if you could consolidate today at 6.5% and then renegotiate a rate if it drops to 5.5% next year. Might be something to look into.
SOMETHING I WANT EVERYONE TO KNOW:
Excel has a template called "Loan Amortization" --- USE IT, it's awesome.
Since I don't know your outstanding balance, I plugged in a few numbers:
At 6.5% for 30yrs making payments 12 times per year (Starting Dec. 1, 2007)...
$10,000 loan = $63.21/mo. (paying addt'l $200/mo. toward principal pays it off in 43 months)
$15,000 loan = $94.81/mo. (paying addt'l $200/mo. toward principal pays it off in 60 months)
$20,000 loan = $126.41/mo. (paying addt'l $200/mo. toward principal pays it off in 75 months)
$25,000 loan = $158.02/mo. (paying addt'l $200/mo. toward principal pays it off in 88 months)
$30,000 loan = $189.62/mo. (paying addt'l $200/mo. toward principal pays it off in 100 months)
$35,000 loan = $221.22/mo. (paying addt'l $200/mo. toward principal pays it off in 111 months)
$40,000 loan = $252.83/mo. (paying addt'l $200/mo. toward principal pays it off in 121 months)
These are just approximate figures, but should be somewhat accurate. They may have a different formula or way to calculate interest, but this should give you an idea. I plugged in my payment mix, and I think I came within $2 of my actual monthly payment. Going from my 20yr loan to 30yr would only cut my payments by $25/mo. so not worth it to me. Use that template, plug in your numbers, and see if you'd prefer a 20yr loan or 30yr, and it will also tell you how much total interest you'll end up paying.
I'm going to run one more scenario:
Assuming your loan is for $20,000, using the same data above...
If you make ONLY the monthly payments of 126.41, you pay $25,508 in interest over those 30 years.
Now, if you choose to pay an additional $200/mo. towards principal, you'll end up paying only $4,369 in interest (paying a little more now, you'll SAVE $21,000!! You'll save more on interest than your loan balance is currently!
Nobody should EVER be making minimum payments on ANYTHING, EVER! As long as they can help it.
---------------------------------------
edit:
On your scenario Jon, the 1% difference given a $20,000 balance would be about $13/mo. savings on your monthly payment. That's a lot, assuming 360 month loan, but when you're paying extra to pay it off in 6 years, I don't know that it's worth it to wait.
Because of your post, I just called my loan consolidation agency (Great Lakes). My monthly payments are $152, and on a 20 year loan. If I pay an extra $250/mo. towards the principal, it'll be paid off in 6 years and I'll save $10,000 in interest. So, I just bumped up the extra payments I'll be making.
Do you know what your current rates are, and are those fixed? I don't know if Dems vs. Rep would really effect the interest rates, but 6.5% is still pretty good from what I hear from the older generations... it's not normal to be that low.
I wonder if you could consolidate today at 6.5% and then renegotiate a rate if it drops to 5.5% next year. Might be something to look into.
SOMETHING I WANT EVERYONE TO KNOW:
Excel has a template called "Loan Amortization" --- USE IT, it's awesome.
Since I don't know your outstanding balance, I plugged in a few numbers:
At 6.5% for 30yrs making payments 12 times per year (Starting Dec. 1, 2007)...
$10,000 loan = $63.21/mo. (paying addt'l $200/mo. toward principal pays it off in 43 months)
$15,000 loan = $94.81/mo. (paying addt'l $200/mo. toward principal pays it off in 60 months)
$20,000 loan = $126.41/mo. (paying addt'l $200/mo. toward principal pays it off in 75 months)
$25,000 loan = $158.02/mo. (paying addt'l $200/mo. toward principal pays it off in 88 months)
$30,000 loan = $189.62/mo. (paying addt'l $200/mo. toward principal pays it off in 100 months)
$35,000 loan = $221.22/mo. (paying addt'l $200/mo. toward principal pays it off in 111 months)
$40,000 loan = $252.83/mo. (paying addt'l $200/mo. toward principal pays it off in 121 months)
These are just approximate figures, but should be somewhat accurate. They may have a different formula or way to calculate interest, but this should give you an idea. I plugged in my payment mix, and I think I came within $2 of my actual monthly payment. Going from my 20yr loan to 30yr would only cut my payments by $25/mo. so not worth it to me. Use that template, plug in your numbers, and see if you'd prefer a 20yr loan or 30yr, and it will also tell you how much total interest you'll end up paying.
I'm going to run one more scenario:
Assuming your loan is for $20,000, using the same data above...
If you make ONLY the monthly payments of 126.41, you pay $25,508 in interest over those 30 years.
Now, if you choose to pay an additional $200/mo. towards principal, you'll end up paying only $4,369 in interest (paying a little more now, you'll SAVE $21,000!! You'll save more on interest than your loan balance is currently!
Nobody should EVER be making minimum payments on ANYTHING, EVER! As long as they can help it.
---------------------------------------
edit:
On your scenario Jon, the 1% difference given a $20,000 balance would be about $13/mo. savings on your monthly payment. That's a lot, assuming 360 month loan, but when you're paying extra to pay it off in 6 years, I don't know that it's worth it to wait.
Because of your post, I just called my loan consolidation agency (Great Lakes). My monthly payments are $152, and on a 20 year loan. If I pay an extra $250/mo. towards the principal, it'll be paid off in 6 years and I'll save $10,000 in interest. So, I just bumped up the extra payments I'll be making.
12-05-2007, 10:10 AM
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thanks for all the info! My main concern is to lower the amount of interest being paid and to lower the amount of money going to debt for the time being. Plus one payment would be a lot easier than the plethora I have now.
Trying to grow a business but having to put so much into debt a month is annoying.
Trying to grow a business but having to put so much into debt a month is annoying.
12-05-2007, 10:48 AM
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Well, your business should obviously take priority. I'd cut your monthly payments as low as possible right now and focus on the business, maybe even consider extending the loan period (from 10yr to 20, or 20 to 30) and catch up with extra payments later, assuming the business flourishes and starts providing a good stream of income.
It would depend on the business, the maturity of the business, and the point you expect to start seeing a hefty ROI. If you're still dumping money into the business to get it started, you need all financial resources available. If you're at the point where you can sit back and watch the cash flow increase, you may want to set up a means for putting that cash flow into the appropriate places (you'd probably be paying a higher % on your credit cards than the cash would be earning sitting in a savings account)
Double check on this, but I believe interest paid on student loans and mortgages are tax deductible... so if you need tax breaks, keep that in mind.
It would depend on the business, the maturity of the business, and the point you expect to start seeing a hefty ROI. If you're still dumping money into the business to get it started, you need all financial resources available. If you're at the point where you can sit back and watch the cash flow increase, you may want to set up a means for putting that cash flow into the appropriate places (you'd probably be paying a higher % on your credit cards than the cash would be earning sitting in a savings account)
Double check on this, but I believe interest paid on student loans and mortgages are tax deductible... so if you need tax breaks, keep that in mind.