"Clean Sweep" loans?

[MaggieSwanson]

"Pay off all your debts and make one low monthly payment!"

I used to laugh, but now I'm seriously considering it. A 10,000 loan for 6 years at $200./mo doesn't sound so bad. We owe on a couple of credit cards, and if we go with this "Clean Sweep" business and pay on time, the rates are much lower than what we pay now (25-27% interest). We're barely able to make minimum payments, and we currently pay about $180./mo as it stands. If we take out a "Clean Sweep" loan, at least we'll know it will be paid off in 6 years, right?

We are worried about what will happen to our credit card debt now when the rates rise and the minimum payments increase. If we lock in a 6 year loan, isn't that a better deal?

Does anyone here have any words of wisdom?

[CanuckAmok]

1. If you can do that through your bank, you should.

"Consolidation loans" are great. I'm not eligible for one right now, but I will be when I have a bit more equity in my home. I can't wait. I'm paying about $700 per month just to keep the balance on my credit cards stabilised; that doesn't even chip into the balances.

I know people who have done it. It's amazing how well you can organise your monthly finances when you have one fixed payment instead of a bunch of varying ones.

Be sure to find out what their penalties are for early payback; most banks are happy to have you pay the loan back early, but some institutions have a fee if you pay the loan off early, or if you increase your montly payment. I don't know what the FDIC rules are, but in Canada, lenders are required to give you an option for early discharge without a significant fee.

When times are better, it's always best to pay off credit as quickly as possible.

[MaggieSwanson]

2. I can hardly wait

until times get better! lol

...but seriously, thanks for the feedback. My family had some medical expenses that got really out of control, and the credit cards bills are growing, rather than shrinking, on the minimum payments.

[hfojvt]

3. are you sure they really pay it off in six years

that interest rate sounds too good - 7% or so. When I hear those ads, I think they are suckering people in with low monthly payments and hiding higher interest rates. You definitely need to lose that 25% interest rate, but I am not sure how, if you are barely making payments now, and $180 a month sounds like nothing to me. It is less than my former mortgage payment of $212.
If you are paying 25% now, that is a default rate which is less likely to rise - I think. At some point, after six or nine months of on time payments you need to ask to be taken out of default.

[MaggieSwanson]

6. I read the fine print,

and it states that the term of the loan can be extended if there are late payments. The higher interst rates occurring with late payments get tacked on to the end of the loan.

I'm not happy about that prospect, but I don't know if I am more afraid of higher premiums on the 3 cards we pay on.

Maybe I should just put them all on a lower interest card.

I'm beginning to think that would be the wisest course of action.

It's just such a mess, and the way things are going economy-wise, I am really feeling the pressure to pay them off entirely, even if it means getting one really big loan to do so.

[hfojvt]

8. if that is an option, it is a good one

usually you can get good balance transfer rates - mine are 3.9% and 4.99% for the life of the loan. Others have been for the prime rate. Even with a $50 balance transfer fee charged as a cash advance I came out ahead - partly because I quickly transferred half of it to another card that was 0% for six months.

Sometimes that can be tricky because you end up with alot of payments, giving you alot of due dates and higher total payments as well as buying alot of stamps and checks. Still if you put a mere $2000 on a zero percent for nine months instead of 20% you have saved $300 in interest charges even if the 0% rate jumps to 20% at the end of nine months. 20% interest rates are to be avoided at almost all costs - the almost being the "payday loan" type option which charges over 1000% (not a typo!) interest.

[SoCalDem]

4. The problem with these loans

is that most people continue to add to credit cards, and even though people resolve to add no more debt, shit happens.. cars break down, people get sick, stuff breaks..

and every so often there are articles about how some opf these companies are scams, and actually do more harm to credit ratings than help..

attaching unsecured debt to a home is another bad idea..although now that the laws have changed for bankruptcy, I think everyone is just plain stuck..

debt is the bane of America

Here's hoping you dig out, and can stay out .. We cut up all our cards (except for one) and I refuse to use a CC unless it's a dire emergency.. (Like I need to order something online ..)

[Peter Frank]

5. Excellent Advice SoCalDem...

When you find yourself in a hole, the first thing to do is stop digging.

[MaggieSwanson]

7. Yeah, that's exactly

what I'm worried about.

A little background: my DH used to make twice as much as I do - now he makes half. We had a few medical emergencies and had to make a house payment and a few car payments by credit card.

It's been 3 years, and even though we do not use the cards and make the minimum payments plus whatever we can spare for the month (usually $25. or less over, I'm afraid) the debts have not gone down AT ALL... in fact, they have grown.

It's a dirty rotten shame, but I don't know how to fix this. The lure of stopping the growth of the debt, and paying it off entirely in 6 years, is a powerful one.

Otherwise, I have no idea how we'll pay it off (short of winning the Powerball tonight, using the 5 numbers Steven Colbert provided on his show last night .)

I have no hope for a financial rebound.

Thanks for your advice!