DO NOT USE A DEBT CONSOLIDATION SERVICE! They are in business to turn a profit, and it will destroy your credit. I will grant that there are a couple of reputable services out there, but by and large they will screw you.

I provide financial couseling services through my church and would be glad to chat with you if your interested. Send me an email.

Otherwise, use the same discipline you train with to get out of debt. Suck it up and stop using credit cards. Don't buy anything you can't pay for with cash. Simple as that.

My advice - have a look for one of those low interest credit cards. You can then transfer all your debt to this lower interest card. Then pay it off. Then save the money. Then buy the P3. Or alternatively talk to your bank manager about a low interest loan. Then pay it off.

The P3 is a wonderful bike but you'll like it a lot less if you have to pay for it every month for the next few years.

This is a case of do what I say, not do what I do (or have done in the past).

I would suggest not using a debt consolidation service either. You can shop around for a lower interest card and then make a balance transfer, to get the rate down. Then focus on paying off the highest interest rate card first. Resist that urge to get a P3 on your credit card, pay off the old stuff first. Then save for the new bike. Its not pretty but it is the best way.

First, get your finances in order. Look into Debtors Anonymous (No shit, REALLY, I'm not joking. And drop your ego. Yes, you have one even if you don't admit it. The hardest thing to do is admit you are not going the right direction. You just published it to us. No harm there. Do the right thing for yourself. Forget about getting in any more debt!)

As far as consolidation, it WILL show on your credit report for many years. It may not be a bankruptcy or late/default status, but there is a marking for consolidation status, and it is looked upon poorly by future creditors.

You can get on your feet without it. It will take more work. It will take eating some crow, and doing without some cool shit for a while. Do it this way. You'll be better off 10 years down the road. Save yourself A HUGE AMOUNT OF HEARTACHE!!!!!

If you own a home, go get a home equity line of credit. Introductory rates are very low and there should be no set up fees. Draw enough down to eliminate all credit cards, etc. You consolidate your debt and can now deduct the interst for federal tax purposes.

If you don't own a home call around for the lowest fixed rate credit card. Get that and consolidate the debt yourself.

I totally agree that you should not get a debt consolidation service unless you are going into bankruptcy.

Evil. A good point brought up already is to apply for a credit card that has 0% interest and transfer you balances there. Shop around for the right card, some will try to screw after the "free interst" period.

If you own a home, a home equity line of credit is the way to go (other than the 0%) because they are very low interst, and the interst you do pay is tax deductable.

I agree that there are plenty of ways to do this without using a debt consolidation service. Another option besides the low interest credit card or an equity line of credit that hasn't been mentioned yet is a loan against your 401(k) if you have one. Some (most?) 401(k) plans allow you to take a loan out (not withdraw funds- this would have a huge tax impact) for up to 50% of the vested value of your account. The term is typically 5 years at a pretty reasonable interest rate (around 8-9%). The ELOC is the best solution, but if you don't own a home or have sufficient equity the 401(k) loan is another option. Bottom line- there are plenty of ways to solve your problem yourself without further damaging your credit and paying someone a huge amount of money to consolidate your debt for you.

I went the low interest card route and it worked very well. You need to check the terms very carefully. Most low interest rates are only good for a year or so and then they jump back up to something awful. I was able to obtain a low rate that applied to the original balance until it was paid off. You should avoid making any additional charges on the card until the original balance is paid off. Otherwise you'll find yourself with a bunch of high interest debt again because the payments will apply to the low interest balance and more recent purchases will probably be at a much higher interest rate. The terms will probably also contain a number of conditions that will allow them to jack up your interest rate or make the balance due immediately. For instance if you make a late payment to another creditor, many cards will raise your interest to a default rate that's likely to exceed 20%.

I think it would be very hard to find a debt consolidation loan that would carry less interest than you're paying now. Most of them promise to reduce your monthly payments but they gloss over the fact that your interest rate will be astronomical and it will take forever to pay off the principal. When you expect a loan to go full term, you should always check the end results. Slick lenders ply you with immediate gratification. Of course, if you're focused on lowering your interest rate, you might not be vulnerable to that approach. But if it starts sounding good, you have to back off and ask yourself, "What's the end result when it's all over?"

Larry

Agree with the other posts. You do not need a consolidation service. You will pay them more than you will save in interest.

Get a zero percent balance-transfer card. I will be frank in admitting that I have five figures in credit card debt -- and haven't paid any interest in two years! I could pay it all off today, but I just keep rolling it to another zero percent deal while my cash sits in an interest-bearing account. Eventually, the card companies will stop offering the zero interest deals, and I'll pay off the cards.

Of course, that is a short-term solution. You need to pay down the balance. Do NOT GET a home equity loan or other form of "consolidation loan". I'm in the wealth counseling trade, and every single time a client has done that, they have run the cards back up again within 18 months (and these are wealthy people that can afford to NOT run up balances). They never learn the discipline that comes with the pain of paying those cards down.

It's like training -- no pain, no gain.

Question:

Has the consolidation of my federal student loans adversely impacted my credit rating? I should add that since my minimum payments went down, I have continued to pay the old amount, resulting in an acceleration on paying off (or even touching) the principal (principle?).

But did I shoot myself in the foot credit wise?

Leigh

"...every single time a client has done that, they have run the cards back up again within 18 months..."

That is so true. None of these approaches are a panacea unless you can get control of spending. However, lower interest rates and tax deductibility of interest payments cannot be a bad thing regardless.

I also read once that it is often easier to make more money than it is to reduce spending. However, a second job or overtime on your current job would certainly impact your tri training time. I wold look at your discretionary spending closely. Do you eat lunch out every day? Brown bag it. Are you driving an expensive car/SUV? Sell it and drive a beater for a few years. Can you and your wife share a car or can you carpool to work? Do so. Do you hit the bars, go to movies, eat out every weekend? Stay home. Do you belong to swim club, gym, etc.? Find cheaper places to work out. Do you trade your car in every three years? Keep it for 8-10 years at least. Etc., etc.

One thing I can't stand is for people who smoke (I know nobody on this forum does) who complain that they can't afford certain things. At current cigarette prices, just add up how much a 2-3 pack a day habit costs!

I wouldn't go for the home equity line of credit/refi route. IMO not a good idea to turn unsecured debt into secured debt even though the interest rates may tempt.

Also, call up your cards and see if they'll give you a better rate. Tell them you've got a better rate on the other card, and are thinking of balance transferring if they don't lower your rate. You're a good customer for them (you make them money). They may not want to lose you.

I'll vote here too:

Tribriguy has the right idea. The CC debt has to get the beat-down first. Keep rolling balances every 6 months (and remember to close your previous accounts).

I recommend without hesitation an ascetic lifestyle for a while. I'm not talking Sidhartha here (no wandering the countryside, begging for food, etc), but some extremely disciplined budgeting/lifestyle adjustment can go a long way. It's like workouts in that if you tough it out for 6 months, you'll do it the rest of your life.

You mentioned you're an accountant, so if you do your TVM calc's correctly you'll see the right path.

talk about timing...

http://moneycentral.msn.com/...anagedebt/P42811.asp

"I'm not talking Sidhartha here"

Good advice. And it only hurts for a little while. I got myself in a pile of sh*t about 10 yrs ago. Was making good money but still living beyond my means when a divorce happened. It meant the sale of most of the toys and a downsizing in lifestyle. It was tough for a couple of years but I survived it and bounced back. The lesson learned was that I now manage money much better than I did then.

Another question, why buy a new P3? My advice is think secondhand once you're in a better position.

<<I wold look at your discretionary spending closely. Do you eat lunch out every day? Brown bag it. Are you driving an expensive car/SUV? Sell it and drive a beater for a few years. Can you and your wife share a car or can you carpool to work? Do so. Do you hit the bars, go to movies, eat out every weekend? Stay home. Do you belong to swim club, gym, etc.? Find cheaper places to work out. Do you trade your car in every three years? Keep it for 8-10 years at least. Etc., etc. >>

All excellent suggestions that I follow for the most part. I drive a '93 Ford Ranger pickup, two wheel drive, regular cab, manual crank windows, A/C kicks in around 45 mph ;-) paid for. No wife, women in these parts only get involved with those earning 40k or more, don't go to bars (hate 'em actually) and do really enjoy the health club I belong to (250,000 square feet, four pools, two of which are outdoors, 50 bucks a month).

Thank you all for confirming my suspicions regarding the debt consolidation companies.

Oh yeah, I paid cash for my '98 C'dale R800 w/105 group in '99 and that has been my trusty steed ever since.

Back to work,

Brett

I was hoping someone would say this. As a formerly practicing bankruptcy attorney (who is now inactive and is in no way giving legal advice and if you take internet based, free legal advice you are a fool anyway :) ), I was cringing when I saw someone mention the home equity loan track. While it may be tempting there are very limited times I would consider this (low debt load, retiring the credit cards never to be revived, etc.). Right now if you default on your loans they would have a very hard time collecting and would have to win a judgment prior to that, and even after that they could not (in most circumstances) do anything to force a sale of your home. Take out a home equity loan and they can foreclose if you default.

Also on the 401(k) route, be careful as if you leave your current employer and have an outstanding loan you must either repay the balance immediately or else it is treated as a cash disbursement which gets nailed with a 10% penalty + taxes. Of course I say this having taken out a 401(k) loan to pay for my P2K a couple years ago as the interest was silly cheap. Just something to remember.

---

I'm beginning to think that we are much more fucked than I thought.

<<Another question, why buy a new P3? My advice is think secondhand once you're in a better position>>

I guess what I failed to get accross with the P3 comment was to exemplify the fact that I'm not wildly spending money or racking up debt. I have the room for a new P3 and some other shizzle, like a nice new laptop, but I don't/won't purchase those things on credit. I do know people who just can't say "no" to a trip to the mall. I go nutz within one lap of the damn places. Malls make me want to puke, not buy.

Brett

Hard to imagine your credit rating getting hurt by that. Stay current and keep total debt moderate. That's the ticket for a good credit rating.

I have been 100% current for two decades, but my own credit score fell recently. Since I've been rolling balances over to new zero percent offers every six months, I ended up with lots of open, but untapped, card accounts. I had to scramble back and close a bunch of card accounts to qualify for the lowest rate on a car I bought last spring.

And, yes, it's "principal" ;-)

Julian, CFA and CFP

Thanks Julian. The only debt I have is my (exorbitant) student loan debt and a car loan. I don't use a credit card, only AMEX. I have been trying to repair my credit after some thin and irresponsible years (the student loans were worth it, I quintupled my salary). You answered another question for me, ocassionally I have been advised that it is a GOOD thing to have revolving credit acoounts that are not used or used very little.

Sounds like that's wrong (I never believed it that much...) Gues I'll just keep paying down my debt.



Leigh

One thing I'll add is that opening a lot of credit accounts or applying for credit frequently can also hurt you. A flag goes on your credit report every time you apply for credit because lender's aren't thrilled if you have tons of credit available that you could tap into and get overextended.

Having a lot of accounts open and unused isn't really a big deal though; it won't help you but it shouldn't hurt you. I think, Julian, it's more likely that in swapping cards every six or ten months to get 0% balance transfers the issue was all of the credit applications and not the number of open and unused cards.

Anyway, I'm currently using the same strategy of jumping from 0% card to 0% card until the tax refund comes in; one step ahead of the Man baby!

Many of the major points regarding credit scoring have been covered here but I would like to add just a couple thoughts based on my experience as a credit risk analyst for a very large bank.

The FICO score which you are given based on your credit has many contributing factors; your age, # of trades, # of trade file months, amount of revolving balances, proportion of balances to limits, # of recent inquiries, # of open trades, as well as delinquency history to mention just a few. How all of these factors are weighted in order to actually calculate a FICO score is extremely complex. The bottom line is the three reporting agencies (Experian, TransUnion, and Equifax) don't divulge exactly how they calculate the scores. Most often the scoring process is fairly accurate, other times it is very far off. The strategies discussed here about how to manipulate your credit score will work for some and not for others. Ultimately, unless you are an analyst for Experian, Transunion, or Equifax you don't know exactly how your FICO score is calculated and what helps or hinders it.

Secondly, most lending institutions look much farther than just your FICO score because they realize it's a very limited tool. In most cases an underwriter is going to spend some time assessing your entire trade history and will make a judgement of your credit worthiness based on the big picture. If you have a low score but you know your credit is good don't sweat it...a good underwriter is going to come to the same conclusion.

Finally, this thread references both debt consolidation and credit counseling services...these are two very different things . Generally, debt consolidation strategies (transfering balances to a 0% card, home equity LOC etc) won't negatively alter your credit score to any great degree. Consumer Credit Counseling services however will wreck your credit for a very long time. If someone is in CCC this tells a lender that the borrower is incapable of paying their debts on time without outside assistance (bad). When you enter CCC your creditors are not being paid what you originally promised to pay them (very bad). Personally I often look at CCC as a precursor to bankruptcy (extremely bad). Having said that, there are still plenty of situations where good people are fooled into entering CCC.

Very true, and that's what I really meant by saying to avoid consolidation. I used the wrong term. Going to these counseling services is nearly as bad as bankruptcy, since the service works over the card company to get you better terms. The card companies (and all lenders via the Big Three reporting agencies) have a memory a zillion years long, and they will have a red flag next to your name forever.

So, here is a question: Most of the cards I've had since '92 and I've been in very good standing. I've never missed a payment in over ten years. So, should I just call these companies up and if they don't give me a "good guy" rate, just close the account and go shopping around? Does the length of time that I've been a "customer" mean anything credit reporting wise? If all of my 10+ year old accounts get closed and let's just say I have one tidy closed-end loan from my credit union that starts in '04, will that not look as good as having a lengthy, good track record with my two current banks? It's really a tertiary issue with me, but I don't want to cut off my nose to spite my face.

Thanks again for all of the input and confiriming what I thought would be a bad move on my part.

Brett

Student loan consolidation is an entirely different beast from what we are talking about here. No impact on your credit. Great idea if you actually pay off principal quicker. A lot of the time, however, the student loan consolidations actually lengthen your payments out in order to lower monthly payments. You end up paying a lot more interest that way. That is the wrong reason to do them, unless you are in an absolutely unmanageable bind. Debts should be paid in the quickest manner possible under most circumstances.