Broke and Considering Getting a Loan - Need Advice

[Anonymous]

I've been spinning my wheels about where to go with my current financial situation and, based on previous helpful advice I've gotten here, thought someone might have some more helpful insight.

I am in serious (to me) debt:

$11,400 (maxed out) at 9%

$1800 (maxed out) at 17%

$1290 at 9%

$975 (store card) 0% until September then 24%

$1000 (store card) 0% for 2 more years

I have literally zero dollars in savings.  I have been living paycheck to paycheck for 5 years now due to medical bills which forced me to use my credit to live.  I have paid off a few of these cards but literally, the month I did, I got laid off and medical issues resurfaced and I had to go right back to using my cards.  After a few months of being unemployed I took the first job I was offered but I make very little money.  I have no expenses left to cut out.  At the same time, I have never been late with a payment and have managed to stay afloat with an average credit score of 726. 

Because of my good credit standing, I'm afraid to file bankruptcy.  At the same time, I'm only pulling minimum payments so I'm not getting anywhere and live in a constant state of stress and fear because of my lack of money and now, with my cards maxed out, my lack of credit if, god forbid, there's an emergency.  I considered taking money from my 403b but that was not a good option for me. 

Now, I'm considering a debt consolidation loan but don't know where to start with that.  I applied for one loan online and the interest rate was 17%.  I'm tempted to do this but am not sure how to approach it if I did.  One, should I get a smaller loan to pay off my smaller debts even though, that interest rate is higher than what I'm currently paying on some of them?  Then, I could apply my extra money to my large credit card debt.  Only problem is that would leave me with two fairly large payments to make then.  My credit card and my loan.  Or, should I get a larger loan, pay off all my debt and have one payment that I can afford, and credit if I need it in case of emergency until i can build a savings account even though, the interest rate is higher than the 9% I'd otherwise be paying.

I don't know if this is making sense. I'm basically just talking out loud to bounce this idea off of someone.  Anyone have suggestions on how to shop for a debt consolidation loan or advice on whether this would be a good option?  I just want this to be over already.  I feel like I've been trapped in my life since I've been a slave to my bills for so many years.  I need to find some relief but don't know where to begin.  Any help is appreciated. 

[GregB]

Applying for the loan will cause your credit score to drop due to inquiry, new account, and possibly new debt that will show up before the others balances drop and report to the CRAs. If any of your current lenders happen to pull a soft inquiry at the wrong time, they could lower you limit, close your account, etc. That could cause a further drop.

Seems 17% in a new loan to pay off debt at a max of 17% doesn't make sense, at least until the one hits 24% in September. Can you get that one zeroed out by September, or at least close? Then start working on the 17% CC.

If it makes you feel any better, a divorce forced my to have $148K in CC debt, now down to $137K after a year. The other $60K in debt to my atty and forensic CPA is now half paid off. After paying house payment, taxes, and home insurance, I have about $600 a month left for everything else so debt reduction is coming from selling stuff off. Interest rates are low due to my credit having zero negatives and a EQ FICO that only dropped to 701 even with all that debt. I actually feel good about reducing the debt. Each time you make progress, you feel better.

[Anonymous]

That's just it, to think about paying 17% when some of the debts have a smaller apr, I cringe.  But when I look at the payments each month that's what is making me consider it.  How much do you think accepting the loan would hurt my credit?  Right now, the only negative to my credit history is my high debt to credit ratio.

Here's my current thinking on this though:  as it is, all the payments I'm making are for the minimum payments.  That's currently $350 per month - and I'm currently a month behind in rent (I pay rent to my family so they're patient with me) and I need to have $600 worth of work done on my car which is 12 years old (and another reason I fear having no money...I can't afford a new car or new repairs right now or should be starting to put money away for either).  So, I was looking at some Lending Club loans online.  Granted, I don't know if I'm actualy considered "approved" now or if by entering my information and doing an inquiry it "pre-approved" me but nonetheless, it said I was eligible for a $15k loan at 17% on a 36 month payback schedule at $560/mth.  I will also add, come August, I should (of course, every time I say that, something else comes up) have at least an extra $600/mth available to pay this too (I'll be wrapping up my most recent medical bills).  So, if I were to take the loan, not only would it open up all my lines of credit, I would only be making one monthly payment towards debt rather than 6, and if I take those 6 minimum payments plus the extra money I'll have coming in, that would be close to $1000 to pay this off or to pay the minimum payment and then put some into savings. 

I also considered taking a smaller loan, say, $5k which was listed at 16% and the monthly payment would be $184 for 36 months.  Then I could pay off all my smaller debts, open up one of my two credit cards for emergencies, and then I could use the extra cash I'll have to pay back that loan and use the remainder to work on the major credit card debt at 9% (rather than paying the loan back at 17%).

Lastly, I thought about muddling through on minimum payments the next few months and then just snowballing my payments on each debt once I have the extra income available.  this seems like it might be the best option mathematically speaking but it also leaves me with no credit available and seems like this would take much longer having to pay them all off one at a time.  If I could nearly double the monthly payment on the 15k loan after August, I'd have it paid off in less than a year and a half. 

I don't know.  I'm afraid I'm not thinking about this the right way because I'm identifying more with the fear and stress rather than what makes the most since in terms of the numbers.

You're right though, you do feel much better when you are at least making progress.  I just need to get to that point.  Right now, I probably feel as stressed as you despite your higher debt just because I'm not getting ahead.  I'm just paying off the interest with my minimum payments.  And I'm always waiting for the next shoe to drop and thus far it always has.  Thanks for your positive outlook though.  Getting as far as you have in just a year is impressive to me.    

[Anonymous]

Get into PSECU. Get the 20k Visa/PSL combo. They have a balance transfer apr of 3.9 going on for a year or so. Transfer all the balances that would save you money.

[Anonymous]

I'm pretty naive about all this....what is a PSECU and PSL? 

[Anonymous]

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@Anonymous wrote:

I'm pretty naive about all this....what is a PSECU and PSL? 

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Okay I hate to be the one to say something as I am sure others are also thinking this but...

If you are broke, not working or even working but living paycheck to paycheck, maxed out on credit cards and loans, how would you expect any lender to advance you another loan of any amount.

Lets look at this scenario...

1. Lender loans you money to pay off all debt.

2. You make all those payments to outstanding debt in full so you have 1 loan to repay.

3. Now it is time to make payment on the loan you just took out. Where are the funds coming from to repay this debt? You will be back to living paycheck to paycheck.

4. You don't have the funds or limited funds to repay the debt so you ultimately start using your credit cards again to repay this loan and or buy other necessary items and or doctor bills, medication, etc etc...

5. Within a very short period of time you will be maxed out again on all those credit cards you paid off, so now what do you do?

6. You are back in the same situation except now you are more in debt and have to figure out what to do again.

In my honest opinion you are in a position that worrying about your credit is really not an option. You really should be talking with a bankruptcy attorney and consulting with them. Yes it ruins your credit but hopefully with a clean slate you can start rebuilding your credit back in a few years when you are in a much better position and your health is much better. 

[rckstrscott]

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@Anonymous wrote:

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@Anonymous wrote:

I'm pretty naive about all this....what is a PSECU and PSL? 

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Okay I hate to be the one to say something as I am sure others are also thinking this but...

If you are broke, not working or even working but living paycheck to paycheck, maxed out on credit cards and loans, how would you expect any lender to advance you another loan of any amount.

Lets look at this scenario...

1. Lender loans you money to pay off all debt.

2. You make all those payments to outstanding debt in full so you have 1 loan to repay.

3. Now it is time to make payment on the loan you just took out. Where are the funds coming from to repay this debt? You will be back to living paycheck to paycheck.

4. You don't have the funds or limited funds to repay the debt so you ultimately start using your credit cards again to repay this loan and or buy other necessary items and or doctor bills, medication, etc etc...

5. Within a very short period of time you will be maxed out again on all those credit cards you paid off, so now what do you do?

6. You are back in the same situation except now you are more in debt and have to figure out what to do again.

In my honest opinion you are in a position that worrying about your credit is really not an option. You really should be talking with a bankruptcy attorney and consulting with them. Yes it ruins your credit but hopefully with a clean slate you can start rebuilding your credit back in a few years when you are in a much better position and your health is much better. 

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+1

I completely respect you holding on to that good credit score, as to we all talk about our repair woes and the struggles. But I think, in addition to the on-point post JM-AM just made, you are choosing short term stress release over long term correction and fixing of the problem. While your logic is in place and you are thinking it out clearly, you just discussed how around every corner you come into a back luck or hard luck situation. If you go the loan route, one more bad luck move could really sink you.

-scott

[cdtotten]

I unfortunately think bankruptcy is a better option for you at this point. Adding another loan and moving debt around is not solving your problem. You don't have the money to make any progress and you are one more hiccup away from losing it all anyways. Might as well be proactive, get the process started, and move on with your life. You rent from your family, so it won't affect your housing situation at all, and will get some of the weight off your back of all that debt.

I am sorry you are in this position, but it sounds like it is hopeless at this point to even think about recovering.

[Anonymous]

And that is part of it, I've been living like this for 5 years.  So, yes, the immediate stress relief would be huge.  Like I said though, my most recent medical bills will be paid off and I will have an extra $600/mth to put towards my debt starting with my 7/15 paycheck (on top of the minimum payments I'm already making).  That's why I was thinking, I could consolidate my debt into one payment, repay more than what the loan payment is and be ok.  I may not be getting to save a ton in the interim but that would also keep me out of bankruptcy in the long term.  I don't know.  I almost feel like I'm over thinking this

[Anonymous]

Have you checked with CitiFinancial?  They specialize in consolidation and offer 60 month terms.