Friday, July 16, 2010

The Word Loan Isn't Always a Dirty Word

As I mentioned last week, I'm drowning in credit card debt. It feels surreal to think that, to know that I jumped off the deep end when it comes to finances and ended up here.

All throughout my life, my parents struggled with money. We shouldn't have struggled with two working adults, but with my dad's gambling problem, we did. He would gamble away his check and my mom was left to pay all our bills and extra expenses on her daycare teacher's pay. It wasn't easy. We were evicted out of many apartments. I learned at an early age the concept of money and the fact that we didn't have a lot of it. I never told my mom that I wanted to be in Girl's Scouts or join a baton-twirling team (every year, we would be given information to join a team. Stop laughing.) because of the money issues. As much as I loved going on field trips, I hated letting my mom know she would have to fork over some money to pay for it.

The truth is, we weren't destitute. We never went hungry, we always had a place to stay, and we always got new clothes at the beginning of school. I just had innate understanding that we were always struggling and didn't have a lot of extra money laying around. I knew I couldn't ask my mom for a new outfit every week and I was sixteen before I had my first cell phone.

I promised myself that I would never find myself in debt. I would work hard to make sure I never made the same mistakes as my parents. Credit cards would not even be an option for me. I would be financially stable.But I slowly began accumulating my credit cards. In May 2006, after I opened up a checking account with my bank, they gave me the option of starting a credit card. I talked it over with the financial adviser and my mom and decided to do it, only because it would help my credit. Over the next two years, I was extremely responsible with it. I would use it and then pay it off every month. I was never late on a payment.

In the spring of 2008, I was outside of Old Navy one Sunday with my mom, waiting for it to open. My mom had recently gotten an Old Navy credit card for $300 and gosh darnit, it was warming up outside! I wanted some new, summery clothes! (Probably not the best way to go about applying for a credit card...) I thought I would get a credit card around $300-$500. Never would I expect getting approved for a $2,500 credit card.

Right there, I should've put on the brakes. Aside from school loans, I had never been responsible for that amount of money in my life. And not only was it a lot of money, it was a credit card with a lot of money. Even. Worse. Over that spring and summer, I fluctuated between jobs and the job I did have didn't offer me a lot of hours. (Plus, that was the summer that gas was close to $4.00 a gallon and I was traveling up to Tampa for a class twice a week.) So I was using that credit card like it was going out of style and paying the minimum payment every month.

But I was paying it. Every month.

In August 2008, a few weeks before I was supposed to start my final internship, I applied for a Target credit card to buy some more professional clothes for teaching. Like the Old Navy card, this is also a card decision I made spur of the moment and it wasn't a good idea. Luckily, I was only approved for $300 but I quickly used that up. The interest rate is ridiculous and I've been late quite a few times, giving me $30 extra a month I have to pay.

The only card I've paid on time consistently is my bank credit card. The other two have been maxed out repeatedly. I'm working towards paying off my Target credit card as it's the one with the lowest balance and would be the easiest to pay off. My Old Navy credit card is with a collection agency - something that makes my heart break in two every time I think about that.

Over the past 2 years, I've done little to get myself out of credit card debt. From August 2008 - February 2009, I was out of work and that's when my cards got out of hand. I still managed to pay my Target and bank credit cards every month, since the minimum was $10-$20. But for my Old Navy credit card, with a minimum payment of $80, I couldn't do it. So I would pay when I could, but it was never consistent. And even when I started working again, I didn't do the responsible thing and put a lot of money towards my credit cards. Part of it was our finances, we were living above our means and I had to help out. Part of it was school, having to pay for my own books and part of my tuition.

So that's the past. That's what I've done and how I've gotten to where I am now. I'm focused on getting in control of my debt and getting rid of these credit cards. (Well, I am looking to keep my bank credit card since I do still want to have a card for my credit.) Kyla has mentioned considering a consolidation loan a few times. The word loan sounds like a dirty word to me, and the word consolidation sounds too financial for me to contemplate. So I just brushed her off the first time, thinking I don't really have that much in debt. (That's always a scary way of thinking. Any debt is too much.)

I talked it over with my mom this weekend and it sounds like a pretty good idea. The way she explained it was that if the bank were to give me a CL, they would pay off my credit cards and then I would owe them the money they paid. It would be taken straight out of my account each month. It really sounds like a great idea because there are times it feels so overwhelming to think of how much debt I have to pay and the fact that I have to deal with a collection agency.

I'm thinking seriously about applying for the loan. I think it would help me get this whole debt mess straightened out and give me a solid plan to paying it off.

Have you ever gotten a consolidation loan? Have you ever been in any kind of debt? How have you gotten out of it?


  1. I think consolidation can work well for some. If you can get a better rate, and you can actually keep up the payments and not charge up new things, it could see you debt-free faster.

  2. I'm about to take out a loan for graduate school, and I'm terrified. I think I see "loan" as a dirty word, too, and debt scares me -- but it's the only way I can pay for school. Even so, this consolidation loan sounds like it could really work for you -- good luck!

  3. Hubs got a loan to pay of his credit card debt before we got engaged because he wanted to be debt free (monetary) going into marriage. It was a HUGE help.

  4. I have been in huge debt before - think like $12,000 because of an ex kind of lying about having a job and taking over my bank account before buggering off :S AWFUL, awful mistake - but sometimes we have to learn the hard way!!

    I got a line of credit - the interest rate was 9% as opposed to my credit card which was at least 10% higher than that, so that helped, as did setting up automatic withdrawals to come out of my checking account so I didn't have to worry about doing it all the time, it just happened automatically. D helped me out a bit as well and for that I am eternally grateful :)

  5. I'm definitely no financial expert, but I'm glad that you're exploring your options and that you're going to talk to someone about your debt. No matter what you decide is best for you, learning about credit and loans and all this stuff is so important and can make things like buying a house down the line a lot less intimidating :)

  6. I have a lot of debt, too, from a credit card, old school, and general irresponsibility with money. I've considered a consolidation loan, but I haven't done much research about it. You'll have to let us know what happens if you decide to do it. I understand how you feel about loans, but credit cards are basically loans anyway, and it might be way easier to have only one bill to pay off and all the credit cards taken care of. You might get a better rate, and it would probably look better for your credit to only have one loan you are consistently paying off rather than three credit cards that you pay when you can. Good luck, honey! Good for you for at least being aware of your finances and taking steps to take care of them. It's way better to do this now, when you are young and have relatively little debt than when you are older.

  7. i had 5 student loans making my monthly payment about 600 a month. I consolidated and it's now 200 a month :)
    consolidation = good. i also sent you a super long email.

  8. Um yeah. My only credit card is maxed out and it's a pretty high number. And my student loans are ridiculous. Just with those two debts I'm freaked out - plus add in the fact that my husband also has substantial student loan debt. It SUCKS.

  9. I've never had credit card debt (I've always been one of those crazy people who pays it off as I go), but I did consolidate my student loans, and it was the BEST thing I ever did. I came out of college about $18,000 in debt, but each semester was a separate loan, so I ended up with 6 loans to pay off. If I'd kept them separate, I would have been paying a lot more each month. I consolidated, and the education company I went through paid off all of my loans, and now I just owe them one monthly payment. And I'm only paying $133 a month (at like, 3% interest, which I can claim on taxes anyway). It's our lowest bill, because even our cell phone bill is more than that!

    For me, consolidation was the best option because instead of paying off 6 loans (which is way more stressful) at a higher monthly payment, I'm only making one payment at a lower amount with lower interest. It may or may not work for your situation, but I highly suggest looking into it. If it causes you less stress and works better for you financially, it'd definitely be worth it.

  10. I've never had a consolidated loan, but then again, I've never been in a huge amount of debt. I finally just paid off my credit card after a little too much Christmas shopping.

    I don't think I'd ever sign up for a department store credit card, based on the fact that they usually have higher interest rates.

  11. I think consolidation can work, but I would be really careful dealing with any company that does it for you. They are largely unethical and will do things like tell you you only have to pay so much and then come back to you for the rest years down the road. It sounds like you'll be dealing with your bank, which is a much better idea, but when you're dealing with the collection agency that has your Old Navy card, make sure to get everything in writing and then save all communication.

    If you get the loan, then it's almost sure to be at a lower interest rate than your cards, but beware of getting yourself into a situation where you just make tiny payments every month for a really long time and end up paying more interest that way.

    I know this is exceptionally obvious, but pay it off as fast as you can, because consolidating often has the effect of taking all of the pressure off of you, so that getting out of debt no longer feels so immediate. It can also make it easy to never change your habits, because you can get by with continuing to spend like you shouldn't.

    Consolidating was not an option for me, because my accounts were all in good standing, but no one was going to give me a loan for $20,000. In the end, I'm glad I didn't do anything to take the pressure off of myself, because I think I would have let that just lull me into continuing on with the avoidance and complacency that got me there.

    What I'm saying is that consolidating can be smart, but just make sure you have the mental part worked out too. And I hope none of this advice sounds patronizing, because you know I'm going through the same thing.

  12. I have many loans. Most are for college, which in total are 14,500. Fortunately, I don't have to pay those for now, but I'm already planning that out. My other loan is for my car, I'm ahead on payments for it and whenever I have money I put it there. (I really don't like having loans at all, so getting some things that I could buy, I sacrifice.) In grand total my loans are a little less than $20,000. I hope I can take care of them ASAP.

    I hope everything works out for you, and it relieves some stress from that source.

  13. I think we come from quite a similar family background. I'm drowning in debt, but I don't particularly care. I mean, I "care". I want to get rid of all my consumer debt before I graduate from law school (in a year, we'll see if it happens). I mostly just will need the money that goes towards those payments every month to apply to my school loans.

    Yeah, I have no idea how many school loans I have. Private college (with lots of scholarships, but still) + private law school = I will be paying this back for the rest of my adult life. We're talking, easy six figures. And I don't care. It doesn't bother me that I have to pay the student loan people (well, the government now) forever. Because I get to be a lawyer. I will probably barely earn enough to make my monthly payments, but I'll still be doing something I love. I don't care about owning a house someday, my kids will be paying their own way through college (if I have them) works for me. So I guess "loan" doesn't equal bad word to me :) credit card, on the other hand...
    Oh, and yes...I'll be consolidating. My undergrad loans are in deferment while I'm in law school, and come due the same time as my law school ones. The nice thing is that I don't have ANY private loans (which are KILLERS EVIL BAD INTEREST RATES, slightly dramatic but whatever) - only federal loans. So I can consolidate them ALL together and make one payment. Easy breezy, right? :) We'll see in 2011, I guess!
    (sorry for the world's longest comment. I'm wordy on Fridays.)

  14. This sounds like a very good idea. I just wanted to say how awesome it is that you are putting this out there so honestly. I really respect that and think you are an amazing person for working your way out of this debt now. Kudos!

  15. I was where you are about three years ago, and actually, probably worse. I had collection agencies calling my house all the time, court summons came to the door, and then garnishments. I finally realized that I couldn't ignore the problem, I had to do something about it, so I did get a consolidation loan. You need to research the company thoroughly and read ALL THE FINE PRINT because sometimes, a shady company can leave you worse off than you are at the start.

    I respect you for taking responsibility for your spending, I think that it's great that you recognize what needs to be done. Good luck :-)

  16. I don't think I had it nearly as bad as some other people out there, but I definitely had a lot of debt this past year and I managed to get myself out of it. I focused on not spending money on things I didn't have to & I made sure that atleast a small amount of money went into my savings account after each paycheck. That way, even though it would have been better placed on my debt, I was slowly accumulating a safety net, which made me feel better. Even if it's 100$ a month, it grows & slowly you have this money sitting in your account that you can either put on a bigger debt or use for an emergency, or whatever.

    I know that's not an option for everybody necessarily, but it helped me feel a little bit better about my never ending money problems. Either way, I completely understand how you feel right now & I think a consolidation loan is a great idea. Atleast you don't have to focus on 12 different payments, just one at a time.

  17. The only consolidation loan I have is my student loan one, but it saves me quite a bit so I assume that a consolidation loan for other types of debt would help as well? I would think there would be some option out there for you that would be better than chipping away at it. You can do it, though, and as difficult as it will be, it will teach you a lesson and I am sure you will never view using a credit card the same way away!

    Keep your chin up, you will figure it out!


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