Loan consolidation advise needed please

[PeeluckyDuckee]

I just spoke with my bank about a consolidation loan.

Currently I have:
- $24k vehicle loan @ 7.2% fixed for remaining 3yrs, with balloon amount owing at the end $10800, to be refinanced.
- $5300 in visa @ 18.9%
- $5700 in visa @ 18.9%

I was looking at two scenarios:
- consolidate just the two visas
- consolidate both visas and vehicle loan.

Just for the two visas alone the arrangements are:
- $11,100 consolidation loan
- 8.25% variable (prime plus 4%)
- 4yr term
- no life/disability coverage
- about $275 monthly payment

Currently minimum payment is 3% of both balances, so about $333.00/mnth. Consolidating both visas into one loan I'll be freeing up about $50/mnth in my expense budget, assuming interest remains constant.


Now she said the rates would be better if I did a consolidation of all three items (car loan, 2 visas), then the terms would be:
- $35,080 loan
- 6.5% variable
- 5yr term
- no life/disability coverage
- bi-weekly payments of $315

The way the budget is right now, without change, $430 goes to vehicle loan and $333 base minimum goes to the visas, totalling $763 per month. With the consolidation of all three items I'll be paying a lesser $630 per month. Freeing up my monthly expense budget by about $130.

Now the idea of being able to pay off both my visas in 5yrs really does excite me (assuming I cut up one of them and don't put any more charges onto the other one), but the thing that I'm considering is....does it make financial sense to take the $24k vehicle loan, which is at a fixed rate of 7.2%, and move it over to a variable rate of 6.5%??

If you were in my situation, what is the best way to approach this?

Right now I'm not contributing to RRSPs at all. Once I do this consolidation, there'll be room in the budget to set aside $50/mnth into RSPs and the rest to pay off the principal owing on another RCL account.


I just made some small changes to my budget last week and eliminated $35/mnth in unneccessary expenses. I want to bet set straight again, but need some advise.

Thanks in advance,
Plucky

 

[mugs]

Originally posted by: PeeluckyDuckee
Currently minimum payment is 3% of both balances, so about $333.00/mnth. Consolidating both visas into one loan I'll be freeing up about $50/mnth in my expense budget, assuming interest remains constant.

If you look at things in terms of monthly payments, you're bound to make poor financial decisions (like that $10,800 balloon payment). With the loan you'd have your credit cards paid off in 4 years. Paying the minimum payment will take how long to pay it off?

I'm still reading your post.

 

[HappyPuppy]

Sell your car and buy a beater. Quit eating out and start eating lots of rice and pasta. No more movies and dump your girlfriend, unless she wants to pay for all your outings.

Debt consolidation schemes usually cost you more than the actual debts would.

 

[anonmouseuser]

If you are a homeowner, talk to them about a home equity line of credit. You can write the interest off on your taxes.

 

[PeeluckyDuckee]

Ok, new plan. I went to the bank that I work with and worked out a staff rate consolidation loan consisting of the following:

$5300 visa
$5700 visa
$9000 RCL

So at the moment, he's recommending leaving the car loan out of the equation and concentrate on the revolving loans, since the vehicle loan is a low fixed 7.2%.

The loan amount is $20,299, 5rys, prime of 4.25% plus 1% premium, $385.38 monthly payment. So instead of 3 payments, I only have to worry about one payment now. Total cost of consolidation (assuming no change in rates - yeah right!) is tentative $2823.

That gives me a TDS ratio of 41%, pending approval.

If that goes well, the visa with a $6500 limit would be reduced to $1000. And I'll be cancelling the other credit card altogether.

I feel comfortable living with this. At the end of each month I'll have slightly over $150 for personal spending/savings. At least now I have a plan and a goal with an end in sight. 5yrs.

That's the thing, with the visa minimum payments, it'll take well over 10yrs, assuming I charge nothing else to it.

 

[Yossarian]

the smart thing to do is sell the car. you are a fool for getting a 24k car loan when you already have 11k on credit cards. unless you have changed your spending habits your loan consolidation is only going to be a short term solution.

 

[PeeluckyDuckee]

I had about $4k in CC debts when I got the vehicle. I agree, I was a fool for taking on such a huge vehicle debt. Then loaded it up even further with $15k, combination of cc/rcl, debts. My financial situation from the beginning of the year compared to now was decent to worrisome. I do realise my situation and poor decisioning.

And yes I do agree, doing this is useless unless I curb my spending habits. Which is why I have in recent weeks started my own budget tracking and track all my daily expenses.

 

[Zee]

Originally posted by: Yossarian
you are a fool for getting a 24k car loan when you already have 11k on credit cards.

 

[PeeluckyDuckee]

I'm relooking at the two options again.....

With the first scenario where I consolidate my 2 visas (18.9%) and RCL (prime+1%) for a total of $20.299. Variable rate of prime+1% over 5yrs. It's a monthly payment of $386/mnth, leaving me to deal with separate the $24k vehicle loan with 3yrs remaining and a balloon amount of $10,800. Going this route, this leaves me with $170 each month.

The second scenario is consolidating both visas (18.9%) and the vehicle loan (fixed 7.2%) for a total of $35,535. Variable prime+1% over 5yrs. Monthly payment of $675. That leaves me to deal with the $9000 RCL balance, with a rate of prime+1%. Going this route, this leaves me with $311 each month. $50 of which goes directly towards interest payment on RCL, then allocate a PAP of $120/mnth towards principal. And the rest for personal spending.

This way, all of my loans are charged at prime+1%. That'll put me at 43% TDS, pending approval. I like option two better as it allows for greater flexibility in budgeting.

 

[mugs]

Is $24k what you currently owe on the loan, or the original priciple? What car is it, how much did you pay for it, what is it worth now, and how much do you owe on it?

 

[irwincur]

Sell your car, you obviously cannot afford it.

The other problem with consolidation. You need to create a tight budget, and stop using your credit cards. There is nothing worse than sitting on $11,000 of loan debt and then just adding more to your credit cards. If you get this loan, but the cards up - actually cancel, because cutting them up and leaving open accounts will hurt your credit record - leading to high interest loans, like the ones they are trying to pawn off on you.

Better deal. Sell the car, and buy something cash. You would be amazed at how long a sub $1,000 car will run if it has to. Cars are THE WORST deal ever, they lose 60% of their value in the first year alone. You might also want to contact the credit card companies and just tell them that you will not be able to pay. 99% of the time they will cut you a deal. Some of these deals can be pretty good, and it really does not do too much damage to your credit rating. Just get everything in writing.

Oh yeah, you may want to get another job.

 

[PeeluckyDuckee]

$24k is the balance owing at the moment. Had it for just a year. 2001 Honda Prelude. Original amount is about $27500.

That's what'll be done. Cut up one of the credit card, leaving the other with a $1000 limit.

I'm going with the second option if they'll approve it. That way all my loans are simply prime plus one. That'll give me enough flexibility in the budget to live comfortably with the remaining discretionary income.

 

[blueskye13]

good luck with that!

 

[mugs]

Originally posted by: irwincur
Sell your car, you obviously cannot afford it.

The other problem with consolidation. You need to create a tight budget, and stop using your credit cards. There is nothing worse than sitting on $11,000 of loan debt and then just adding more to your credit cards. If you get this loan, but the cards up - actually cancel, because cutting them up and leaving open accounts will hurt your credit record - leading to high interest loans, like the ones they are trying to pawn off on you.

Wrong. The length of your credit history is a factor in your FICO score. Closing accounts that you've had for a long time will hurt your score.

Better deal. Sell the car, and buy something cash. You would be amazed at how long a sub $1,000 car will run if it has to. Cars are THE WORST deal ever, they lose 60% of their value in the first year alone.

Wrong. My car wouldn't lose 60% of its value in the first 5 years I own it if I maintain it well (which I do) and don't drive it excessively (which I also do, but not enough to make that big a difference). This is a myth that is perpetuated because people just keep repeating it without knowing what they're talking about. Think logically, if you could buy a 1 year old car for 40% of the cost of a new car, who WOULDN'T buy a 1 year old car instead of a new car?

 

[flot]

Originally posted by: mugs
Wrong. My car wouldn't lose 60% of its value in the first 5 years I own it if I maintain it well (which I do) and don't drive it excessively (which I also do, but not enough to make that big a difference). This is a myth that is perpetuated because people just keep repeating it without knowing what they're talking about. Think logically, if you could buy a 1 year old car for 40% of the cost of a new car, who WOULDN'T buy a 1 year old car instead of a new car?

Lots of people. There are cars out there that hold their value, and cars that don't. I have bought my last 3 cars used, with reasonable milage, for less than half of what they sold for new. My most recent was a 2001 Dodge, with 26,000 miles (8000 miles / 7 months left on the factory warranty) for $15,300 when the sticker was around $31,000.

How's that for a fast way to lose some money? Obviously it's not 60% in the first year, but it's 50% in two years, which is pretty substantial if you ask me.

Obviously there are examples on the other side as well - if you walk out with a good deal on a honda civic, you can turn around and sell it 2 years later and only lose maybe $3500 on the deal. BUT a lot of people don't think about these things when they make the initial purchase...

 

[randomlinh]

see, the thing is, you bought a dodge

but dude, ditch the prelude, and get something more practical.

 

[psiu]

Good luck fixing that credit stuff. At least it sounds like you haven't put your credit rating in the tank, and you're looking to head off any problems. I agree with some of the posts above, you may want to look into selling the car and getting a cheaper one.

And definitely keep those cards active, if rather unused.



They might be handy in a few years, when you've gotten everything paid off and have some cards with decent limits and long lifetimes and you have a better understanding of how to use all that credit (which it sounds like you're in the process of doing).

 

[PeeluckyDuckee]

I've always made regular payments. Had the credit card about 7-8yrs ago. Never missed a payment. The only scratch on my credit history is 3 1-15 day payments on my student loans. There was a $2400 student loan from years ago that I've already paid off, although that took me 4yrs to do, being part time @ McD and going to school at the same time.

My credit is far from shot to hell. But I do realize the dangers of slowly creeping there unless I make some changes soon.

The Prelude goes for $30k Cdn new. At the time when I bought it, 3yrs later, it only depreciated $7250.
The Intrigue the family bought on the other hand took a $8000 dive in value over a 6mnth period!!! And yes, we know that it was the end of the line for Oldsmobile.

Closing out a long standing credit card affects my credit negatively? What's the reasoning behind that??

 

[mugs]

Originally posted by: flot
Lots of people. There are cars out there that hold their value, and cars that don't. I have bought my last 3 cars used, with reasonable milage, for less than half of what they sold for new. My most recent was a 2001 Dodge, with 26,000 miles (8000 miles / 7 months left on the factory warranty) for $15,300 when the sticker was around $31,000.

How's that for a fast way to lose some money? Obviously it's not 60% in the first year, but it's 50% in two years, which is pretty substantial if you ask me.

I never denied that cars lose their value rapidly, I was merely saying that what irwincur said was flat out wrong. Even in the example you gave, the car only lost half its value in 2 1/2 years, not 60% in 1 year (as you pointed out). You hear people saying all the time that a car loses half its value as soon as you drive it off the lot. Where they get that idea from, I have no idea. A car is worth what someone is willing to pay for it.

Sure, a car is a terrible investment. This guy should definitely sell his car. It's interesting that nobody here mentions computers as a terrible investment - they lose their value much faster than cars.

Obviously there are examples on the other side as well - if you walk out with a good deal on a honda civic, you can turn around and sell it 2 years later and only lose maybe $3500 on the deal. BUT a lot of people don't think about these things when they make the initial purchase...

How'd you guess I drive a Civic?

Originally posted by: PeeluckyDuckee
Closing out a long standing credit card affects my credit negatively? What's the reasoning behind that??

It shows that you've had credit for a long time.
Text

 

[ucjffj]

what things did you buy to build up that credit card debt?

 

[Vic]

Prime is 5% right now, so Prime + 4 = 9%

Don't consolidate your car loans with your credit cards. Your car rate is better and they will lien your car with the whole deal, burying you deeper in it than you already are.

Yes, look for lower interest rates to pay off your debts, but you really need to start living within your means, or else this is all gonna end up badly for you.

 

[Cable God]

Originally posted by: anonmouseuser
If you are a homeowner, talk to them about a home equity line of credit. You can write the interest off on your taxes.

NO. DO NOT DO IT. You will be securing UNSECURED DEBT with SECURED DEBT. You default, you lose your HOUSE that way. ALWAYS leave yourself an out for a worse case scenario. With that you have none.

 

[PeeluckyDuckee]

"Don't consolidate your car loans with your credit cards. Your car rate is better and they will lien your car with the whole deal, burying you deeper in it than you already are. "

Vic, I never even thought of that. Since everything is consolidated into one big loan, the lien is put against everything. Whereas before it was simply the vehicle alone. And no, it's prime plus 1%, I'm going thru the bank that I work with.

The debt is not racked up over night, it was a steady accumulation over 7-8yrs.