Should I use a personal loan or debt management program to pay off my credit card debt?
I have about $25,000 of debt but can still pay monthly payments on time and have never missed a payment.
If I try to get a personal loan as opposed to a debt management program, which looks better to creditors?? My credit score is around 650-670. I am thinking of going to a non-profit credit counseling agency to see what they think.
I still have some stocks and bonds totaling $6,000. I do get paid consistently and have been trying some internet surveys to make some small money on the side to my job.
What things should I look for at the credit counseling agency?
Most credit counseling agencies do the same thing:
1. Tell you to cut up your credit cards to prevent farther use.
2. Negotiate settlement amounts with each CC lender. This is a ‘write off’ and will be reflected as such on your credit record.
3. Establish a set monthly payment amount that you would send to them and that they then forward to the various CC companies.
While your credit report would reflect the debt management program it would also reflect the settlement of your debts for less that amount owed. Thus, this will have a negative impact on your credit score albeit a less of an impact than if you got way behind and the accounts went to collections.
Here’s the recommendation
1. Create a list of all your debts and put them in a table that list who, current balance, monthly payment, interest rate, due date and credit limit.
2. Create a list of all your assets and put them in a similar table that list Who, current balance, interest rate and penalty amount for early withdrawal.
3. Sort your debt list by Interest rate listing the highest interest rate first. You will want to ‘pay off’ from this list starting from the top and working down.
4. Sort your asset list by interest rate starting with the lowest. You will want to use the first listed funds to pay on your debt as these are the ones returning the least amount on your investment.
5. With these two list it will be obvious that retaining a large amount of cash that is drawing a small amount of interest is not good when compared to the high interest rate you are paying out.
6. Set a minimal amount of your investment asset that you want to keep for emergency.
7. Using your calculated available cash, begin to pay off or pay down your debt.
While paying down the debt with the biggest interest rate will save you the most over the long run, you may be better off paying down or paying off those where the monthly payment will be reduced the most and/or removed altogether. Thus, you might be able to use $4,000 of your investment to drop your monthly payments by over $150 and then you can use that ‘extra’ to compensate for the short fall in cash you have and/or pay down the other bills quicker.
All in all, you need to organize your assets and liablities in a manner that works for you and the go through a few scenarios to determine the best method for you.