Lots of debate on Snowballing

Hello. I'm starting to get to grips with my debt, however I'm in two minds about how to tackle it. Some people tell me that it would be a good idea to consolidate all my CC debts (around $15,000) into one loan, and others tell me I shouldn't.

I've been reading a lot of stuff of The Motley Fool and they talk a lot about ‘snowballing'. It's basically paying off your debt in the right order (there's a really good calculator at .... which you can use to see how long it will take you to get debt free).

Consolidation looks like the easy way out (assuming I can another loan), but from what I've read lots of people just get more debt.

Any views?

Link deleted as per forum rules - Vikas

In the past I did consolidate all of my debts into one loan, and it worked...for a time. While I had that loan I was very careful to always pay on time, and to pay it off as soon as possible. However, after it was paid off, and my credit improved, I got a couple of credit cards, and bought a new car, and got a couple more credit cards, then I got a couple of payday loans...you see where I'm going. I think if I had taken the hard road and paid off my debts myself, I might have been more careful about getting into debt again. As it is, it was easy once I had the consolidation loan (I had to have a co-signer on that one) to pay the monthly payment, which was much lower than the payments on my cards. So, in answer to your question, yes, a consolidation loan can get you out of debt relatively quickly (it took 2 years to pay mine off) but you have to remember how it felt to be in debt before and be extra-vigilant about getting more credit in the future.

Yes, that's what annoys me. I see adverts all the time saying things like "pay off all your debt with this one loan". But it's not paying off your debt is it? - It's just getting different debt.

I've been looking at some website some more and there are some scary stuff of it. Did you know it can take nearly 20 years to pay off a credit card with a balance of $1000 if you only pay want the CC company wants you to each month!

I think I'm going to try snowballing for a bit. I know what I'm like and if I consolidate i may well build up my debt again in a year or so. Also, I think it will be cheaper as although I could get a lower rate with consolidation, it would take longer to pay off.

Link deleted as per forum rules - Vikas

Snowballing is the best way to go as far as I'm concerned. Not only does it help build your credit back up by making regular payments on all your debt, you can get yourself out of debt quicker than with a consolidation loan. If I had knuckled down and really worked at it, I could have had all those debts before paid off in 6-9 months. Instead it took me 2 years and quite a bit of interest to pay them off. This time I'm snowballing and I think I'll be debt free by July. One big help is my tax return. I'm going to use that sucker to pay off two of my debts completely so that I have fewer to work on afterwards.

Consolidation program differs a lot from the consolidation loan. As the latter adds the term 'loan', it signifies signing up a new loan amount to pay up the old debt. Doing this, you are multiplying your total expenses. Although the rates might be lower, but you are paying the interests for two different debts. Not to forget, these types of loans are attached with some collateral for security. If there is any default in the payments, the security pledged against the loan will be at greater risk.

Consolidation program is entirely different from the consolidation loan. This is a much better option to pay off your past debts. You will be paying your bills from your own monthly income through easy monthly installments. The creditors also reduce the interest rates after taking such types of program. They understand that you will now become regular towards making the payments.

Through consolidation program, you can also reduce the total amount of debt to a minimum. Most of the late fees and other charges that are tucked in the total amount are eliminated.

Don't take any kind of loan to pay off your existing debts. Use such programs that don't require you to build up new debts. You should be able to set aside some money from your monthly income and pay off your debts within a certain period of time.

What is this "snowballing" that ya'll are talking about? I have been looking at all kinds of stuff and talking to people and I am so confused at what to do now. I will not be able to debt consolidation cause they want may payments to be more then the creidt cards. So I am looking into debt settlement. I hope this is the right direction to go.

Lisa,
Snowballing is when you set yourself up to pay the minimum payment on all your debts, then you look at what you have left over. You take what you can afford after utilities, food, rent, etc and apply it to one of your debts (there's some debate about whether you should apply it to the smallest debt, or the one with the highest interest, I go with smallest because it gives you some satisfaction to see things getting paid off). Once you have paid off a debt, you take the money you were sending to them (both the minimum payment and the extra) and apply it to the next one in line. Once that is paid off, take the money that was applied there, and apply it to the next one. As you do this, the amount of money you can apply each month "snowballs" it gets bigger each time you pay one off, so that by the time you're done, you should be able to pay off the last one in record time.

For example...

Credit card 1= $1000 balance $10 mo minimum payment
Credit card 2= $2000 balance $20 mo minimum payment
Credit card 3= $3000 balance $30 mo minimum payment
Rent=$500 per month
Utilities= $200 per month
Transportation =$100 per month.

Monthly salary = $1800
Pay your expenses=$800
Pay minimum balances=$60
Save a bit for emergencies =$200
Money left over =$740

Apply $740 toward credit card 1 in addition to the $10 payment. Totals $750 toward $1000

Next month

Credit card 1= $250 balance $10 mo minimum payment
Credit card 2= $2000 balance $20 mo minimum payment
Credit card 3= $3000 balance $30 mo minimum payment
Rent=$500 per month
Utilities= $200 per month
Transportation =$100 per month.

Monthly salary = $1800
Pay your expenses=$800
Pay minimum balances=$60
Save a bit for emergencies =$200
Money left over =$740

Apply $250 to credit card 1 finish that balance.
Apply $490 plus 20 to credit card 2

Next month

Credit card 2= $1490 balance $20 mo minimum payment
Credit card 3= $3000 balance $30 mo minimum payment
Rent=$500 per month
Utilities= $200 per month
Transportation =$100 per month.

Monthly salary = $1800
Pay your expenses=$800
Pay minimum balances=$50
Save a bit for emergencies =$200
Money left over =$750

Apply $750 plus the $20 minimum payment=$770

Next month

Credit card 2= $720 balance $20 mo minimum payment
Credit card 3= $3000 balance $30 mo minimum payment
Rent=$500 per month
Utilities= $200 per month
Transportation =$100 per month.

Monthly salary = $1800
Pay your expenses=$800
Pay minimum balances=$60
Save a bit for emergencies =$200
Money left over =$740

And so forth.

Thanks Bowen, that helped. I do not think that is a wise choice for me. I am having trouble making my minum payment right now and this will be the first time I will have to default on a bill or pay it late. I do not even know if I will be able to pay it late.

In that case you will probably want to do debt consolidation. Not a loan, but consolidation either through this site, or another reputable one. What the counselors do is find out how much your take home salary is, how much you need to live on (rent, food, etc) and then figure out how much you can afford to pay each month. Then they contact your creditors and explain to them that you are working with a debt consolidation program and set up payment plans using the amount that you can afford to send to them. Some creditors will suspend late payment fees and interest while you are working with a debt consolidation company so your payment goes straight toward the debt you already owe. Each month they should send you a statement that shows where your money has gone, and how close you are to paying off each of your bills. This is a viable solution for many people, especially when you are overrun by debt. Snowballing is better for those who have the money to pay, but like me, have made bad choices in the past about what to pay and when.

Bowne29
Thanks for the info and advise. From what I have found out so far it looks like I am going to have to go the debt settlement route. I am a single Mom and had to change jobs and not making the money that I was, so things are really tight.

I completely understand that. We do what we have to do in hard times. The first time I got into debt trouble I was only 20 years old, had purchased my first car, gotten my first credit cards (maxed them all) and then got laid off from my first real job. I was out of work for 9 months and boy did that debt grow!

Replying further to Lisa(sassy6046

Before you take a settlement program, be aware of the negative impact that can be caused on your file. Settlement is a negative remark badly viewed by the future lenders. They will get a feeling that you have been going through lots of financial problems and were not able to pay the total amount. For this reason, you took on the settlement amount. They might be less interested in extending any credit to you unless your have done some major bad credit repair in the recent times.

The settlement program stays on the credit report for a period of seven years. The accounts included under this program will be marked as 'settled' in your file. This further lowers your credit scoring and as a result, one loses good financial deals from the future lenders. You might also get some valuable information from the following articles.

http://www.debtconsolidationcare.com...ettlement.html

http://www.debtconsolidationcare.com...omparison.html

Make wise decisions thinking two steps ahead of time. This will do good for maintaining your credit worthiness.

John,
I know that it will hurt my credit, but I do not really have another choice. I can not do debt conslidation because I owe to much and do not make enough money to pay back the amount they need me to. I have excellent credit right now. I have never been late on payments or defaulted on a payment. I have a credit score of about 780 right now, but my debt ratio is too high, and at this point I can not make the minium payment on my credit cards.

You know, I hear these stories all the time about getting so far into debt that you can't pay at all. What I don't understand is what the credit card companies and other lenders are thinking when they allow people to do this to themselves. I realize that we are all adults here, and responsible for ourselves, but it seems like credit card companies are too quick to extend cards to people.

If the credit card companies are not quick in catching customers and extending credit to them, their business will not be making profits. It is quite obvious that no company will do business by putting money from their home. They still make money from a lot of people who don't have any debt problems and that is the reason of their business still spreading. Apart than that, we people undergoing debts will also pay perhaps taking our time, but the fund will add up in their business.

Lisa, I understand the situation that you are facing now. Perhaps, if you don't take any positive steps to maintain your credit ratings, you will lose such worthy credit scores.

Try every bit not to let your accounts become delinquent. There is still some hope at the other side. Show your concern to the consultant and situations won't take a downward turn.