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Should I get a loan for this?
I have about $6000 in credit card debt that is currently in collections for being about $750 over the limit and a student loan that is also in collections for about $3500. I have a car that I could use as collateral on a loan that's worth about $3500. I'm paying $83/month on the credit card and that's just covering the interest so I'm gaining nothing on that and I'm paying $75/month on the student loan.
Should I keep going this way and when my income increases, which it will *eventually* with my situation, and worry about making some ground on it later? Or should I consolidate both of those into a private loan, using my car as collateral, and pay on that instead? Would it save in the long run? Would my payments increase compared to now for a 5 year loan? Ten year loan?
Unemployment sucked...not planning on doing again...ever!
The car is paid off. I owe nothing on it and the $3500 is the blue book on it.
I was unemployed for a while and so I had a bunch of missed payments and that's why they went to collections. With how little I'm paying on them individually I can't pull either of them out of collections.
With the interest on a credit card I'm sinking a lot of money into a debt that I'm still not gaining on. Plus, paying it off will pull it out of collections and free up that line of credit. It'll be about another year to year and a half until my income increases enough to make some gain on the credit card.
I just don't trust myself enough to correctly do the cash flow analysis right now. We just starting discussing that 2 weeks ago in one of my management classes at college.
1 Answer
- 1 decade agoFavorite Answer
Since you are now studying this in college I want you to think for a moment. Put yourself as a lender. Someone comes to you with your scenerio. The first thing you will do is take an application. The reason for this is you want to see the history of you. How long you have been living in a certain place and how much you pay. How long you have been on your job(s) and how much you make. The next thing you do is pull your credit. You see all the problems you have had over a period of time. After talking with you you would find that although your intentions are good, and you mean well, the follow through is lacking due to some reason. My guess would be is you would check your debt to income next. How much you pay out versus what you make on your job. My guess is you will find that you DTI is high. Anything over 50% is not good. You really shouldnt be more than 40% but some lenders will go as high as 50%.
The other problem you have is collateral. That $3500 car is not worth $3500 to a lender. Lets face it, you could wreck it tomorrow and the collateral you thought you had, you have no more, and if you got anything for it definitely would not cover the loan. So what you have now is a note loan, and lenders are not apt to loan money with your history. But not all is lost. In your case I think I would go to Consumer Credit Counselors and have them talk to your creditor and come to a solution for you. In more cases than not they have done a good job in doing just this. Just make sure you go to a reputable CCC and not one that charges you an arm and a leg. They do have some out there that is free, or cost very little. Normally Im not an advocate of CCC, however in your case with you being young it shouldnt hurt you. At least you could get yourself on the right track, clear up your credit, and increase your score. This will then help you until your wages increase in the future. Im not saying this is the only option out there, but it is a good one, and least expensive. Good luck with your situation.
Source(s): Im a mortgage broker and have 10 years in finance other than mortgages.
