Note: This is a post from Joan Concilio, Man Vs. Debt community manager. Read more about Joan.
Since announcing our family’s quest to pay off more than $90,000 in debt, there’s been one set of questions that comes up more often than any other, especially when people hear that one card has a $25,000-ish balance with a 23.99% APR:
- Why don’t you get a lower-interest loan – or consolidate into one payment?
- Why don’t you settle with those creditors (either privately or through a debt-settlement company)?
- Why not file for bankruptcy?
I’ve promised several commenters that these questions are good and fair ones, and that I’d address them in their own post.
I’ll talk about what we are doing – and explain some of the reasons why we’ve opted not to do the settlement-consolidation-bankruptcy thing.
Hopefully, by the time I’m done, you’ll understand how we came to our decision. We might agree to disagree – and that’s OK.
What we ARE doing: Our debt tsunami
We’ve got a list of seven debts that we’re working to get to zero, with a current balance between them of $65,876.32.
At its worst, that list was nine debts long and totaled $89,687.23.
Of the debts that are left, we’re using Baker’s debt tsunami method – attacking the ones with the most emotional impact first.
Since, in our case, the absolutely most-hated debt is the biggest one, our Bank of America Mastercard with its current balance of $24,697.75 and its current APR of 23.99%, several of the smaller debts will “fall off” while we’re attacking that.
In fact, once we get BoA paid off, we’ll only have a few months to go paying off other debts.
That becomes important as we talk about why we’re NOT making certain choices.
For instance, we have one debt that’s under $1,500, our credit card at our mechanic. We could pay that off in three months if we took the $500 or so extra every month that we’re attacking BoA with and put it on the Tires Plus card.
But we’re not doing that, because the emotional impact right now is greater when we “Bash BoA” (yes, we really call it that.)
So why NOT pursue bankruptcy, debt consolidation, debt settlement or lower-interest loans? Well, I’ve got six reasons to share.
1. We want to stay in control.
To be blunt, there are a LOT of things I don’t personally like about debt-consolidation programs. Some are a matter of opinion, to be sure, but in our case, one thing stands out above everything else.
We want to be in control of our money. Sounds strange, for people who were in almost $90K of debt, right?
We want to be the ones making the payments. We want to be the ones deciding what day of the month, and how much, and how much EXTRA.
That’s a mindset thing – but mindset matters. Just like I like to manually record expenses in my bank book, and manually keep a calendar of my bills, I like to have the physical step of PAYING BoA every month.
It keeps us mad – and in a debt tsunami, mad is a good thing, because mad means motivated.
2. It’s strangely motivational.
Speaking of motivation, the system we have is strangely just that.
If our Bank of America APR were lower, we would not be nearly so motivated to pay off this debt.
Is that embarrassing to admit? Well, yeah, but there you go. In general terms, I want to get and stay debt-free, but that’s one of those things you say and kind of fall off of.
But when I say I want to get the balance on a 23.99% APR credit card from a high of $40,000 down to zero, that means something!
That’s a large part of why we’re not looking to consolidate our debts into one bill each month. We work hard to attack this particular debt – because of how bad it is!
3. We don’t want to play games.
This is an area in which I get the system – but I choose not to act on it.
If you miss a few credit-card payments, your creditors are often willing to settle for a lump-sum payment of a percentage of what you owe.
I personally know plenty of people who have been able to make this work – and who’ve paid much less as a result.
If we really couldn’t pay, and were going to miss payments anyway, my feelings might be different. As it is, though, I refuse to play into the system of purposely missing payments we can afford in order to get a “deal.”
Honestly, I would hope no creditor would fall for that in our case – somehow, we’ve been paying $500 to $800 extra a month consistently for almost a year, and yet then we miss two payments and say we can’t afford it?
Some people might say it’s a matter of pride, but the fact is, I don’t want to lie, and I’m not out to game the system.
4. We can pay in full.
Tied in very closely with that point is one simple fact: Chris and I have the resources to pay off these debts.
I’m SURE we would qualify for settlement plans and even bankruptcy – though we haven’t tried – but to me, those are last-ditch options you take when you can’t make anything else work.
We’ve had close friends go through bankruptcy – it’s not a cure-all. Dave Ramsey – who has been through it – says it’s the hardest thing you’ll ever do, and I believe that firmly.
I would rather pay every cent of the $90,000 in consumer debt that we once faced, than go through that, unless I had no other option to keep a roof over my daughter’s head and food on our table.
As it is, we are INCREDIBLY blessed. It’s not easy – but because of our focused effort, we can maintain what anyone in their right mind would call a decent standard of living, AND pay off these debts.
5. Lack of quality options.
OK, here’s a shocker: People aren’t beating our door down to lend us $25,000 to $65,000 at a lower interest rate.
I know, you can hardly believe it, right? You’d lend me that much money – especially since I can show you every month how much I’m paying down!
Well, banking doesn’t work that way – and as a math/finance major, I understand why. Even with above-average credit scores and income, Chris and I are still a risk.
In fact, if you check out our list of debts, you’ll see that one is a loan from a company called Springleaf.
This came about when we lacked heat in our house last winter – we had to take out a personal loan for the cost of a new heat pump.
We’d paid down more than $15,000 in debt in less than a year at that point – and no one would approve us for the full $8,000 that the service would cost.
Springleaf was willing to get us to $6,000 – by assessing the value of our possessions as collateral.
I’ve had very few experiences in my life that were more humbling than knowing that I could only get heat in my house if I had enough snowblowers, computers and wedding rings to make up the value.
Having sold most of our crap (yeah!), we were forced to trot out a slew of $50 items like blenders and mixers, prolonging the agony of our approval process.
With that painful experience in mind, you can imagine we haven’t gone out of our way to apply for a lot of loans since.
But after reading several commenters’ suggestions that we look at a low-interest-rate bank loan to attack some of the debt, and knowing how much we’ve paid down in the past two years, I figured I’d make another effort.
Last week, we applied with our local bank for a debt-consolidation loan for $25,000, once we got the BoA card below that amount.
No surprise – they turned us down.
They said they could get us $5,000. Is that good? Well, mathematically, maybe.
But adding THAT loan to our list, and still owing $20,000 on the Bank of America card, is just not appealing at all. (And paying off the smaller debts, but adding another bill, doesn’t do it for us either.)
6. We are just done with this industry.
That experience above, with cataloging our housewares?
THAT’S why we’re looking to fund a hefty emergency account, as well as a large checking-account buffer.
Remember the control-freaky part of me I mentioned in Point Number 1?
I’m tired of other companies determining what I can and can’t do with my life.
If I need something, like a heat pump or a new vehicle, I want to be able to make the decision based on what best fills those needs – not who will take pity on me and finance it.
When we talk about being consumer-debt free, we mean no loans and credit cards – forever. No car loan, no “six months interest free” at the mechanic, nothing.
We don’t want to support this industry – or any of its offshoots.
To us, taking out a loan to pay off other loans, that’s still supporting the industry. Working with a debt-settlement company is, in a funny way, supporting the same industry – a business that only exists because of the credit business.
And playing games with our card issuers is DEFINITELY playing into the weaknesses of an industry with which we’re 100% through.
7. If it ain’t broke, don’t fix it.
With only a little more than 2 years to go until we’ll be 100% paid off, and with such great momentum, we hate to change it up now.
If I could get a single loan from a reputable local lender – that might tempt me. Then again, it might not.
No other option even comes close. We’re doing well with the plan we’ve got – and we’re motivated to see it through.
We’ve come close before, and faced setbacks due to that motivation factor falling apart. I’m not willing to risk that again. As long as this plan is motivating us and helping us succeed, I’m inclined to stick with it.
You’ll notice, maybe, that there’s one thing that wasn’t a factor in our decision to avoid debt settlement, debt consolidation and the whole works.
We don’t care about our credit scores.
Look around at advice about debt consolidation and bankruptcy and all online, and you’ll hear a lot about how its effects on your credit score are long-lasting and deep.
I can honestly say that I would not take these options if they RAISED my credit score – that’s how much I don’t care.
As I said, we intend to pay cash for anything we need in the future. We already have a mortgage – and if we need to move for any reason, we would almost certainly rent.
If, for one year after we finish paying off the credit cards, we put that same amount of money in savings as we are toward debt service, we’ll have $30,000 saved.
That’s all the credit score I need.
For us, it’s not just about the numbers.
We know that, at least by some methods of accounting, we’re leaving money on the table – and probably paying more in the short term than we would through something like a lower-interest loan.
But without the mindset change that comes along with our devotion to our system, it would be just that – a short-term fix.
I can honestly say that I’d be the person to pay it all off, only to go back into debt, if I wasn’t going through the painful process of changing my mindset and changing my habits.
· Unautomate Your Finances ebook
· You Vs Debt Sample Lesson
· What to Sell Where Flow Chart
· Debt Payoff Tracker
· 10 Tips for an Effective Craigslist Ad
So for me, it’s worth it.
You might agree – and you might think we’re crazy. Either way, I hope I’ve shed some light on why we feel so strongly about this idea of “paying straight up.”
What do you think?