We make a sizable income ($350,000) and we have just paid off most of our vehicles (only one left); problem is cc debt–the peer to peer sounds great, but $35,000 is not going to cut it–need more like $100,000 to truly pay down the debt. Contrary to how it sounds, we are responsible, NEVER pay late and NEVER miss a payment. I just want to get out from under this–but I do NOT want a debt REDUCTION–just a debt CONSOLIDATION.
Can you recommend an unconventional lender for my above situation? Any help would be appreciated. Also, I just signed up for your newsletter. Thanks very much!
For that kind of amount I am not aware of any unconventional lender except for a mobster on a corner. Well there is always the home equity loan approach and the borrow from the retirement plan approach, which I despise.
Under the home equity loan approach you could borrow and place your home as collateral and the interest you pay may be tax deductible. But the reason the interest rate is lower is because if you default, the bank will foreclose on you and take your house. The ability to take your house lowers the risk for the lender and thus it lowers the interest rate. Think of interest rates as a risk barometer.
Peer-to-peer lending is a fantastic tool but it does have it’s limits. And one way they manage the inherent risk of making these unsecured loans is by spreading that risk out over a large number of these smaller loans.
The only realistic strategy that comes to mind would be to think about using a LendingClub.com loan to fund a debt settlement approach. I know you said you wanted to avoid debt reduction, but it’s worth discussing.
Now, debt settlement does not come without risks. The least risky way to repay your debt is to make all of your payments in full. But if you can’t do that for whatever reason, then we have to look at other solutions.
The debt repayment option that gives you the best legal protection from your creditors is bankruptcy. It’s easy to rebuild credit and have a good credit score again after bankruptcy.
But the debt settlement approach isn’t a free pass to get out of your debt. To get settlements on your accounts you will have to default on your payments to push your accounts into the right departments that can offer a settlement solution.
By defaulting it will hurt your credit, which can be rebuilt. You will be in collections and you could always be sued over the defaulted debt. The settled debt will show as a bad debt on your credit report, at least the written off part. And if you are not insolvent you may have to pay income tax on the forgiven debt.
Another big concern is the effectiveness of the debt settlement approach. Many people embarked on settlement but few really settled all of their debt. Now that doesn’t mean it can’t happen. It’s more an indication that the wave of retail debt settlement companies offered a poor solution and crappy execution.
I do know people who did settle 100 percent of their debt but they are in the minority of mainstream consumers who do not work with the right consultant or provider.
You’d need more than the $35,000 you could borrow to settle $100,000 of credit card debt, when you factor in settlements and fees for settlement. You also have to consider the economic cost of the risks and realities to all the downsides I presented.
If you want the least risky and easiest way to eliminate the $100,000 of credit card debt it would be to pay the minimum payments on the accounts, and never reduce it from what the current minimum payment is when you start. Credit card companies reduce the minimum payments when you pay down the balance and that keeps you in debt longer.
As you pay off a card, then devote the money that would have been used for that payment to the account with the highest interest rate. This will accelerate your repayment and reduce the overall interest rate you will pay.
Most importantly, when you finish paying off the cards, don’t close all the accounts. Keep at least the three oldest accounts open to help boost your credit score.