Thursday, January 10, 2008
I have heard Dave Ramsey say, "You can't borrow your way out of debt."
He is absolutely right, if you are constantly moving money around you can get burnt bad. However, I believe that debt consolidation can be OK ...sometimes.
When we were originally putting together our debts we were looking at 12 different credit lines (credit cards loans etc.) some of which had Interest Rates over 25%! As we were putting everything in order we received an offer from CitiBank for another signature loan (no home equity!) for $19,000 @ 10.49% interest.
After deep thoughts and mixed feelings, we decided to do it and we paid off our first four snowball items, our property taxes and got 100% caught up with any late bills. Since the payment was lower than the combined payments would have been, we had a larger snowball to start out with.
Where Dave is coming from is where I am usually on credit cards, cut it out of your life, you don't get a drunk to stop drinking by giving them a shot to cure their chest cold! However you WILL pay down your debts faster when you are paying a lower interest rate, it is simple math, when you apply more to the principle, you pay it off quicker!
All that being said, I have seen plenty of people in this vicious circle of debt: rack up bills, get a home equity loan and pay them off, swear it won't happen again, credit cards raise your limits since you are sooo responsible to pay it off, you rack them up again, but now even higher!
For our debt, we will still investigate credit offers to lower our rate on our remaining snowball debt, however even if we get a savings we will keep the total snowball number in order to pay them off faster, and to us that is really the point...