There’s a scene in one of my favorite movies where the lead character steps into a batting cage, then takes fastballs to the chest to toughen up. He takes them all, screaming and grunting with the thud of each ball against his body.
With the completion of our debt management program (DMP), through which my wife and I destroyed $109,000 of credit card debt, that’s exactly how I feel right now. Whatever life has to throw at us, we can handle it. With hard work and determination, we can overcome any challenge and achieve any goal.
Which is good, because we’re not done yet.
We have one line of credit managed by a creditor that wouldn’t work with our program, as well as two store credit cards that we intended to take care of ourselves. It took every ounce of effort we had to stay on course with our program, so we used the last 55 months to concentrate on those debts.
Now that the program is complete, it’s time to concentrate on the remaining lines of credit.
Each of these lines of credit have a high interest rate ranging from 19.9% to 29.9%. They’re your typical lines of credit, meaning that if we paid just the minimum payment, they would take us years to eliminate. We all know how tempting it can be to just make that monthly minimum payment and pocket the rest.
So we’d like to consolidate our remaining debts.
By consolidating these lines of credit, we could lower the interest rate. Not only that, but we’d get a finite date that the debt would be gone — even if we only paid exactly what we had to each month. Here are the three options we could pursue:
Bank Consolidation Loan
Our bank currently offers unsecured consolidation loans with a 5.99% interest rate, with terms ranging from 36 to 60 months. This would greatly reduce our interest rate and give us that end date we’re looking for. The downside is, given our recent completion of a credit counseling program, we may not be approved.
We actually received a promotional mailing from a well known P2P lender last week. I filled out some basic information on their website and discovered that, if funded, our loan would be at a 14% interest rate. This would lower our interest rate, as well as give us our finite finish line. The interest rate is still pretty high, however, and there’s no guarantee our loan would be fully funded.
We could borrow from our 401K at an interest rate of 4.75%. The interest is actually paid back to ourselves, and we could choose a term from one to three years. The downside of this is our retirement accounts may not grow as fast as they would if we hadn’t borrowed from it.
Clearly, my wife and I have some thinking to do, as each of these paths has their positives and negatives.
Which of these options would you choose?