would you get a car loan to pay off cc's?

[ILoveMyBabyBird]

So we have no car loans as of now, but we are desperately wanting to refinance the house, and dh talked to a loan officer today and he said our high cc balances is what is getting in the way. He suggested taking out a loan on one of our vehicles to pay off most of the cc's. Dh and I were already thinking of doing this, but now since it will help with a refi, we are getting more serious about it. Dh went up to a local credit union now to talk to them about it, and see what type of rates are available with his credit score. We basically would be paying off the 2 high balanced cards with the high interest rates. Our loan would only be half of the value of the car.


I know many dave ramsey fans would say no way to this, but I am not 100% sure about all dr philosphies, obviously the car loan would have to have a much lower interest rate than our high balance cards, they are at 25.99% right now and there is still no chance of them lowering any time soon.

[mtm]

I'm not sure how car loans work, the car is already paid off and you remortgage it? Any other way to get out from under the high interest cc? Can you find one of those low interest rate transfers to another cc? i'd be worried that if you mess up, you lose your car with the car loan.

[cappuccinosmom]

Yikes no.

At the very least, talk to an independant financial advisor...one who isn't making his living selling loans.

I guess you could play the system and it could come out alright. What happens if everything doesn't work perfectly though? Would you lose the car? What about negotiating with the cc companies?--lower my rate or you lose my payments completely when I move to another card with lower rates. What is you plan for paying off debt? What is the urgency for refinancing *right now*? Can you not pay the mortgage?

[JessBB]

Absolutely NOT. Worst case scenario: lose the car, lose a job (BC of no transportation), lose everything. The worst case scenario of cc debt is that they cancel the card & get a judgement against you, which would SUCK but wouldn't ruin your life.

[phathui5]

No. If you aren't able to pay the payments they will Take Your Car. Right now if you can't pay the payments, they will call and bother you.

[texmati]

How does everything else look in your financial picture? do you have plan for paying of the cc debt? an emergency fund? Is this the only transportation you have?

I'd seriously consider it if I were in an otherwise good spot financially. the interest on cc's can make it difficult to pay off. I'd figure out how to get out from under those loans asap, and if putting it on the car would shorten the time/cost of paying it off, I'd do that.

[Chamomile Girl]

I disagree with most of the advice here because this is exactly what we did and it is working out great! We used my car as collateral for a 4% loan (through our credit union) to pay off a credit card that had a 30% interest rate. We will have the loan paid off in three years using the exact same minimum payment that we had been giving to the credit card. According to the credit card statement it would have taken us like 20 years to pay off the card at that rate/payment. So totally a win situation IMO.

And good luck negotiating with the CC's anymore. One of my cards suddenly went up to 30% and when I called to ask why on earth I was paying a penalty rate on an account that had never seen a late payment or an overcharge, they told me it was because they could. Basically they never expected me to pay off the account anyways and charging customers like me a 30% rate was helping them pay for all the folks who have defaulted. So they would not hear of lowering it at that point or any time in the future . Bastards.

[Delicateflower]

I don't see the problem either. Swap a 26% interest rate for 5%. If the car gets repossessed you still have another one.

[EmsMom]

As long as you could stand to lose the car (and after all, you can get a beater car relatively cheap), why not swap the high interest for a lower one? I mean, I guess it is possible that you could have to default on the car, but with the mortgage rates fairly low right now, you might potentially have a very large monthly savings. I would caution you to work out any spending difficulties that you have. Living outside of your means, etc. Realistically, without knowing the whole financial picture, it is hard to say. If your situation is so perilous that you are going to be at high risk of losing things anyway, maybe the car loan and the refinance won't help. But if you had some desperate times in the past (medical issues, unemployment, or just an unconscious spending addiction that you have now awoken from ), why not help move along the solution this way?

[velochic]

Heavens no! You are exchanging unsecured debt for secured debt. Like pp's have said, if something happens, you lose your car.

Keep in mind that the people you are talking to will benefit from you making this bad financial decision. They don't care what happens to you as long as they make the deal. They will try to convince you it's a good idea because they make a profit. It's not a good idea. It doesn't matter how much of the vehicle value will be financed. If something happens, they get the whole car. They will be the deed holders until the balance of the loan is $0. You can owe $20 on the loan and if you can't make it, they get the car.

Just because it has worked out for others doesn't mean it will for you. A bad move is a bad move.

These are the kinds of "creative financing" that got the housing market where it is now. If you can't swing it with your current financial state, then you're truly not financially qualified to make this refi. I know that's harsh, but it's reality. Refi when your cc balances are down. (FTR, I know nothing of Dave Ramsey... this is just good, common financial sense.)

[mnnice]

I guess I could see a situation were what you describe would make sense. That's different than the OP provided us with enough information. If you have some money in an emergency fund. If you current and projected budget has some wiggle room and you are currently paying significantly more than the minimiums. If you know how and why you got into credit card debt in the first place.

However, if the car is not essential to your day to day transportation needs I think it makes more sense to sell it outright and apply the money to your debt.
I'd also wouldn't necessarily borrow the amount you have in cc debt, but the amount I thought I could pay in extra towards credit cards in a 3 to 6 month span. Then if it worked well you could try it again.

The only car I have ever borrowed money on I refinanced three times in three years (the interest rate kept dropping) each time taking out cash because the credit unions policy was that you had to borrow $1,000 more your current loan balance. Twice I used the $1,000 to pay off higher interest unsecured credit (in this case student loans which at that time the interest was not a tax deduction). The third time the check never left the credit union and I payed back the $1,000 about 5 minutes after I got it.

[GuildJenn]

I think before you complete any refinancing it's really important to understand where all the debt came from. Did you have a change in employment status or other crisis or was this a spending issue?

If you pay off the cards and have a car payment, does that mean that you are going to be adding to credit card debt (either because the opportunity now exists or because you will be short after the payment)? You mentioned these are the two highest balances. Are there more? What's your strategy?

Because...trading unsecured debt for secured debt really isn't a good move, and it's really, really important to figure out what the realistic picture is going forward.

[stephbrownthinks]

Originally Posted by mnnice

However, if the car is not essential to your day to day transportation needs I think it makes more sense to sell it outright and apply the money to your debt.

this!

[Chamomile Girl]

I simply do not understand the thinking that replacing unsecured debt with secured is always a bad idea. Its all about the interest rate IMO. If you have a card that is 25-30% interest (and no, as I stated above you cannot negotiate with the CC companies anymore. They have no interest (no pun intended :) and are making $250 a month minimum payments you will never pay it off. Even if you never use it again it will take you twenty years, and the CC company makes bank off of you. Transfer that balance to a low interest loan and it will be gone it two to three years. Yes, if you default you will lose the car, but prioritize the loan for pete's sake. If you could pay the CC payments you can pay the loan, simple as that.

Yes, lifestyle plays a part...ie. you have to comitt to no longer using the cards, but if its the difference between carrying a debt around forever and being able to actually pay ot off how can it be such a bad thing?

The credit union does not want your car, and although they stand to benefit financially I would rather give my $$ to my local credit union than to Citybank .

[treeoflife3]

I think people are assuming you can't affordthe payment?

If you aren't using the cards and you can afford the monthly payment, it makes perfect sense to me that you switch over. You'll save money in the long run and will realistically actually pay that debt off in the foreseeable future.

Now, if you have spending issues running up the card or can't pay easily each month, it makes sense to avoid losing the car through defaulting on payments/running up more cc debt.

I'm going to assume that your asking about this means A) you can afford paying each month and just want a lower interest on a loan that doesn't hurt you as badly and B) aren't still running up the cards any and only using cash/debit.

[ILoveMyBabyBird]

Originally Posted by GuildJenn

I think before you complete any refinancing it's really important to understand where all the debt came from. Did you have a change in employment status or other crisis or was this a spending issue?

honestly both, we have had a few financial crises in the past couple years, but another problem was buying a bit too much new furniture when we first moved to our house, which we have since stopped doing.

We do have a second vehicle, and we have had car payments in the past and have sucessfully paid off cars without losing them, while paying on everything else, even during hard times. We honestly are looking to go from carrying 25% interest rate on cc's to a 6-7% car loan. Dh is not interested in selling either vehicles, although if finances did get rough we would sell the 2nd one to pay it off before losing it, as i mentioned we would not get a loan on the full value of the car.

Pretty much we will be paying the same amount each month if we get the loan about 300$, either doing that and paying minimums of cc's or paying the same amount and having an end date and ultimately saving us thousands of dollars over the next few years. The refi would not happen for a couple more months after this stuff happens.

We are pretty good at sticking to a budget, and we are working on saving up for an EF fund, and we have learned from our past mistakes, we are just trying to get better rates and the cc's are not budging for us on that right now.

We have already paid off a significant amount of debt in the past 18 months, over 27,000$, we are just trying to find a way to do it faster and with less interest going out.

[ILoveMyBabyBird]

Originally Posted by treeoflife3

I think people are assuming you can't affordthe payment?

If you aren't using the cards and you can afford the monthly payment, it makes perfect sense to me that you switch over. You'll save money in the long run and will realistically actually pay that debt off in the foreseeable future.

Now, if you have spending issues running up the card or can't pay easily each month, it makes sense to avoid losing the car through defaulting on payments/running up more cc debt.

I'm going to assume that your asking about this means A) you can afford paying each month and just want a lower interest on a loan that doesn't hurt you as badly and B) aren't still running up the cards any and only using cash/debit.

yes, one card is actually closed, although it has a decent rate 10% so we may not pay that one off with the loan, the 2nd one we haven't made a purchase in over a year and the 3rd we have used a few times in the past year but only for emergencies, but we are now starting up an EF so that won't be needed anymore. I actually plan to close the last 2 cc's once they are paid off. Then we will only have 1 more card left, it has the lowest balance and, it is one of the 0% for so many months cards that we will not be getting a loan out to pay.

We have had a 400$ car payment for the past five years in addition to all the above bills, with times of low income and medical emergencies and were still able to pay it off. Dh's suv we paid for in cash and never had a payment on.

[KayTeeJay]

How are your credit scores? One thing to consider is that when/if you open this new line of credit, your score is going to take a hit. Credit bureaus unfortunately don't care that you may be making a smart decision to reduce interest rates and save yourself money in the long run. All they see is another line of credit opened. If your scores are borderline (or even on the high end of mid-range), and you're planning on doing the refi within a few months of this new loan, you might not qualify for the best refi rates or at all. Obviously I have no idea what else is going on in your financial life that may affect your score either way, but it's something to think about.

Also, you may want to rethink closing your last two cards once they are paid off--this can negatively affect your score as well.

[EdnaMarie]

So you have two cars? If you can get a much lower interest rate and still have transport, yes, I would do it. Your cc interest is enormous!

[GuildJenn]

Originally Posted by ILoveMyBabyBird

We are pretty good at sticking to a budget, and we are working on saving up for an EF fund, and we have learned from our past mistakes, we are just trying to get better rates and the cc's are not budging for us on that right now.

We have already paid off a significant amount of debt in the past 18 months, over 27,000$, we are just trying to find a way to do it faster and with less interest going out.

It sounds to me like you're in a position to stick to commitments, although the lack of a EF is a bit scary. So I think in your shoes I would probably go for it at this point, IF the pp's point about the credit score is addressed. I think the time that moving from unsecured to secured is most likely to blow up is when a family is actually trying to solve a budgeting problem that way and really can't control the spending.