Xjyuk

My spouse and I have about 40K in credit card debt, in addition to a mortgage payment and student loans. We have been working hard to pay off this debt and have been moving in the right direction. We got approved for a 30K personal loan at a lower interest rate (8%) than our credit cards. I'm wondering if there's any good reason not to do this.

• We plan on using 100% of the loan to pay off higher-interest credit cards


• The minimum monthly payment on the loan is lower than the combined minimum payments of our cards.


• We have budgeted to pay more than the minimum each month


• The lower interest rate is locked in, providing we don't miss two consecutive payments (we are diligent in paying bills and not too worried about this)


• We both have stable employment, and if things go well we expect an increase in income (although obviously not counting on this)


• We have very little emergency savings


• We do have some family safety nets in a worst-case scenario


• Our credit is fairly good

Anything I'm missing or should look out for?

Should I take out a personal loan to pay off credit card debt?

Yes. 8% is much lower than 18%, so you'll save money.

Anything I'm missing or should look out for?

You might be missing the reason you're $40K in CC debt. We were $30K in CC debt because we didn't know where our money went.

Knowing that -- and strictly sticking to a budget while deep in debt -- was the key to us getting out. Everything else is just kicking the can down the road.

I would not recommend it.

The 30k is not enough to rid yourself of the CC debt, and you are not addressing your primary issue. This problem is one of overspending that is cleverly disguised as an interest rate problem. As such, if you do this debt consolidation, you will likely find yourself in 30K personal loan debt plus at least 40K in cc debt, plus the student loans, plus the mortgage, plus car loans.

Here is what I would propose, which is radical, but you guys are paying close to $600 per month in CC interest alone. Sorry, but to me it is more radical to work that hard for a bank just so you can have stuff.

On what planet did it make sense for a person in your situation to buy a home? If you have any equity at all in the house then, sell it. You can't afford to cover the emergencies associated with home ownership.

Same thing with the cars, sell them if you can. (You don't state it, but I assume you have car payments.) Replace with low cost beaters.

Get on a monthly written budget, and both of you need to work an extra job or two. Cut out all extra spending. No eating out, no movies, no subscription boxes, etc... Every extra dime goes to paying off debt.

Save 1,000 for emergencies.

Pay off your bills smallest balance to largest. Forget about interest rate, you need the encouragement of winning. You do that by having one of your balances go to zero.

This should go without saying, but cut up all credit cards, and close all CC accounts. Forget about points. You can't go on vacation until this mess is cleaned up anyway. Make a commitment to never borrow again, unless you are purchasing a house. If you decide to keep the house you currently have, then that is off the table too. If you do buy a home in the future, make the commitment to buy it with cash.

Also forget about 401K contributions for now. Radical, I know, but it worked for me.