good idea / bad idea?

December 30, 2015 6:47 AM

Should we ask our bank for a consolidated loan after they turned us down once before and now hold our mortgage?

We have unmanageable debt and our credit counsellor has told us that our best option is to ask the bank that holds our mortgage to give us a consolidated loan. However, we asked them for a consolidated loan about 5 years ago when we were in a similar debt situation and were turned down. This was before we bought our house though, and I seem to recall they said it would have been different if we owned our home. We got a mortgage through the same bank and bought a house about a year and a half ago, and now we’ve had to start liquidating savings in order to make our credit card payments. We’re not getting collections calls yet but the wolves aren’t too far from the door.

I think I told the credit counsellor that we had already been turned down for a consolidated loan once before, but I’m not sure if it registered; there was a lot of info flying back and forth at that point. She’s on holiday this week but I want to get this resolved soon, so I’m asking for opinions. Is it fine / normal to ask the bank that holds your new-ish mortgage for a consolidated loan after they turned you down once before, or is it going to raise alarms with them about our ability to make our payments? We've been with this bank for about 16 years and have always had a good relationship.

vague details:
Manitoba, Canada
dual income family, no kids
credit card debt is about $70K
haven’t been late on any payments
debt settlement and consumer proposal have been ruled out because of our income
bankruptcy is a bad option, also because of our income
we can’t make the monthly payments required for a debt management program through the credit counsellor

thanks in advance!

posted by anonymous to Work & Money (4 answers total)

I have no comment regarding talking to your bank about a consolidation (though why not? Worst they can say is no, and presumably they now have skin in the game with your larger mortgage - they'd presumably be motivated to avoid a bankruptcy, etc).

However, I see that a consumer proposal has been ruled out - did you rule it out or did your credit counselor? Who does your credit counselor work for? Is it a body funded by credit card companies?

Consumer proposals are unique to Canada, in that they are not bankruptcies, and are much more lenient on your long term credit rating (3 years once it has been paid off). If you can live with minimal consumer credit for a time, I would say given your situation it's a very viable solution. Your income per se doesn't matter - your disposable income and your ability to service your debt does matter - on the face of it, it would appear as though your situation is exactly what consumer proposals are designed to address.

Memail me if you'd like to discuss further (I have some experience with this), but I would speak to a local bankruptcy trustee (they all also deal with consumer proposals) about whether or not it could work. Especially if you owe money to multiple parties, cards, banks, etc, the process could be relatively quick and painless, and result in much more manageable, no interest payments to eliminate your debt.
posted by loquax at 7:06 AM on December 30, 2015

A consolidation loan won't really solve anything. You'll still have the debt, and one could argue you'd be worse off because now you have room on the cards that got you in trouble in the first place. If you can't make the monthly payment on a debt management program you're not going to be able to make the payment on a consolidation loan you set up yourself. Different baskets, same eggs.

The fact that you had this same situation 5 years ago and are back at it shows your approach to money isn't working.

You don't state your income, but unless you are making over a million a year the idea of $70k in credit card debt is staggering.

You have two choices to get out of this. Get your income up, or your spending down (probably going to take both).

Cut up your credit cards. Going forward if you can't afford to pay cash you can't afford it.

You also state that you are starting to have to liquidate savings in order to service your debt. If you have that much credit card debt this is exactly what you need to do (unless you are talking about retirement savings). Set aside an emergency fund and take everything else and pile it one the card with the least balance until it is gone. Then start on the next one. I am sure "debt snowball" is a concept you're aware of, but if not google it. It works.

You seriously need to get rid of the cards. No excuse you can come up with makes sense. You've proven you can't use them responsibly. Get rid of them. Switch to debit cards and be done with it.

It's time to start seriously examining the habits that got you here and adjusting for them. Is your car new? Do you have a payment on it? Is your house reasonable for your income? Etc.

You're only other choice is to be in service to debt the rest of your life, because that debt's not going away, and the habits that got you there are still there. Get second (and third) jobs. Sell everything not nailed down.

If getting high interest debt rolled into a lower interest loan will help, then by all means, do so, but attacking the debt with a vengeance will serve you better.
posted by cjorgensen at 8:25 AM on December 30, 2015 [3 favorites]

I expect everyone else will have the larger-picture advice covered here (and I'm probably not the best to be offering it anyway) but I will answer your simpler/more specific question:

My bank wouldn't do a consolidation loan for me - I got turned down a few times (though they had other tools to offer me so it didn't bork my credit or anything). After I bought my house and they handled my mortgage, they OK'd a consolidation loan about 3 years later. They might have approved it sooner, but I didn't think to ask again until I got a brochure in the mail.

I had about $20k in card debt (yay for still paying off debt on closed cards I racked up when unemployed 10 years ago), plus a car loan through them (used car but I'd used it as part of an earlier debt consolidation where I couldn't get OKed to do it all at once), and federal student loans (damn grad school). However, I was/am working and decently successful, not struggling to make payments (just wanting to bring my rates down) and am comfortable just paying off my card balances each month outside of emergencies, so it could be a different picture for you.

It doesn't hurt to ask. But you should definitely also be working on your habits. (Easier said than done, I know, but.)
posted by dust.wind.dude at 9:20 AM on December 30, 2015 [1 favorite]

I don't know what "consumer proposal" means (I am in the US), but I used a Credit Counseling Agency (cccs.net) to get out of >half of what you're looking at. They negotiated better rates with the creditors (in most cases), and I paid them every month and they paid the creditors based on interest rates.

I was unable to secure a consolidation loan even though I did own a home. Good luck.
posted by getawaysticks at 10:38 AM on December 30, 2015