ready to pay off some expensive lessons in personal finance
October 28, 2011 10:11 AM Subscribe
All this talk about switching to a less hateful bank and supporting the community has me wondering if I should start looking for a credit union. I'm also wondering if doing so could help me pay off my credit card debt? Would love your sage financial advice.
So, I've been displeased with my huge recently bought-out financial institution for a while now, as they are generally an incompetent and predatory bank (in my experience- I really don't like how they go out of their way to stick you with as many fees as possible, early and often, and I've had some weird problems with cash deposits not showing up within 48 hours, etc). I've heard plenty of talk about how much better credit unions are, at least in terms of their customer service and overall attitude towards their patrons. So far, so good. I've researched a couple of the ones here in Philadelphia and I like what I see, so I'm strongly considering making the switch.
For what it's worth, the level of banking I do is very simple- just a simple checking/savings account, rarely more than $1000 at a time in each (if that...sigh). So things like interest and whatnot are of limited relevance to me, as that is not going to be a significant source of revenue for me now or in the near future.
Something that is intriguing me at the moment however, are the personal loans offered by these banks. You see, I have a decent amount of CC debt (around $6000, and at unforgivably high rates- I was young, and very, very stupid. I haven't used any of them in a long time but I'm also not getting anywhere with paying them off). It looks like the credit unions offer personal loans at what seem to me to be reasonable rates (9% APR, which is way, way lower than any of my credit cards). Based on their calculator, I could take out a loan for $6000 from the bank, make 24 months of $274 payments, and be done with it. I have three credit cards and while my total monthly payments for all three (the minimum payment) is slightly less than $274, I've also not gotten anywhere with reducing the debt. On the rare occasions I can throw more money at one particular card (the one with the highest APR), it leaves me completely broke and I feel like I'm running to stand still.
So, long story short, would it make any sense for me to switch to a credit union, get a personal loan, pay off all my credit cards off at once, and just pay the bank back? I don't foresee having difficulties making the monthly payment to the bank, and that debt would grow at a much slower pace than any of my credit cards. It makes sense to me... but it also kind of seems too good to be true.
Any thoughts you have on any aspect of this question is much appreciated!
PS. It's a testament to exactly how badly I managed my credit card debt that I've already gone the balance transfer route (more than once), and did not take advantage of it at all. I treated it like payment amnesty instead of using it to actually get ahead of my debt. Yes, I realize how fucking stupid I was.
So, I've been displeased with my huge recently bought-out financial institution for a while now, as they are generally an incompetent and predatory bank (in my experience- I really don't like how they go out of their way to stick you with as many fees as possible, early and often, and I've had some weird problems with cash deposits not showing up within 48 hours, etc). I've heard plenty of talk about how much better credit unions are, at least in terms of their customer service and overall attitude towards their patrons. So far, so good. I've researched a couple of the ones here in Philadelphia and I like what I see, so I'm strongly considering making the switch.
For what it's worth, the level of banking I do is very simple- just a simple checking/savings account, rarely more than $1000 at a time in each (if that...sigh). So things like interest and whatnot are of limited relevance to me, as that is not going to be a significant source of revenue for me now or in the near future.
Something that is intriguing me at the moment however, are the personal loans offered by these banks. You see, I have a decent amount of CC debt (around $6000, and at unforgivably high rates- I was young, and very, very stupid. I haven't used any of them in a long time but I'm also not getting anywhere with paying them off). It looks like the credit unions offer personal loans at what seem to me to be reasonable rates (9% APR, which is way, way lower than any of my credit cards). Based on their calculator, I could take out a loan for $6000 from the bank, make 24 months of $274 payments, and be done with it. I have three credit cards and while my total monthly payments for all three (the minimum payment) is slightly less than $274, I've also not gotten anywhere with reducing the debt. On the rare occasions I can throw more money at one particular card (the one with the highest APR), it leaves me completely broke and I feel like I'm running to stand still.
So, long story short, would it make any sense for me to switch to a credit union, get a personal loan, pay off all my credit cards off at once, and just pay the bank back? I don't foresee having difficulties making the monthly payment to the bank, and that debt would grow at a much slower pace than any of my credit cards. It makes sense to me... but it also kind of seems too good to be true.
Any thoughts you have on any aspect of this question is much appreciated!
PS. It's a testament to exactly how badly I managed my credit card debt that I've already gone the balance transfer route (more than once), and did not take advantage of it at all. I treated it like payment amnesty instead of using it to actually get ahead of my debt. Yes, I realize how fucking stupid I was.
Best answer: Yes, this is a great idea and I have done more or less the same thing.
One caveat: personal loans are very hard to get, since they are unsecured. However my CU offers from time to time a dedicated debt consolidation loan- they pay the CC companies directly. One advantage I didn't even realize is that your credit score will go WAY up- debt on a fixed-length loan doesn't count against it the way revolving CC debt does.
posted by drjimmy11 at 10:24 AM on October 28, 2011 [3 favorites]
One caveat: personal loans are very hard to get, since they are unsecured. However my CU offers from time to time a dedicated debt consolidation loan- they pay the CC companies directly. One advantage I didn't even realize is that your credit score will go WAY up- debt on a fixed-length loan doesn't count against it the way revolving CC debt does.
posted by drjimmy11 at 10:24 AM on October 28, 2011 [3 favorites]
Best answer: The Pennsylvania Credit Union Association will probably help you if you decide to go the CU route.
posted by Wretch729 at 10:34 AM on October 28, 2011
posted by Wretch729 at 10:34 AM on October 28, 2011
It's a great idea and a route I've gone myself, but having almost blown the chance I got I've learnt you absolutely have to get rid of your credit cards. I don't care how handy they are or how it will muck up your credit score you have to close all the cards, as you know from experience it's too easy otherwise to make a mess of things.
posted by wwax at 10:45 AM on October 28, 2011
posted by wwax at 10:45 AM on October 28, 2011
Yes, chiming in to agree with everyone that this is a good idea if you qualify. They will be able to pay off the card for you and they may or may not require you to close the account. If you can handle it and not overspend, it might be a good idea to keep one open with a credit limit below $1,000. The one drawback that my CU has is limited ATMs. They do have a reciprocal agreement with other CUs that makes it free or cheaper to use other ATMs, though.
posted by soelo at 11:00 AM on October 28, 2011
posted by soelo at 11:00 AM on October 28, 2011
Most, if not all, CUs are in a network that has free of charge ATMs at 7-11 stores.
posted by tristeza at 11:03 AM on October 28, 2011
posted by tristeza at 11:03 AM on October 28, 2011
I would definitely recommend talking to one or two of the larger credit unions in your area to see what your loan options are. They usually offer financial education as well, and if not, they can refer you to free seminars nearby. My credit union* has a "credit builder" loan that increases people's credit scores by an average of 48 points over the life of the loan. So it's great not just to pay down your debt but also to improve your credit score.
It would also be worth it to talk to a nonprofit consumer credit counselor about manaing your finances now and in the future.
*Disclaimer: I work for my credit union ... in marketing. But I took the job because I really believe in credit unions, and mine in particular walks the talk.
posted by headnsouth at 11:25 AM on October 28, 2011
It would also be worth it to talk to a nonprofit consumer credit counselor about manaing your finances now and in the future.
*Disclaimer: I work for my credit union ... in marketing. But I took the job because I really believe in credit unions, and mine in particular walks the talk.
posted by headnsouth at 11:25 AM on October 28, 2011
Response by poster: Thanks everyone so far for the advice! I'm glad to hear this plan has worked for other people.
And yes, I am planning to either close or just continue to not use any of the cards after the balance has been paid off (as it is, I haven't added new charges to any of them in 20+ months- I've physically cut two of them up so that they are much harder to use, and the third one is "for emergencies only" and luckily has not been needed so far). I feel like I have learned my lesson, at a sufficiently steep price that I doubt I'll ever need a reminder. I am considering keeping one of them open just as a credit-building asset, but I do not intend to ever rely on them to pay for anything that I couldn't otherwise afford. I am also interested in some of the financial education options that this route would provide.
As a side note, parents, please teach your kids about finances starting whenever they are old enough to learn. Unfortunately, schools don't cover this topic, and the only other way to learn seems to be the hard and expensive way. The mess I got myself into is 110% my own fault- every mistake I made I could have avoided if I'd just looked up the readily available information- but when you don't know anything about something, it can be hard to even realize what it is you should be trying to learn. I don't blame anybody but myself, but I do think that if you have kids you have a golden opportunity to give them the tools to navigate what can be a pretty confusing and important thing.
posted by Aubergine at 11:33 AM on October 28, 2011 [3 favorites]
And yes, I am planning to either close or just continue to not use any of the cards after the balance has been paid off (as it is, I haven't added new charges to any of them in 20+ months- I've physically cut two of them up so that they are much harder to use, and the third one is "for emergencies only" and luckily has not been needed so far). I feel like I have learned my lesson, at a sufficiently steep price that I doubt I'll ever need a reminder. I am considering keeping one of them open just as a credit-building asset, but I do not intend to ever rely on them to pay for anything that I couldn't otherwise afford. I am also interested in some of the financial education options that this route would provide.
As a side note, parents, please teach your kids about finances starting whenever they are old enough to learn. Unfortunately, schools don't cover this topic, and the only other way to learn seems to be the hard and expensive way. The mess I got myself into is 110% my own fault- every mistake I made I could have avoided if I'd just looked up the readily available information- but when you don't know anything about something, it can be hard to even realize what it is you should be trying to learn. I don't blame anybody but myself, but I do think that if you have kids you have a golden opportunity to give them the tools to navigate what can be a pretty confusing and important thing.
posted by Aubergine at 11:33 AM on October 28, 2011 [3 favorites]
CUs are great. The only one in PA that I know anything about is Balco, and what I know about it is not so great. I helped my son open an account at the one in Gettysburg when he went to school there, but they were less good than the MA CU I am a member of.
Ask around. Your friends, family, and colleagues may have good advice on choosing a CU.
posted by Kirth Gerson at 11:42 AM on October 28, 2011
Ask around. Your friends, family, and colleagues may have good advice on choosing a CU.
posted by Kirth Gerson at 11:42 AM on October 28, 2011
My credit union wouldn't give me an unsecured loan, so I used my car as collateral and then took that cash and paid off my credit cards. My monthly payment is low and the interest rate is a fifth of what the credit cards were.
Just be sure to cut up the old credit cards! Don't close the accounts, but for gods sake, don't ever use them again.
Like I did. Oops.
posted by elsietheeel at 11:47 AM on October 28, 2011 [1 favorite]
Just be sure to cut up the old credit cards! Don't close the accounts, but for gods sake, don't ever use them again.
Like I did. Oops.
posted by elsietheeel at 11:47 AM on October 28, 2011 [1 favorite]
I work for a CU, albeit in a different country.
The best way to get the answer to these questions is to go visit your local CU, and ask about becoming a member, and ask the questions you asked here.
posted by smitt at 12:19 PM on October 28, 2011
The best way to get the answer to these questions is to go visit your local CU, and ask about becoming a member, and ask the questions you asked here.
posted by smitt at 12:19 PM on October 28, 2011
This thread is closed to new comments.
I strongly support switching to a credit union. You can get much, much better interest rates at these places especially with 'reward checking' type of accounts. Hope you're talking about leaving the evil BOA! but even if not, supporting local business is a good thing!
posted by treehorn+bunny at 10:22 AM on October 28, 2011