Debt consolidation for SO's debt
June 5, 2018 12:29 PM Subscribe
I'm looking to take out a large (to me) debt consolidation loan to reduce the payments for my SO's debt. Does anyone have experience with SoFi or any other online lenders?
Short story: I'm looking to take out a debt consolidation loan for ~$40k. SoFi said that I pre-qualify for a 60 month loan at ~6.75%. Payment would be about $800/month. Is there anything I should be wary of with an online lender?
Long story: My SO of 6 years and I got married a few months back. Yay. I knew that she had some debt (student loans, credit cards). We're planning for a big move overseas, so we were going over finances. She won't be working for at least a few months, so we'll be living off of a single salary.
She revealed to me that her debt was much more significant that I realized, to the tune of $40k. Outside of her student loans, she pays $1600/month in credit card payments, and a debt consolidation loan she took out last year. Note that she's never been late with a payment, so had no dings on her credit.
Taking on the $1600/month payment, plus all of her usual monthly expenses will put us in the negative, and will have to pull from my savings each month to keep us afloat.
I have stellar credit, so I looked into getting a loan to pay off her debt, and possibly get a lower monthly payment. SoFi's pre-qualification said that I could get a 40k loan, with a payment of ~$800 for 60 months. Which would just inch our monthly expenses back to positive territory until she finds work.
I don't like debt. I worked and fought for years to pull my self out of horrible debt and bad credit. I have $6k in student loan debt, and an auto lease. That's it. I pay my credit cards in full every month. So the thought of taking on this debt hurts, but it's a necessity to get the payments down.
Short story: I'm looking to take out a debt consolidation loan for ~$40k. SoFi said that I pre-qualify for a 60 month loan at ~6.75%. Payment would be about $800/month. Is there anything I should be wary of with an online lender?
Long story: My SO of 6 years and I got married a few months back. Yay. I knew that she had some debt (student loans, credit cards). We're planning for a big move overseas, so we were going over finances. She won't be working for at least a few months, so we'll be living off of a single salary.
She revealed to me that her debt was much more significant that I realized, to the tune of $40k. Outside of her student loans, she pays $1600/month in credit card payments, and a debt consolidation loan she took out last year. Note that she's never been late with a payment, so had no dings on her credit.
Taking on the $1600/month payment, plus all of her usual monthly expenses will put us in the negative, and will have to pull from my savings each month to keep us afloat.
I have stellar credit, so I looked into getting a loan to pay off her debt, and possibly get a lower monthly payment. SoFi's pre-qualification said that I could get a 40k loan, with a payment of ~$800 for 60 months. Which would just inch our monthly expenses back to positive territory until she finds work.
I don't like debt. I worked and fought for years to pull my self out of horrible debt and bad credit. I have $6k in student loan debt, and an auto lease. That's it. I pay my credit cards in full every month. So the thought of taking on this debt hurts, but it's a necessity to get the payments down.
I won't speak to whether you should take on your wife's debt, but I do want to warn you to pay careful attention to the drawbacks of consolidating federal student loans with a private lender. If you do so, you forfeit all protections built into those loans, including the option of income-driven repayment. If her loans are federal, she should investigate that option first. (It would be a little weird for her to only have private debt; she might have a mixture.)
Also, it's a little hard to understand your numbers here, but if SoFi is letting you roll the credit card debt in, too, you are at risk of making all that debt non-dischargeable in bankruptcy.
That said, if the interest rate is lower than what she's paying now, and it's all private debt, SoFi certainly doesn't seem to be worse than other lenders right now.
posted by praemunire at 12:42 PM on June 5, 2018 [6 favorites]
Also, it's a little hard to understand your numbers here, but if SoFi is letting you roll the credit card debt in, too, you are at risk of making all that debt non-dischargeable in bankruptcy.
That said, if the interest rate is lower than what she's paying now, and it's all private debt, SoFi certainly doesn't seem to be worse than other lenders right now.
posted by praemunire at 12:42 PM on June 5, 2018 [6 favorites]
Are you sure that $40k is the total, and not just the credit card debt? Because a $40k credit card at 19% interest for minimum 4% payments gives $1600 payments by itself.
posted by Dashy at 12:43 PM on June 5, 2018 [3 favorites]
posted by Dashy at 12:43 PM on June 5, 2018 [3 favorites]
I won't speak to whether you should take on your wife's debt, but I do want to warn you to pay careful attention to the drawbacks of consolidating federal student loans with a private lender. If you do so, you forfeit all protections built into those loans, including the option of income-driven repayment.
We looked into refinancing with Sofi, but ultimately decided against it for this exact reason.
posted by ThePinkSuperhero at 12:45 PM on June 5, 2018 [1 favorite]
We looked into refinancing with Sofi, but ultimately decided against it for this exact reason.
posted by ThePinkSuperhero at 12:45 PM on June 5, 2018 [1 favorite]
My sister and her husband consolidated a bunch of ursurus private student loans (like 12%) with Sofi, and it worked fine. It also cut the number of individual lenders from like 34 to 18, which was also nice. They kept all the federal loans, which had lower interest and also the protections mentioned.
posted by rockindata at 12:58 PM on June 5, 2018 [1 favorite]
posted by rockindata at 12:58 PM on June 5, 2018 [1 favorite]
About bankruptcy: Chapter 7 is very, very hard to get as an individual if you have a job (it's designed for people with no disposable income who are completely out of other options). It is also very important to note that Chapter 13 does not discharge debt. it reorganizes your debt and puts you on a payment plan that is much more stringent in terms of negative action.
Both of these are not a credit death sentence, credit comes back in about 18 months.
Untrue. While you're paying off chapter 13, you are not allowed to take out new credit at all, for anything, and once the three-to-five-year payment plan is completed, your credit will be affected for a minimum of seven years. you'll be able to get credit, but it will come with lower limits and cost significantly more in interest.
You really should exhaust all other options before considering Chapter 13. it's very much the sledgehammer killing the mosquito, if you think you'll be able to work through the debt using a conventional loan.
posted by pdb at 2:03 PM on June 5, 2018 [2 favorites]
Both of these are not a credit death sentence, credit comes back in about 18 months.
Untrue. While you're paying off chapter 13, you are not allowed to take out new credit at all, for anything, and once the three-to-five-year payment plan is completed, your credit will be affected for a minimum of seven years. you'll be able to get credit, but it will come with lower limits and cost significantly more in interest.
You really should exhaust all other options before considering Chapter 13. it's very much the sledgehammer killing the mosquito, if you think you'll be able to work through the debt using a conventional loan.
posted by pdb at 2:03 PM on June 5, 2018 [2 favorites]
I would also avoid refinancing/consolidating the student loans, if they are federal loans. Otherwise, this seems like a fine plan, given the situation. You may want to consider a post-nup, if you didn't do a pre-nup. You'd be on the hook for any debt she acquires in the marriage, even if you don't know about it. Even if you don't have significant assets now, you might consider protecting future assets from debt accrued later. Something to think about.
posted by ancient star at 2:03 PM on June 5, 2018
posted by ancient star at 2:03 PM on June 5, 2018
Are students loans exempt from bankruptcy?
I would be concerned that my SO did not disclose the extent of her debt, which is a thing that is going to affect both of you no matter what. I'd want strong assurance that SO will be very clear about finances going forward. Look at all the rates, and maybe manage the student loans separately. If you have a credit union, it's a great loan option. And I was able to borrow against my 401K once, in a pinch.
posted by theora55 at 2:33 PM on June 5, 2018 [4 favorites]
I would be concerned that my SO did not disclose the extent of her debt, which is a thing that is going to affect both of you no matter what. I'd want strong assurance that SO will be very clear about finances going forward. Look at all the rates, and maybe manage the student loans separately. If you have a credit union, it's a great loan option. And I was able to borrow against my 401K once, in a pinch.
posted by theora55 at 2:33 PM on June 5, 2018 [4 favorites]
I've always been told student loans are exempt from bankruptcy. I know my private student debt doesn't even go away when I die since I had a co-signer. I'm not even sure if it goes away if both of us die.
posted by GoblinHoney at 2:50 PM on June 5, 2018
posted by GoblinHoney at 2:50 PM on June 5, 2018
Please don't take bankruptcy advice from an ask mefi thread. You should consult an attorney to discuss debt relief options including bankruptcy, but it's not true, for example, that it's very very difficult to qualify for Chapter 7--the means test for Chapter 7 varies according to your location but the first test is whether your income is below the median for where you live. Sadly, loads of people have full-time jobs and still make well below that. After that, there may be additional considerations that allow a person to qualify.
posted by tiger tiger at 3:02 PM on June 5, 2018 [2 favorites]
posted by tiger tiger at 3:02 PM on June 5, 2018 [2 favorites]
Response by poster: Thanks for the advice.
There's no plan to consolidate student loans.
And bankruptcy doesn't make sense because she still has good credit, because she has never missed a payment.
posted by Bucket o' Heads at 3:03 PM on June 5, 2018
There's no plan to consolidate student loans.
And bankruptcy doesn't make sense because she still has good credit, because she has never missed a payment.
posted by Bucket o' Heads at 3:03 PM on June 5, 2018
Once she has no income she (without your help) won't be able to make the payments, so its worth consulting a bankruptcy attorney to see if she can file in the future, when abroad, and how it impacts your finances as a couple. I don't know how the means test works if you've moved but that's what the lawyer is for.
posted by charlielxxv at 3:27 PM on June 5, 2018
posted by charlielxxv at 3:27 PM on June 5, 2018
> bankruptcy doesn't make sense because she still has good credit, because she has never missed a payment.
Bankruptcy makes sense if (A) the cost of repaying the dischargeable loans is greater than (B) the cost of having "bad credit".
Have you actually tried to estimate the value of (B) here? It seems to me like you are dismissing it out of hand, which might be a mistake. If (A) is $40k, then perhaps it really is bigger than (B). (Don't forget to discount future value, further increasing the value of (A) over (B).)
GL
posted by richb at 3:52 PM on June 5, 2018 [3 favorites]
Bankruptcy makes sense if (A) the cost of repaying the dischargeable loans is greater than (B) the cost of having "bad credit".
Have you actually tried to estimate the value of (B) here? It seems to me like you are dismissing it out of hand, which might be a mistake. If (A) is $40k, then perhaps it really is bigger than (B). (Don't forget to discount future value, further increasing the value of (A) over (B).)
GL
posted by richb at 3:52 PM on June 5, 2018 [3 favorites]
It's not what you asked, but give some serious thought to whether moving overseas with someone that felt that $1,600/month in credit card debt payments wasn't worth revealing to her fiance prior to marriage was reasonable and fair. Especially given that said amount of debt payments are enough to swamp your budget.
Even setting aside the ethical issues, you may no longer have the financial stability to make moving overseas wise. Depending on your visas, it can take a long time to get a different job if you lose it overseas, and you're losing your buffer.
Why is it going to take months for her to get a job? What are you going to do if she doesn't?
To answer the actual question, if you have stellar credit, you can probably transfer at least $10K of the debt on to 0% interest credit cards and then put the rest into a debt consolidation loan from whoever will give you the lowest rate. Consolidating high interest credit card debt into low interest unsecured debt is almost always a good idea as long as it doesn't lead to spending more money on those credit cards once they have headroom again.
So at the very least, make sure all those credit cards get canceled as part of this.
Perhaps she's a wonderful person who happened to get into a legitimate but bad situation and made a single bad judgement call by not telling you, but this has red blinking lights and klaxons all over it.
posted by Candleman at 4:43 PM on June 5, 2018 [22 favorites]
Even setting aside the ethical issues, you may no longer have the financial stability to make moving overseas wise. Depending on your visas, it can take a long time to get a different job if you lose it overseas, and you're losing your buffer.
Why is it going to take months for her to get a job? What are you going to do if she doesn't?
To answer the actual question, if you have stellar credit, you can probably transfer at least $10K of the debt on to 0% interest credit cards and then put the rest into a debt consolidation loan from whoever will give you the lowest rate. Consolidating high interest credit card debt into low interest unsecured debt is almost always a good idea as long as it doesn't lead to spending more money on those credit cards once they have headroom again.
So at the very least, make sure all those credit cards get canceled as part of this.
Perhaps she's a wonderful person who happened to get into a legitimate but bad situation and made a single bad judgement call by not telling you, but this has red blinking lights and klaxons all over it.
posted by Candleman at 4:43 PM on June 5, 2018 [22 favorites]
Best answer: I used SoFi to consolidate a bunch of credit card debt and my experience has been awesome. Had 30k with no end in sight in 2016 and I'm set to have it all paid off this year. Their approval process is easy and funding is fast.
posted by tryniti at 10:19 PM on June 5, 2018
posted by tryniti at 10:19 PM on June 5, 2018
Actually, her situation, presuming she qualifies for chapter 7, is one of those situations ripe for discharging a bunch of debt with little in the way of negative consequences. All the late payments people end up with on their report are a bigger negative for non-mortgage lenders than a bankruptcy is. If she has a card or two with easily affordable payments she keeps open, I suspect she'll be getting prime lending offers within 6 months.
Once you've gone chapter 7, you are ineligible for a number of years and lenders know that. Not having lates on your report makes them and the algorithms think that the problem wasn't so much your habits as some unforeseen circumstances. If you even think bankruptcy might be necessary, think hard about doing it before your wife starts missing payments. Don't assume everything will go precisely to plan.
That said, for consumer debt, an affordable consolidation loan is a fine option as long as you've shopped the lowest possible rate, aren't turning unsecured debt into secured debt, and read the fine print for prepayment penalties. Just make sure that whatever you decide, it isn't putting you in a situation where both of you could end up with bad credit.
posted by wierdo at 1:11 AM on June 6, 2018
Once you've gone chapter 7, you are ineligible for a number of years and lenders know that. Not having lates on your report makes them and the algorithms think that the problem wasn't so much your habits as some unforeseen circumstances. If you even think bankruptcy might be necessary, think hard about doing it before your wife starts missing payments. Don't assume everything will go precisely to plan.
That said, for consumer debt, an affordable consolidation loan is a fine option as long as you've shopped the lowest possible rate, aren't turning unsecured debt into secured debt, and read the fine print for prepayment penalties. Just make sure that whatever you decide, it isn't putting you in a situation where both of you could end up with bad credit.
posted by wierdo at 1:11 AM on June 6, 2018
This thread is closed to new comments.
Get a free consultation with a good bankruptcy/debt settlement attorney. Both of these are not a credit death sentence, credit comes back in about 18 months.
posted by crazy sniffable at 12:41 PM on June 5, 2018 [5 favorites]