Paying Mr. Plastic

Paying Mr. Plastic

John Smith was going over his credit card statements on a lazy afternoon. When all was said and added up, he was $10,000 in credit card debt and that didn't include his car payment! The amount was staggering to him. So John had to do some serious thinking about consolidating his bills.

John called the bank the very next day to ask about taking out a loan. The current rate for a personal load at his credit union was 12.9 percent on a 60-month loan. The rate for a consolidation loan with collateral was 9.975% for a 60-month loan. Should John Smith take out either of these loans?

Well, let's take a good look at his circumstances. He was paying out over $600 a month in loans and credit cards, including his car. All of his credit cards had interest rates ranging from 16.9% to 21.89%. His car had a percentage rate of 13.9%. Now he had a chance to bring them all down to either 12.9 percent or 9.975%.

By doing the simple math, the answer was an astounding YES! By taking out the collateralized consolidation loan, he could combine all of his credit card bills and his car payment and have a payment of $372 per month!

The only reason he would not want to take out either of these loans is if he planned to continue using the credit cards after they were paid off. That would put him in a worse position than when he started out this quest to consolidate!

So to end our story, Mr. Smith marched himself down to his credit union took out the collateralized consolidation loan and promptly closed his credit card accounts and destroyed the cards. Five years later, Mr. Smith has much less debt and a paid off card with only one credit card (with a low credit limit) for emergency uses only. He pays for everything with cash and is very happy without "Mr. Plastic" weighing him down with debt.

Debra Vaughn is a stay-at-home mother to 3 young girls. She is a freelance writer in her spare time. Debra Vaughn also edits and publishes The Family Budgeteer Bi-Weekly Online and Newsletter which can be found at or subscribe now by sending a blank email to:


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