Keep Your New Year’s Resolution by Going Into MORE Debt?

By Admin | Feb 25, 2008

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2008 I recently received an email from Citibank with the headline:

New Year’s Resolution: Pay Off Holiday Bills

The email went on to describe how transferring your current credit card balance to Citibank would help you save money because of their low “promotional” interest rate of … wait, a minute … I can’t seem to find the rate … it’s got to be here somewhere. Nope, no mention of what the rate is and no, I’m not clicking their link. I know that some people love their credit cards and have a unique amount of self control when it comes to using them. Others, like me, think they’re out to get me and they are the enemy!

How does someone begin to think that moving their debt from one lender to another is keeping a New Year’s Resolution? Further, how does it help you in any way whatsoever if you go back and charge up your old credit cards? Now you have twice the debt and by the time you figure out what went wrong, that “promotional” interest rate will end. Maybe it should be called an “emotional” interest rate because of the way credit card companies entice you into thinking their way. Remember, credit card companies are out for one thing: your money. They are not here to help you achieve a goal. They are not here to help you live a better life. They exist to generate profits for themselves by taking money out of your wallet and putting it in theirs.

I believe that for most people and most circumstances, debt consolidation is a bad idea. Here is a comment I wrote on another article: a debt consolidation loan company or a new credit card company is only interested in one thing: maximizing their return. They do this by stretching out 4 or 5 years worth of debt to 10-20 years (or more). They show a smaller interest rate but a much longer term. They really don’t care if you close all your other credit accounts or if you run them right back up to the maximum credit limit.

Yes, it would be easier to administer just one loan, but that almost never happens. One loan soon becomes two, then three, four, five…as the old credit cards are -recharged.

From the psychological side, I think there’s a lot to be said for seeing small successes along the way, even if there is more to keep up with. When a person can write “PAID OFF” on their $75 doctor’s bill after one month, then write “PAID OFF” on their $292 car repair bill two months later, then write “PAID OFF” on their $475 furniture store bill, well, you get the idea. They get juiced! I know I did. There isn’t much to compare with seeing progress!

There are times that consolidation could be a good idea, but in my opinion, those times are few and far between.

If you’re one of the few people able to control your spending and use credit arbitrage correctly, my hat’s off to you. But for the rest of us, don’t be offended if we just watch from the debt free sidelines!

Technorati Tags: new years resolutions, debt, consolidation, money, finance

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9 Comments so far

glblguy (11 comments.) February 25, 2008

Good perspective Ron. Thanks for the inclusion!
Frugal Dad (11 comments.) February 25, 2008

That’s one of the real dangers of consolidation loans – you actually feel like you did something! In fact, you just changed the name on your debt to protect the innocent.

Ron 's reply:
February 25th, 2008
@Frugal Dad
Thanks. Getting a debt consolidation loan is like having your wheels in the sand. You make a lot of noise and burn a lot of gas, but you really don’t get anywhere.
Debt Free Revolution (3 comments.) February 25, 2008

It’s definitely a paradox: get a loan to get out of debt. They call it “marketing” whereas I call it a lie. Yes I am quite harsh, especially with citibank. If you think it’s appropriate, I have an even better post about Citibank:
I Hate Citibank

PS- and the kontera links are really nuts on this post! And shoved in the comments!

Ron 's reply:
February 25th, 2008
@Debt Free Revolution
I’m sorry about the Kontera links. They went crazy on this one. I’ve restricted them to just a paragraph or two, so hopefully that will help.
My Dollar Plan (11 comments.) February 25, 2008

Of course I fall into the arbitrage gang, but I agree that it is not for everyone. In fact it is not for most people. Using credit cards takes discipline and I commend people for realizing that consolidation allows people to get further into debt if you aren’t careful.

Ron 's reply:
February 25th, 2008
@My Dollar Plan
If you can pull it off, believe me, I’m cheering you on from the sidelines. I actually love hearing stories of how people stuck it to the credit card companies! I just don’t think I could manage an arbitrage with everything else that’s going on in my life
Adfecto (2 comments.) February 26, 2008

I actually did move some debt around to get a year of 0% interest for 2008. It will save me hundreds in interest payments. I’m still struggling some to stick to my accelerated payment schedule, and I certainly haven’t added any more debt. By using these offers I will be debt free 6 months earlier (24 rather than 30). I don’t advise this for everyone but for some it is very worthwhile.

Ron 's reply:
February 26th, 2008
@Adfecto
If you’ve got the self discipline, then I’m cheering you on. Moving it to a 0% interest rate is fabulous so long as you don’t run up the old accounts.

Wow, 6 months?