Zone 2

Money Drain: Lost $10,000 by Trying to Consolidate

My wife and I went with a consolidation service for our student loans after being talked into it by a representative of the service. There were several different types of plans we could have taken, and we went with one that was a 20 year plan for graduates. However, we were not told, nor did we realiez, that this plan was interest only for the initial 5 years of the plan, so nothing was actually be paid down on the loan principle. We also didn’t think about the interest rate, which apparently was higher than the loans themselves when they were separate 🙁

In the last two years we’ve paid $10,000 towards the consolidated loan, but it was all interest so our student loan amount is still the same. We could have made a lot of progress in that time on our own, if we had thought through this better.

– Submitted by: Tom

Lesson Learned:
Consolidation services are rarely ever a good idea. I can’t say I’ve heard of any success stories from them as of yet, but that doesn’t mean they don’t exist.

The best plan of attack if you are attempting to pay down an overwhelming loan is just sit down and come up with a 5 year plan. Go through all of the particulars of your income and expenses in program like Microsoft Money or Mint.com, reduce where you can, potentially take on a second job, sell junk in your home, and be aggressive and disciplined.

Alternatively you could try to take advantage of 0% transfers, but I don’t really recommend opening up new lines of credit (especially if you are bad with handling credit cards). I used this method to pay off a debt of my fathers and it worked EXTREMELY well because I was diligent about paying it off in a certain time frame, and within the 0% transfer limit. But again, it will depend on your circumstances and your ability to be disciplined with it.

Amount Flushed Down the Money Drain: $10,000

About Crystal Groves, Google+

Crystal Groves is a farmer, web developer, musician, blogger, and personal finance enthusiast from the back hills of Maryland and Pennsylvania. She started Money Drain as a project to encourage people interested in fixing their financial situation to share their stories and learn from the stories of others. We all make mistakes, but in order to change we have to make changes.

This entry was posted in Money Drain Stories and tagged , , , , , . Bookmark the permalink.

3 Responses to Money Drain: Lost $10,000 by Trying to Consolidate

  1. Pingback: Money Drain End of Month Report: March 2012 | The Money Drain

  2. Wow, that’s an ugly story, sorry about that. My suggestion would be to sit down with a credit counselor from a nonprofit agency and tackle your entire situation as a whole. You may come away with a, no doubt challenging, but doable 5-year plan to pay off much or all of your debt.

Leave a Reply

Your email address will not be published. Required fields are marked *

Zone 3