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I know the question seems confusing, but this is a real life event. My friend lived beyond his means for a few years, combined with half year of unemployment his Credit Card Debt went to the roof. His credit score got a hit. When he got a job again, he put all his credit cards in good terms and he is paying off the same credit cards that once put him in a bad spot to ask for money.

Now he wants to consolidate all his CC, because some of them went to 20-24%, with a bank loan. As you can imagine there is no bank that will lend him money at least easily.

It seems that any decision he makes at this point will put him in a disadvantage point. I am sure many many Americans are struggling like this.

What to do when institutions stopped lending you money? or if they lend you is on a pretty high high interest rate?

Geo
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It does make sense to combine debts and pay off the worst (highest interest rate). However, if you can't get any loan, you should focus on the worst debt and pay that off. Then take the same amount of money you were paying to the next worse debt, and so on until you're clean.

Let's look at an example. Debt A is at 5%, Debt B is at 10% and Debt C is at 15%. You are paying AB and C. On a monthly basis, you save 100€ to pay off C. Once C is payed off, you keep on saving 100€ and add whatever you were paying to Debt C to those savings. This way, you can pay off Debt B at an increased rate. When B is cleared, you save 100€ + whatever you were paying to Debt B and Debt C to clear Debt A.

That's the theory.

GUI Junkie
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It doesn't really make sense to cure indebtedness with more debt. This is why your friend is having trouble finding someone to loan him money. If he can't borrow at a lower rate then he should probably focus on paying down some of his debt.

Muro
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What to do when institutions stop lending you money, or lend at high rates?

Live within your means!

Your friend has shown financial behavior that indicates he's a bad credit risk.

If he cleans up his act, banks will lend to him at reasonable rates again. Not a whole lot he can do except build his credit again. He didn't lose it overnight, and he won't get it back overnight either.

mbhunter
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I'd start paying off the smallest balance first. Hopefully, that can get cleared in a few months. When that happens, close the account and try to get your bank loan again. Keep repeating this process until either you pay off all of the debt.

After you've paid off one or two loans and put the negative marks of your credit history further into the past, you'll be able to make better progress.

Alex B
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Consolidation makes sense, if your friend has his act together and isn't going to run up more debt.

Finding a lender will be tough. I'd suggest trying local credit unions, making sure first that there has been NO late or missed payments for 6-9 months. You need to talk to a human at a local lender who will give you informal guidance about what you need to approve, so you don't end up getting lots of declinations.

If its more than $10k, it will be hard to get a loan like this from anyone. In that case, you need to focus on the smallest debts first, because your friend's cash flow is going to be pinched by making payments to multiple creditors. It's critical to pay all creditors on time for at least the minimum amount due.

The problem is, once you start paying things down, the creditors will start ratcheting down credit limits. When that happens, you're at greater risk for getting nabbed with fees and higher minimum payments, which may be considered a universal default by other lenders.

There isn't alot of detail here, but depending on income and the amount of debt, your friend should be prepared to file for Chapter 13 bankruptcy.

duffbeer703
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