New investor Do I consolidate debt?

6 Replies

So I am new to investing and have been working hard on my credit. I have 2 judgements against me. I talked to both and one is willing to accept half. I am considering getting a personal loan and consolidating them that will take them out of judgment and put my credit back on tract. I have been paying both regularly for over a year. These two issues were what has been keeping me back from getting a home. Is this a good idea? How long after I consolidate will it take my credit to improve? 

Second question:

I have looked owner financing through realtor.com, craigslist, zillow, and a few other sites but I cannot find any. Where would you recommend I look or how should I search to find these opportunities?

For your first question: there are a lot of different opinions on this. Mathematically you are usually better off consolidating under a single loan, but many people find it more emotionally satisfying to be able to clear out the debts one at a time. Dave Ramsey, for example, strongly recommends the latter strategy.

For your second question: I rarely find anyone ADVERTISING that they are willing to finance, but if you look for places that are "for sale by owner" they are more likely to work with you on financing in my experience. It never hurts to ask.

@Christopher Andrews welcome to BP!

Debt consolidation by itself does not improve your credit. The benefits of consolidation are to move high interest debt to a lower interest rate and to change the terms of the debt repayment to lower your monthly debt payments to free up cash flow.

Debt consolidation can be part of your overall get-out-of-debt plan, but I encourage you to be skeptical of anyone offering debt consolidation loans. They all preach as though they are in business to help you get out of debt, but most of them will take advantage of you if they can. Shop around!

The best thing you can do for your credit score is to keep your debt payments current. You can read more about your credit score here.

A long, long time ago I was in your shoes. Keep working at it and things will get better.

Best of Luck!

thank you both for your advise. Since these two loans would place a lien against any house i would take out a personal loan and pay them off, that will will in essence consolidate them. I am not specifically getting a consolidation loan, but using a personal loan and paying these two off. My reasoning is that by settling these two judgements in full I will be able to get a FHA home loan. I already contacted a lender and was advised i would prequalify for a loan once these two bills were taken care of. These debts are no more than 7k total. I will take a 10k loan out and use the remainder of the money to pair up with monies from my 401k to use as a down payment and for closing costs. I am looking to get a duplex in a college town. I will house hack it. That will further reduce the amount i pay for the house. Regardless i will live there and then transition into my dream home later down the line.

Originally posted by @Christopher Andrews :

So I am new to investing and have been working hard on my credit. I have 2 judgements against me. I talked to both and one is willing to accept half. I am considering getting a personal loan and consolidating them that will take them out of judgment and put my credit back on tract. I have been paying both regularly for over a year. These two issues were what has been keeping me back from getting a home. Is this a good idea? How long after I consolidate will it take my credit to improve? 

Second question:

I have looked owner financing through realtor.com, craigslist, zillow, and a few other sites but I cannot find any. Where would you recommend I look or how should I search to find these opportunities?

 You credit will reflect the changes after the next statement is posted, however, having a new account with the majority not paid off may negatively impact your credit so it depends on what kind of accounts you are closing. If they are installment loans with negative remarks, it may be a positive impact because they accounts will be closed and your credit will not be affected by the negative remarks. However, if they are for credit accounts that will remain open, it will have a greater impact because now your credit usage will drop down to 0% which is great. Anything under 30% is good. Either way, you should see the changes within 30 days. Each bureau may take a little time to report.

Update. I decided to do the reconsolidation and took out a personal loan with my bank. The payments are less than what I was paying for both loans combined plus I was able to reduce one of the loans by 4000$ int he process. A month out and my credit score jumped 20 points to a little over 640. I want to raise my credit score to 675 before I get my first deal mid this year.