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My credit card is carrying a debt of $11K at 22.99%. Minimum monthly payment $293. The charges on it were authorized by me but were made by another person (a relative), who is also the one paying it off. He can only afford the minimum monthly payment.

Can credit card consolidation reduce interest and not raise the monthly minimum? My annual income is around $20K/year (I just take money out of my IRA as needed). Are there any cons if there's a missed payment? I'm not sure the rate can get much higher than my current card..

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  • Is that your only card? as long as there is debt on that card any new transactions are charged interest. Dec 26 '18 at 18:32
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    Your credit card balance is >50% of your annual income. As long as the debt is in your name, it's destroying your credit. Meanwhile, the person who actually made the charges is under no legal obligation whatsoever. This is very bad for you, no matter how good your relationship is with this relative! Asking whether you should consolidate is the wrong question to be asking. This relative needs to assume the debt you've taken on for them by getting themselves a loan to pay you back, and making the debt legally theirs.
    – Wes Sayeed
    Dec 26 '18 at 18:42
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    it barely offends your credit. Not paying would be destroying your credit. Paying as agreed will have a knock-on effect that will greatly improve your credit later, when the balance is reduced to a sensible level yet you paid it. Dec 26 '18 at 19:23
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    How old are you? It matters if you are 29 vs 59. Dec 26 '18 at 19:28
  • @mhoran_psprep This card is used only for the relative's transactions. We've been using the "no interest for 13 months" checks to save money, but the card is now maxed out. I have another card for my own needs that I pay off every month.
    – Dev1
    Dec 26 '18 at 20:54
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You'd have to look into the details of whatever debt consolidation loan you can get. USUALLY, a debt consolidation loan will have a lower interest rate than a credit card. Credit cards tend to be about the highest interest loans you can get. (Less than payday loans or visiting a loan shark, but those are about the only ones worse.) With a debt consolidation loan, there will usually be a fixed term and fixed payments. But exactly what the interest rate and payments will be just depends. If you can get a home equity loan, rates should be low. If it's a signature loan -- no collateral besides your promise to try really really hard to pay -- rates will be higher. People on here could quote rates they've gotten or look up rates on the Internet, but really, what matters to you is not what terms I can get, but what terms YOU can get. I'd check with your bank.

There's the whole other question of why you agreed to authorize substantial charges like this for someone else, a debt that it looks like you can't afford to pay if he falls through on you. But that's a different question.

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Don't take money from the IRA. Don't get a loan from your 401K. Using retirement funds is far more expensive for your future.

Don't get a home equity loan or any loan tied to your car or home, that just puts more of your resources at risk.

In general a consolidation loan is used to lower the interest rate. The problem with a credit card debt is that if you are making the minimum payment it will take many years to pay off the debt. The minimum amount isn't designed to payoff the debt quickly. You need to set a goal to pay more than the minimum to reduce the interest.

You may find out that you can't get a loan based on your debts and income that will give you a lower rate. You might not be able to find a credit card that has a low or zero interest rate. But if you do get a new loan look for a payment plan that you can afford, assume that your relative will stop making payments.

The way to do it is for you to pay as much as you can to reduce the balance quickly. Then continue to have your relative make payments to you. If you don't want to charge them any interest above what is paid to the credit card company, then once they have paid you back for the interest and the principal then they are done.

Paying it off as fast as you can will also protect you if they stop making monthly payments, the balance will be closer to zero if they stop. If they keep making payments to you while you are paying off the loan, then that gives you more money to bring the balance to zero ahead of schedule.

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  • I assumed OP is taking money from their IRA as needed because they are retired...
    – CactusCake
    Dec 27 '18 at 17:29
  • Since they said they were 57 I assumed they weren't retired. Dec 27 '18 at 18:37
  • Thanks. Won't work in my case because the relative almost never pays back loans I make to him, but if the loan is structured as a charge on my credit card, he will always pay (albeit the minimum required payment). But this is good advice for other people in my situation.
    – Dev1
    Jan 8 '19 at 20:01

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