I am hung up on the idea of consolidating some of my loans and I think I need to stop relying on this as an option which will definitely improve my finances. I have tried to consolidate twice in the past year (almost a year apart). Last year my credit was not good enough. Now that I have improved my credit score, my income is not good enough.

I am self-employed. I made a mini-leap to self employment last year once I had finished writing my thesis, and been offered a part-time postdoctoral position which paid the bills. I successfully have managed to be involved in 4 different projects since that time. My postdoc position ended in February, so I have been officially self employed full time for only 3 months. I currently have several proposals in, hoping to receive more contracts, and have been working on marketing my services more than I have in the past.

The bank will not look at any of my self employment income as income, so effectively I have zero income (how do they think a girl with a PhD supports herself damnit?). This means I do not qualify for a consolidation loan, without a co-borrower. Mr Wooly could be a co-borrower, but I actually looked at this issue in detail using my debt snowball spreadsheet, and was surprised by the result.

The loan was going to be for about $37,000 for 4 years at 3% above prime (about 9%). Two of my current loans have higher interest rates than this, so I thought I might save some money. I would have one monthly payment of $993. When I put this loan into my debt snowball, it went to the bottom of the priority list since I am paying my loans from the smallest to the largest. I removed the three loans and their monthly payments from my payment list.

The result was that we would be debt free almost a full year (in 2 years rather than 3) sooner. (I initially had my calculations wrong and thought it delayed being debt free but found a major error- oops, darn). Given that they won't finance me independently, and I am reluctant to drag Mr Wooly into this, is there a way to accelerate my payments so that I can achieve this without a debt consolidation loan? Simply adding on a few hundred dollars a month to the biggest debt helped, but not to that extent. I think it must be the interest on the prime + 4% loans that is killing me. I am going to have to think about this and perhaps post a little more on some options. Any thoughts?

What also concerns me is the banker's statement that they will not look at financing any self employed person for a personal loan if they do not have 5 years of records from the business. Since my debt snowball plan has us paying off $91k of debt in 3.5 years, I could potentially be debt free and still ignored by the bank for further financing (not that I want it, I am just saying, you know?).

I will have to investigate this further too...

2 Comments:

  1. Krystal said...
    That's awful the banks won't consider any self-employed income as income. That doesn't even make sense, because you have to pay taxes on it ... and if you're technically making "zero" money to the banks, how do they think you're surviving?

    I know you are reluctant to drag Mr. Wooly into it, but if it's going to make that much of a difference doing the debt consolidation, maybe it might be worth it. We're talking about being debt-free a whole year sooner here! That's huge!
    Mr. Cheap said...
    The banks say things like this, but its not totally true. I had basically given up on getting a mortgage (since I'm also self-employed). Turns out if I had 25% down it wasn't a problem (and since they've dropped the requirement for PIM now I could get a mortgage with 20% down).

    Prime + 3% is VERY high interest. Have you tried to get a line-of-credit (the max rate on a LOC at TD is prime + 2.75% and it drops with larger balances)?

    PC financial is offering a low rate on balance transfers to its Mastercard (2% for 6 months I think), that might be worthwhile considering (just make sure you don't go over the transfer period limit).

    If you and the mister have a mortgage together, your finances are already co-mingled. Get his help on the consolidation (lowering the interest on debt is MASSIVE).

    Any chance you can get a HELOC (they're usually at prime) and move your high interest debt to there?

    I'd set up some sort of LOC, then use your emergency funds to pay down your debt (you can borrow from the LOC in an emergency). I posted about this some time ago.

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