We paid $500 for a debt-free date. AKA: We took on a large installment loan to be able to have one large bill instead of a number of small bills.
Did it work? Did we stick with it? Was it a good idea?
Well, yes and no. Here’s why:
Installment Loans Make Things Easier
100% hands down, this decision made it easier to make payments and direct extra cash to one correct location. An extra $50 in the budget? Send it to the bank. Make an extra $150 in the side hustle? To the loan it goes.
The installment loans permanently closed out several accounts we’d been working on for a long time. One bad-decision couch from a local furniture store, one large medical bill, and a handful of other one-time bills.
These were all good decisions, and I am pleased with how it turned out, so I would do that again.
Installment Loans Give You Bad Options
The bad news? The installment loan opened a lot of space on our credit cards, which we promptly used back up (an emergency, a few indulgences, and a layoff… life happens!).
Bad habits. Bad decisions. Not-sticking-to-it. We’re all guilty, and my husband and I in particular. In this respect, the installment loan was not a good idea. Now we have a few months left of hefty payments, and then we’ll need to continue those hefty payments towards our credit card debt.
But Did It Work Out For the Best?
There’s one piece of reasoning that might get me in trouble here: I’m kind of okay with this!
Having that space opened on our credit cards paved the way for the opportunity to start my own company, which may generate healthy returns in the short term, allowing us to break even again by getting out of debt and being free once and for all.
But, of course, even that depends on how we stick with it and whether or not we follow through with our budget.
And while I could have taken out a business loan instead, the odds are very low I would have done that. So, for me, this works out in the end…. even if I know it was a bad decision!
Did you see this ending coming? Would you recommend against installment loans, hands down, or are there some circumstances that call for them?
We’d taken on an installment loan once upon a time a long time ago when we weren’t as responsible or determined. It was a terrible mistake. Now, we’re looking to try again to be done with it all- and we can’t even get one! I wrote about it recently too. Glad your experience turned out better than ours! Good luck with the business.
Thank you! I think we won’t be able to say “good” or “bad” until it’s paid off and we see how we feel. Opportunity cost is one thing, but then there’s just being irresponsible with money!
The nice thing about an installment loan vs credit cards is that it forces a finite end date. If you just pay the minimums on credit cards, it could take years and years to finish them off. You’ve already listed what I think is the worst thing about consolidating with an installment loan…you open up your other lines of credit to be used again. If I did such a thing, I think I’d have to close the credit cards down, or I’d end up using them again too.
And right you are! Some might balk at that about affecting your credit score, but I’ve realized it’s still better for you in the end to really close them. I wonder if there’s a way to put a hold on cards instead of permanently closing them? (Besides just shredding).
If you can commit to not adding debt either during or after the payoff time, then you’re golden. But, if you are adding debt right alongside what you’re paying off, or go get back in debt as soon as you make the final payment, then you’re really just treading water at best.
“Treading water” — the perfect metaphor.