The WORST Way to Get Out of Debt - picture of credit cards

Introducing: The WORST Way to Get Out of Debt

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I get a lot of junk mail. On any given day, my mailbox is stuffed full of credit card offers, letters from dealerships who supposedly want to buy my car, and magazines trying to sell me stuff. While most of it is not offensive, everyone once in a while I’ll get something that absolutely pisses me off. Does, “Horrific Financial Advice, Right from My Mailbox?” ring a bell. Anyone?

Well, it happened. I got another piece of offensive mail this weekend, and its contents were borderline criminal. Behold the piece of mail that set my hair on fire yesterday:

best egg

It starts off okay. “Get rid of credit card debt in as little as 36 months,” it says. Unfortunately, the devil is in the details. Not only are they trying to rope people into a loan for $40,000, but the interest rate can be up to 29.99% APR!

Still, my anger rumbled deeper the further I read. It’s bad enough to try to convince people to take out a loan with a 29.99% APR, but they took it even further. Of course.

“You can borrow as little as $2,000 or as much as $40,000 and there are no prepayment penalties,” the flyer reads. Borrow too much, however, and it’s totally cool. Why?

Straight from the flyer:

“You can use your loan to pay for other expenses like remodeling your kitchen, family vacation, medical expenses or whatever your needs might be.”

Debt Consolidation Loans: Don’t Buy the Hype

The fact that someone is offering loans with ridonkulous interest rates isn’t what makes me mad; it’s that they’re pretending it will actually help you. But when you read the fine print, you find out that they want you to borrow as much as you can, plus take a family vacation to boot!

What really sucks is the fact that so many people buy into these scams. Debt sucks so much that people are willing to do anything – try anything – to dig their way out. Unfortunately, the same mindset that got them into debt is the one that often causes them to dig an even deeper hole.

Here’s the truth: Debt consolidation loans and balance transfers are only the answer to your problem if they actually help you save money. Like, for example, if your credit card is charging a 24.99% APR and you do a balance transfer to a card with an introductory 0% APR. Even then, you’ll want to run the numbers to see what your savings will be after you pay the balance transfer fee, which is normally 3% of your total balance. Now that makes sense.

How to Get Out of Debt Without Borrowing More Money

But borrowing more money is rarely the answer, and is actually the worst possible strategy to get out of debt. Yep, you heard it here first, folks. The best way to get out of debt is the old-fashioned way, which just so happens to be the way that sucks the most. Here’s how you can dig your way out without borrowing another dime:

Track your spending, fool!

If you want to free up money for debt repayment, it’s important to know where your money is going in the first place. To accomplish this goal, you need to track your spending. You’ll probably hate yourself for a while once you get started, but rest assured that’s part of the process. Seeing all of the ridiculous ways you waste cash is the best way to make better choices, my friend. As my husband Greg would say, “To stop sucking, you first have to know you suck.

Become a budget genius. Or at least try.

If you want to start saving, learning to use a budget is one of the first things you should do. While my family uses a zero-sum budget based on last month’s income, there are plenty of ways to do it. Start by writing down your monthly essential expenses, then see how the total figure stacks up to your income. Greg has written a great step-by-step guide to budgeting that will walk you right through it. Trust me, it works!

Now, do what you were born to do (and pay off debt)!

There are lots of ways to start paying off debt – there’s the debt snowball, the debt avalanche, and the debt crunch. Hell, I’ve even heard whispers of a Debt Strangle, Debt Karate Chop, and Debt Decapitation method in some circles. Whatever you do, just don’t do the Debt Turtle method. I hear it’s slow as hell.

In all seriousness, there are a gazillion debt repayment strategies to choose from. The key is actually doing it! In other words, take the money you free up from tracking your spending and budgeting and mail it in. Got it?

The Bottom Line

Taking out a loan with a 29.99% APR is quite possibly the worst way to get out of debt. Yeah, it’s that bad. As a financial decision, it’s right up there with buying a $25,000 car when you make $8.25 per hour, buying a $1,300 vacuum from a door-to-door salesman, and crowdsourcing money on GoFundMe to pay your car payment (Yes, someone I know did this recently).

If you want to get out of debt, do yourself a favor and make sure your strategy doesn’t involve borrowing more money. Because, let’s face it, companies who send crazy mailers like these actually hope you fail, and in fact, encourage it by enticing you to borrow more money than you really need.

What strategies have you used to get out of debt? Do you agree that borrowing more money is the worst strategy ever?

See also: 

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48 Comments

  1. Wow, that sounds completely terrible. I honestly don’t know how some companies live with themselves. Wouldn’t you just feel awful if you spent your days suckering people into personal loans with horrific terms?? By the way, if you want to decrease your junk mail you can go to websites like catalogchoice.org and dmachoice.org (Direct Marketing Assn) and request that your name be removed from mailing lists. Since we did thus, we receive probably less than a third of the junk we used to get.

    1. I just open up the packets and stuff EVERYTHING back in the prepaid mailer… maybe throw in some coupons… newspaper clippings…. magazine articles…. junk paper… napkins with syrup on them…. and Send it all back to them since they are paying the postage. It keeps the post office workers employed and well maybe even the receiver who has to open up all my junk and find out its junk and not a filled out application.

      After several months of sending all that junk back and lots and lots of personal junk in with it… I get A LOT less of that crap.. so I just play along with them…

  2. I recently wrote about a similar experience. I had a low interest rate car loan and I received a letter to refinance it at 12.99%. I was currently paying 1.9%. They highlighted that I would save $100 a month, mostly because I was refinancing such a small amount. They didn’t mention that my interest payments would skyrocket, costing me way more in the long run.

  3. I LOVE this post! People who aren’t in finance ask me about this often. It’s tempting when you’re not well informed and something comes in the mail that seems like a good idea. You’re absolutely right – and your advice on creating a plan is a helpful alternative that people need to know about.

  4. My husband and I get mail like that almost daily! And sadly we’re still paying off a bit of school debt because of a similar situation. Back when my hubby was 18 he took out a private loan for college instead of a government one – well fast forward to an older, smarter college graduate – he realized not only did he have way higher interest rates than I did, he started accruing interest the day he opened the loan, instead of after graduation like most. He remembers being told that the private loan came with more benefits. So far we’ve only seen higher payments :-/

    I don’t know how those people sleep at night either!

  5. Ah 29.99%…..really the worst rate I’ve seen. I have seen F-graded loans on P2P sites for less. Plus if you are truly struggling with high-interest debt you can sometimes massively save if you go through the right nonprofit debt consolidation company.

    For me it’s been all about increasing income. We took some initial steps to track our spending and lower some costs (i.e. couponing, being “smarter” about our purchase, etc.), but increasing our income has by far had the biggest impact.

  6. “Just don’t do the debt turtle method. I hear it’s slow as hell.” You had me laughing with that one, but so true. Agreed borrowing more money is usually the worst strategy ever. Like you mentioned looking at interest rates is extremely important. Usually the only time to borrow money is on a house since the interest rates are incredibly low rate now, but it is important not to go overboard with this as well.

  7. These things blow my mind. You got into debt over a long period. You think you can just flip a switch and have it gone? Debt is like weight. It takes a lot of hard work and conscious effort to get rid of it. YNAB worked wonders for us.

    1. I have heard a lot of good things about YNAB. We use a zero sum budget, which I hear YNAB uses too. Whatever works!

      1. fausto412 says:

        YNAB is awesome…very awesome tool. Been using it over a year.

  8. Could not agree more Holly. Unfortunately people fall for these tricks all too often thinking they’re actually doing something about their debt. If they have a changed attitude and it’s actually saving them money then great but that’s generally not the case.

  9. I unfortunately had to deal with those loan sharks when my mom had me take over her finances right before her bankruptcy. It’s a crime, it really is. They prey on the weakest by speaking very quickly, shouting loudly, and reading from a script without breaking.

  10. I never understood why anyone would consider paying off debt with a personal loan. If the personal loan has a 0% interest (quite rare) rate or it’s very low in comparison to the debt then maybe I could see why but there’s still better options. Right now, budgeting and increasing my income have both helped me pay off my debt quicker.

  11. What a nasty offer! I did consolidate a car loan and credit card debt into an equity loan once. Not my finest moment! I’m extremely glad that I never consolidated the student loan debt. I would absolutely hate being stuck with an extremely high payment until every last dime was paid off!

  12. Haha this stuff gives me a good laugh when I get it in the mail. It’s so terrible that it’s actually legal for them to mail this stuff out to poor consumers.

  13. Oh no…how are you getting out of debt with a 29% interest rate! Getting out of debt is simple…just follow the steps you outlined above. It’s not easy but the steps are simple. It sucks that companies want to hype some quick and easy scheme to get out of debt.

  14. I feel that these types of lending practices fall withing the predatory lending standards. It makes me angry that I get so many of these in the mail when I live in a lower middle income neighborhood. I have one neighbor who got in a bit of financial trouble because they were essentially lied to in an ad, and didn’t take the time to figure out that the 3% rate ballooned out to 12.5% after one year.

  15. I get at least 2 Best Eggs a week, although I’ve never really read all the fine print. Unless it says 50,000 points or miles, I usually just toss it!

    I know people use these consolidation loans thinking it will let them be able to breathe and pay off credit card debt, but you are right that many are too tempted by the newly found credit and sink further into debt. The other thing I would always advise against is using a Home Equity Loan to pay off credit cards. I know that it’s lower interest, but they will really take away your house if you don’t make the payments.

  16. The big problem with consolidation loans is people often don’t change their behavior that got them into the debt. They take the loan and get all their debt into one easy payment, but continue to overspend, racking up even more debt.

  17. I hear this on the radio all the time and always wondered who people would fall for this.

  18. “companies who send crazy mailers like these actually hope you fail” Yup, that about sums it up! I think people see these mailers through their very own filter…it’s either the one that says, “awesome, now I can go to Europe!!” or like anyone with good common sense which thinks, “these bitches be crazy!” Unfortunately many people fall prey to this kind of thing and dig themselves deeper into a hole. 🙁

  19. Wow! I received something very similar to this recently as well. That’s definitely a bad way to “get out of debt.”

  20. We get these offers in the mail too. This is the problem: so many people are still so uneducated about the perils of borrowing money when it’s not necessary (especially at a rate of 30%) that many will likely take advantage of offers like you got in the mail, and the company will make more than enough to pay for their advertising. Sad stuff. Thanks for bringing this truth to light.

  21. I feel sorry for people that need to borrow money at the 29.9% rate due to health or other situations where this was their only option. For those people that use these offers to inflate their lifestyles, they are paying a heavy stupid or math tax on that decision!

    We have become completely adverse to debt after years of paying off rental properties. I coined a couple hybrid names such as debt-ectomy , debt snow-nami” or debt tsu-ball, to describe all the various approaches we have used on our own journey toward debt freedom.

  22. They must be blanketing Hamilton county… I got that same letter in the mail last week. I didn’t even bother opening. it went straight to the shredder. I can’t believe how some companies take such advantage of others.

  23. I actually did this, well sort of. I applied for a loan with my bank to get out of debt. Fortunately, I was denied because I didn’t have enough money to pay back the loan I was taking out to free up some money to pay off credit card debt! I was bummed for about 2 seconds! But when I said what I just typed out loud to myself, I got over it real quick and came to a better conclusion.

  24. What I don’t get is why people would think 29.99% is a deal. That’s less than most credit card companies charge so… how is that a deal?

    I think balance transfers are the best way to go. It buys you some 0%-interest time. Which means that every penny you pay goes directly against the amount you owe. Just as long as you don’t use that credit card for any other purchases, you’re set.

  25. My best strategy I’ve used is to put as much as possible of my discretionary income to pay it down debt. Best way to do this is to cut expenses and try to increase income. If you have high interest rates, then refinancing might also be a good avenue to explore.

  26. Reading the fine print is so important and so many of us don’t do it, which is what they count on. I read fixed APRs as low as 5.99% on the envelope and think that’s really good. I’m also guessing very few people qualify for that rate and most get hit with the 29.99%. Debt consolidation may make sense for some but you definitely want to work with a very trustworthy, reputable company who is not recommending you borrow more than you need to fund remodels or vacations. ACK!!

  27. My husband and I just took out a consolidation loan, but it is at 14.5% and we have a bunch of credit cards with higher interest rates that we will be paying off. Importantly, there is no prepayment penalty. So if we stay on track, this loan should help us finally get out of debt – ASAP. I recently wrote a post about admitting defeat and getting some help in the form of a loan: http://creatingmykaleidoscope.com/2015/08/07/why-you-will-never-be-free-from-debt/

  28. When I was in debt, I totally stopped borrowing money. What I did was to get side hustles and manage how I handled money from making a spreadsheet to meal planning. All of these contributed something, which helped me get out of debt.

  29. Totally, totally agree. My husband, who handles the finances, uses a spending tracking method and it really works! Borrowing money to repay debt is unwise, really.

  30. It’s really sickening how some companies prey on peoples’ desperation. It’s also interesting how they list “family vacation” and “kitchen remodel” under the category of needs along with your medical bills. If nothing else, an excellent marketing scheme.

  31. I am so with you, Holly, you couldn’t be more right. The key really is to consider many options and write those down as well. Refinancing can have hidden costs as well that people don’t think about, just like refinancing your mortgage, you need to be aware of the closing costs too (surprisingly not many people are aware of that). It is important to do your homework and get some expert advice and even Google for loan’s reviews.

  32. I had a friend last week try to convince me to get a bank credit card, because I was in the red because of a fraudulent charge (which is currently being investigated by my bank), and I’d need money to get me from Wednesday to Friday. She got so offended when I said I wasn’t into credit cards, that I honestly thought this would be a friendship dealbreaker (I come from the Dave Ramsey school of paying off debt. Pay cash for EVERYTHING!). I don’t want to go into more debt to get out of my current debt. 🙁

  33. You’re right in saying this company is “borderline criminal”. The fact that they can afford to mail out these offers proves that they’re making money from their scheme. SO sad!

  34. Even though The debt turtle method is slow at least at some point you’ll be out of debt. Offers like these will only extend your debt and make it more costly. Plus it doesn’t address the problem- your spending habit. Best thing I did was contact the credit bureaus and had them remove/ exclude me from all credit offers. Now all I receive in my mail box is my utility bills. Hmm wonder if there’s a way to stop those- lol

  35. Gabrielle Vittori says:

    Hi there, I am a professional debt negotiator here in Australia and came across your blog via Pinterest.
    I think your blogs are fabulous and have actually posted the article of your story on my FB page.
    I’m so proud of that fact that you did this on your own. I try desperately to educate my clients, friends and family about the dangers of credit. I really love what you’re doing. Well done!

  36. Ugh I get a lot of this junk mail, too. You should try Paper Karma! Basically, you snap a picture of the junk mail and Paper Karma reaches out to that company for you to let them know that you don’t want their mailings! My mail is slowly going down because of it. It’s free, too! 🙂

  37. I haven’t seen much written on this yet – good topic! Between falling for these shams and doing the credit card shuffle, you’re doing nothing more than piling on more debt. Re-prioritizing is key! – Starting with a budget! I had read from another commenter on a different site that you need to keep in mind that every dollar spent today will result in an exponential loss in the future.

    I also agree with the mantra of “Pay yourself first”. Even if you ARE paying off debt, try to be disciplined enough to start saving/investing a little as well. You’ll be amazed by how it starts to add up!

    -DP

  38. You obviously must have credit card debt to receive this mailing. Not sure if I trust your article on how to live your life without debt. If someone has massive debt they need to get rid of it as they make life changes. Otherwise you’ll be paying the credi card issuers for years at high-rate interest and not saving any money at all. So good advice on how to live without needing the offer that came from Best Egg. But if you received it the advice is a little too late. Or you’re learning from your own mistakes.

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