Borrow to fund savings account?

[jjaaam]

My wife and I are having a debate on this topic. It's kind of long so please bear with me...

OK - I have three credit cards I want to consolidate. I have found a lender that will give me $10,000 over what I want to consolidate. The interest rate is so low that the amount of interest I would pay in total on this loan (with the extra cash) is very close to what I would pay on the cards if I payed them off with a fixed payment for a five year period. The payment would be the same as what I am currently paying as well.

My thought is that I should take advantage of the low interest rate and borrow the extra money. Yes, I have to pay it back but it essentially would be close to interest-free, if that makes any sense. From my viewpoint I would rather pay a small payment that I know I can afford (remember, close to interest free) in exchange for the cash now.

My wife feels the exact opposite. She says that borrowing money to put in a savings account is stupid. Normally I would agree 100%...but like I said, with there being close to no interest I'm having a hard time seeing the downside.

Am I nuts for thinking this is a good idea?

[pflyers85]

I'm not a proponent of debt consolidation because it merely treats one symptom rather than the disease. Your credit card debt is merely a symptom or side effect. Think of having a bacterial infection and one of the symptoms is running a high fever. A doctor wouldn't merely advise you to take a fever reduction pill but he/she would prescribe you antibiotics to knock the infection out of your system. Your debt is analogous to the fever. The lack of living on a written plan and poor spending versus saving habits is the bacterial infection. The debt consolidation is merely going to rearrange your debt, not eliminate it.
To use another analogy this is like weight loss. You have to be committed to a lifestyle change to see permanent results. Get on a written budget. Get an emergency savings fund in place if you don't have one already and get this debt wiped out as quickly as possible. The sooner you eliminate your debt the more of your income can be used to save/invest to build wealth.

[Fishindude77]

Sounds like your troubles are going to get worse. Guessing you need that additional $10,000 for something you're not mentioning?

All you will accomplish with this move is getting yourself $10,000 deeper into debt, unless you make some serious behavior changes. You are living beyond your means and have a spending problem that needs to be addressed. This is a behavior thing that can't be helped by more loans, it requires lifestyle change and a change of mindset.

[disneysteve]

I have three credit cards I want to consolidate. I have found a lender that will give me $10,000 over what I want to consolidate.

My thought is that I should take advantage of the low interest rate and borrow the extra money.

She says that borrowing money to put in a savings account is stupid.

How much debt do you have? And why do you have it?
What is the interest rate on this new loan?
What would you be doing with the extra $10,000?

You can't borrow your way out of debt. What you are proposing not only keeps all of the debt you already have but adds $10,000 of new debt. How does that benefit you or move you in the direction of being debt-free?

I will not say that borrowing to put money in savings is always stupid, because I've done it, but I did it under very specific circumstances that netted me hundreds of dollars in profit. If what you have in mind will earn you money, it might be worth it, but I suspect that isn't the case here.

[Jluke]

what is the rate? everyone has different perspectives on what is considered a low interest rate

what is the loan term?

Could you turn around and send the 10k back on the loan after you receive it?

How long do you want to be in debt??

Remember, lenders are out to make money off of you. Do your own math too.

[snafu]

The fact that you would need 5 years of future income to pay off your credit cards is a huge red flag. Perhaps some financial decisions in the past didn't work out as desired. Perhaps there are better choices to be made so that you are in control of the money instead of money controlling what you can do.

What interest rates are you paying on your current credit cards? How much interest have you already paid January - August 2015 on credit cards and loans ? What interest rate is offered on the consolidation loan? How long will it take to pay off the consolidation loan that clears all existing CC debt? What other loans would you continue to carry?

All the research says most people who take consolidation loans get into big money trouble because they easily fall back into the habit of charging up credit card balances again. They can't pay the balance in total when due and they have no idea what they spent all that money on! They now have their consolidation loan and new credit card charges. Would you be willing to cut up old credit cards, keeping one only possibly in fridge freezer and stick with cash until you've cleared the consolidation loan balance?'

I'd like to see you make better choices.