Loan to payoff CCs?

[loviedovie]

Hi fellow credit nerds   Question for you all-

I normally have a really outstanding relationship with my credit cards, but I recently had a handfull of outrageously expensive traffic tickets and had to hire an even more expensive traffic attorney, to the tune of 7+k. Now my CC balances are just under 10k (my total limits are over 25k, so my utilization is still OK) but my interest rates are SKY HIGH- roughly 28% across the board.

I pre-qualified for a loan from a company called PROSPER (via an ad on CreditKarma) and they offered me a 10k loan at 8% interest. This would allow me to catch up and pay this all off much faster.

Is there any reason why I should NOT do it?    (...I've never had a loan before, other than a car payment, so I don't know the pros/cons)

Thanks,

-Lovie

[Kenny]

If the interest rate truly is 8% and you can't pay this debt off quickly, then I see no reason that you shouldn't do it financially speaking.

The only pause you should take is to ask yourself if you do this loan, will you just run up the cards again? If your answer is yes then you should take some time and work on that aspect before going forward.

That's just my take, but I'm sure others will post, as well.. Look forward to seeing their opinions.

[loviedovie]

That's what I thought too, I just didn't know how it looks if you have a loan on your credit report.. does it make your score go down? I would definitely NOT rerun the credit cards, so I don't have to worry about that...

[Kenny]

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@loviedovie wrote:

That's what I thought too, I just didn't know how it looks if you have a loan on your credit report.. does it make your score go down? I would definitely NOT rerun the credit cards, so I don't have to worry about that...

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It's just a new installment loan similar to that of an auto loan or one of those loans you get from a furniture store. There will be an initial hit with a new account and high balance on an installment loan, but you would get a boost from your utilization on the revolving side. It probably wouldn't hurt badly at all, might even be a boost if you don't have an installment loan on your profile at all. (Because of mix of credit boost.)

[Bman70]

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@loviedovie wrote:

Hi fellow credit nerds   Question for you all-

I normally have a really outstanding relationship with my credit cards, but I recently had a handfull of outrageously expensive traffic tickets and had to hire an even more expensive traffic attorney, to the tune of 7+k. Now my CC balances are just under 10k (my total limits are over 25k, so my utilization is still OK) but my interest rates are SKY HIGH- roughly 28% across the board.

I pre-qualified for a loan from a company called PROSPER (via an ad on CreditKarma) and they offered me a 10k loan at 8% interest. This would allow me to catch up and pay this all off much faster.

Is there any reason why I should NOT do it?    (...I've never had a loan before, other than a car payment, so I don't know the pros/cons)

Thanks,

-Lovie

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What are your credit lines now? If you can get a good CL on a 0% balance transfer card... Slate or Discover? That might save the 8% if you can pay off in 15 months or so. But 8% is WAAY better than your current rate! There's no reason not to do a loan.. It can improve your FICO. 

[Kenny]

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@Bman70 wrote:

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@loviedovie wrote:

Hi fellow credit nerds   Question for you all-

I normally have a really outstanding relationship with my credit cards, but I recently had a handfull of outrageously expensive traffic tickets and had to hire an even more expensive traffic attorney, to the tune of 7+k. Now my CC balances are just under 10k (my total limits are over 25k, so my utilization is still OK) but my interest rates are SKY HIGH- roughly 28% across the board.

I pre-qualified for a loan from a company called PROSPER (via an ad on CreditKarma) and they offered me a 10k loan at 8% interest. This would allow me to catch up and pay this all off much faster.

Is there any reason why I should NOT do it?    (...I've never had a loan before, other than a car payment, so I don't know the pros/cons)

Thanks,

-Lovie

---

What are your credit lines now? If you can get a good CL on a 0% balance transfer card... Slate or Discover? That might save the 8% if you can pay off in 15 months or so. But 8% is WAAY better than your current rate! There's no reason not to do a loan.. It can improve your FICO. 

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Good suggestion on the possible BT. The question would be whether or not you could get a 10k line. Your current limits are 25 total right, so it might be quite a bit of a stretch to get the 10k right off the bat, but if you wanted to you could app for enough cards that you BT it for essentially 3-5% for a year. The problem is you have multiple hits to your AAoA, you have the upfront cost, the only thing that you've done is increase total credit lines and reduce utilization, you might have multiple balances reporting which isn't the end of the world, but also you only have 1 year or 15 months or 18 months whichever the cards terms are.

Which do you feel more comfortable doing, honestly? How long are you thinking it might take you to pay back 10k? Can you afford to pay it back in that time frame? (You don't have to answer these questions but they are just things to think about.)

[Bman70]

These Penfed cards have 4.99% BT for 48 months.. https://www.penfed.org/balance-transfer/?WT.ac=1199

That's longer than anything I've seen. As Kenny said, the thing with cards is not knowing if you'll get a big enough CL. However, Penfed gives some huge CLs and possibly a recon explaining your BT needs could get a sufficient limit. 

[randeman]

I took out a personal installment loan last month and paid off four cards.  My usage went down to 11%.  My score, when the cards reported, went up 32 points.  I still have my CS to report, which it is supposed to do today.  I hope that will finally put me over 700.  My score did not budge when Citi reported the loan.  My monthly payment on the loan is $330 a month, for five years.  However, I will have it paid off in two and a half because I will pay over and above the monthly payments--and STILL pay less per month than I paid on the cards.

So, yes, I recommend it.  However, as has been pointed out, you don't want to succumb to the temptation of charging the cards up again.  Put them somewhere where it is not easy to get to them, if you are concerned about your will power.

[loviedovie]

UPDATE:

I got the 10k loan from Prosper, at 8%, which is 20% less than the interest on my CCs was. I paid them all off today. The loan payment is 314/mo for 3 years, but I will be able to pay it off in about half the time, probably less.

I will post again about how it impacts my credit score. Thanks for the advice everyone!!

[Creditaddict]

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@loviedovie wrote:

UPDATE:

I got the 10k loan from Prosper, at 8%, which is 20% less than the interest on my CCs was. I paid them all off today. The loan payment is 314/mo for 3 years, but I will be able to pay it off in about half the time, probably less.

I will post again about how it impacts my credit score. Thanks for the advice everyone!!

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Next month when all your credit card balances update paid off I would consider a little spree to replace what sounds like TERRIBLE CREDIT CARDS you have... MANY cards out today have interest rates in the 10-14%, if you have any that are not store cards and are over 20% I would replace them!

Doesn't mean you have to close the old ones but that depends too on if they do anything for you.