I have $5,000 in credit card debt I want to pay off. It is on 5 different cards will various interest rates from 14.99%-29.00%. These are my options I have if I go to my credit union:
1. Apply for a VISA card and have a balance transfer. The rates would be 5.90% for 6 months and then ongoing rate for 7.65%. Sounds good but I don't know what credit line I would get. The credit line would be from $5,000-$15,000. I wonder if I only got a credit line for say $7,000 that would make the utilization not so good and I wonder how that would affect my FICO score. Of course I don't know what credit line I would get until I apply. But then again my lines of credit would increase but most of the debt on the one card. My next option:
Take out a debt consolidation loan for 3 years. The interest rate for that is 11.99%. That is more than the VISA balance transfer but I would not be opening up a new line of credit and it would pay off the credit cards.
Which route should I go? I don't want to make my FICO score go down more by making the wrong decision.
Thank you for all your replies.
Since you're not guaranteed to get the line of credit you need, it's best to go with consolidation loan. You can always pay more than the minimum and get rid of the loan less than 3 years.
Are you planning to get the loan from a credit union? The only drawback of getting a consolidation loan is that you risk creating an additional bill. You may start to use the credit cards again. I would wait until after the holidays before getting a consolidation loan.
If you go the card route you will get hit with an inquiry and new account if approved. This will decrease your score in most cases for a very short time as long as you make ontime payments the score will recover within a couple of months. As for utilization your utilization will go down. The credit report takes all of your revolving credit lines and adds them then adds all of your balances and that where they get utilization. So if you got approved for $5000 you will add $5000 to your credit lines but $0 to your balances you will just be shifting the balances around. So your utilization will in fact go down.
With this note personally speaking I would take the Balance Transfer if you get approved for at least say $5500-$6000 as you dont want to max out the card just for breathing room. I only say this because the interest is lower but I dont have a lot of experience with balance transfers and debt consolidation so I will be curious to see what some others with experience have to say.
But either way the utilization for you wont be a problem.
Your card concept would not impact your utilization, because you all ready have the balances without the new CL. Once you add the new CL, you will actually decrease your utilization (overall).
If you obtain a $7k CL and BT $5k, this may be a bit high for an individual account under optimum conditions, but right now you are working on financial optimization, not FICO optimization.
The benefits of the CC option: You have the revolving account once paid off. And chances are you will not get any better installment rate than the rates you quoted for the card.
If you went installement though, your utilization would drop to nearly zero, a good thing. In either case you have a new inquiry and account that will affect AAoA and "seeking new credit" calculations.
The question comes down, do you want a new revolving/cc account once the balances are paid off? If so, and you are disciplined not to run up more cc debt during, then either option is viable.
Also, if you get a locked promo rate, then your standard rate should be locked after since when the promo expires the new regs are in effect preventing existing balances from receiving RJ's randomly.