02-17-2013 01:57 PM
Hi, I'm new here and would appreciate some advice. I have 4 credit cards that I owe a total of approx $12,000. I have no mortgage or any other loans. My goal is to get out of debt asap. I would like to apply for a personal loan to consolidate my cc and then pay the loan off as soon as I possibly can. My fico score is around 750 and my debt to income ratio is 25%, but my credit utilization is 51%. The highest card I have is $7,000 and this one is maxed out. The next highest is $2700 and the credit limit on that one is $3600. The third one is $2200 and the credit limit is $4000 and the last one is around $1400 and the credit limit is $1500. My question is do you think I would be eligible for a personal loan for approx $12,000 with a fairly good interest rate? I don't want to apply unless I'm pretty sure I can do this, as I do not want a hard inquiry on my credit report. Is there anything I can do to get my credit utilizationo down, such as get some of my credit limits raised or add another card? Or would it be more beneficial to apply for a no interest for 15 months credit card and transfer one or two of my credit card balances to it? Thank you for any advice, it is truly appreciated.
02-17-2013 03:09 PM
Welcome to the forums.
I would just start paying extra to the ones that are almost maxed out first. When those are paid off use that money to pay the next smallest one etc. I say start with the maxed out ones first because FICO dings you for that. Getting each one down to 20 - 30% now will help. When you can have half (or all but one) report a 0 balance and the other ones (or one) report a 9% or below. YMMV so you can experiment with the %. You will also need to know when your CCC report to the CRAs
As soon as you start paying down your cards, your score will go up. FICO is based on a snapshort of what is reporting on any given day. It has no memory so if you were at 51% last month and pay down to 40% this month, that is what you are scored on.
I personally would not get a loan to pay off debt.
02-17-2013 03:32 PM
Some call this the snowball approach. Pay the minimum on all but one card, and put all extra money on one. For score impact start with the most utilized, and try to get utilization below 50% on each card. Then work on the highest interest rate card, then next and so forth.
To maximize your score have total utilization below 10%, and "more than half" (since you have four cards, this means three) of your cards reporting a zero balance. But don't have all cards report zero and rotate which card(s) you allow to show a balance.
02-17-2013 04:33 PM
Thanks for your advice. I have been using the Dave Ramsey program and have been paying it down, but they have high interest and I thought if I would get a loan I could save a lot on interest. I have never been late with a payment. Why would you not take out a loan to pay off debt? I'm just curious.
02-17-2013 05:20 PM
02-17-2013 05:25 PM
Getting and paying a debt to pay a debt. In the end you still have a debt to pay.
+1 Even worse, once people consolidate credit card debt, there's a huge temptation to look at those nice, empty credit limits and run the cards right back up again. So you end up with even more debt than you started with.
You might have the iron will to resist that temptation. But I've heard that the majority of people who get consolidation loans actually do end up in more debt.
In your shoes, I'd stick with snowballing.
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