09-26-2011 12:31 PM
I applied for a 10k loan from my local credit union to consolidate all of my credit card debt. I was approved for both a loan OR a Personal Line of Credit. To do either they want me to close all of my credit cards. If I close my CC's and pay them off with a loan I imagine this will have a negative impact on my score as my revolving credit now looks like 0. Although the history is still there so that may look good in a way.
With a PLOC I basically have a new CC with a higher limit, thus as I pay this off it will help my credit score tremendously correct? They have offered me 12% APR on both. Is this a good deal?
09-26-2011 02:27 PM
The problem with the PLOC is it would be at the continued whim of the CU to continue it at $10K for the foreseeable future. And if you were to go out and apply for new credit after closing your existing CC's the CU may drop the PLOC to any new charges. If the loan is set up as an installment loan then your CU would have no further say in any outside credit applications you may make.
09-26-2011 02:37 PM
FICO aside, always do what's best for your financial well-being. And when you do pay off debt, be sure to take any steps necessary to not repeat it. IMO, 12% seems a tad high, but if all of your other debts are above 12%, then you could see some savings there. Whatever you do, don't pay the minimum.
Per FICO, LOCs will factor into your CC utilization with a limit of $10k. Your util will not drop to 0% once they update. You'd have to look at the math to see that change. Basically it will look like you have a new $10k revolving line reporting. Assuming the balance transferred is at the $10k limit, you could end up with higher util once those CCs close at $0 and a new TL to boot. You could end up with a net loss, though that will come down as you pay down the LOC. If you opt for a loan instead, then you won't have to worry about util since you'd have 0 CCs open with no balances, but the lack of CCs reporting can hurt too. If I had a vote, I'd skip both and pay down debt.
09-26-2011 09:49 PM
I've been trying to learn more about LOC's and I think in this instance, having no collateral or assets, this will be a positive for me. Instead of having 3 credit cards with misc limits spread across 10k, I will have one single line of credit usable up to 10k. Since my avg credit card apr is 16.68%, I'll also save on interest. I like the idea of being able to tap the LOC for future needs up to 10k when necessary, and that will always beat a cash advance or even regular purchase on a CC. I could always just apply for loans whenever I need something, but shopping for the best deal and amassing a bunch of credit inquiries when I do it will just bring my score down too. Plus all the hassle of configuring it and then making payments to a new processor.
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