Credit Card Debt versus Unsecured Loan

[ajburt22]

I did a search and am unable to find this "specific" question/answer, so please bear with me.  I have about $14,000 in credit card debt, all of which resides on credit cards that are maxed out or near their limit.  My bank has offered me an unsecured loan for $14k; my question is how, if at all, will it affect my credit score if I use the unsecured loan to pay off all my CC debt and don't use them anymore.  I am aware that credit utilization is a major factor in score determination, so my thought is that this will help my score even though my overall credit owed will not change in the short term.

Any thoughts or suggestions regarding my situation?  This isn't a question of how to get out of debt quicker, moreso just how this scenario will affect my FICO.

Thank you in advance for taking the time to respond.

Aaron

[pizzadude]

If the bank reports this loan as an installment loan , and not a revolving line of credit, then it will certainly help your FICO score to pay off your credit cards.   Assuming that you are at +90% utilizaiton if you moved down to ~5% then you would see a nice FICO boost.

[ajburt22]

Thanks for the quick response and it's just what I thought and was hoping to hear!  They are definitely going to report it as an installment and not a line of credit, I made sure of that.  This will take a huge chunk off my utilization (which is at 90%+) so I'm hoping when my score catches up I'll finally get back over 700 for the first time in 5 years... then will refinance everything I can. 

Thanks again for your input. 

Aaron

[pizzadude]

That's great ~ congrats ! Getting approved for an unsecured $14,000 loan is a major accomplishment !    What interest rate and terms did they offer ?

And use caution with your credit cards once you have paid them ~ be sure to find a nice corner of your sock drawer or freezer where they can't be used spontaneously ...

[ajburt22]

The rate isn't what I'd call "great", but yea I was shocked that banks still give out unsecured loans, especially at that amount.  Probably because it's Navy Federal and not a "big bank", but they gave me 13.75% for 6 years with a 689 TU.  I think it's around $230/month, give or take.  I plan to pay it off quicker than that now that my bills will be consolidated into one... and will hope, wish and pray to not get carried away with the free'd up credit I have.  I already am putting myself in the mental mindset to NOT change my lifestyle at all, go on a shopping spree, or go on any unexpected trips; so I have faith in me.  LOL  I have been known to pay things off then rack up credit again, so thanks for the words of advice because it's what I'll need over the next couple months/years. 

I love the freezer idea, since I don't go in there much as it is.   

[pizzadude]

Navy is awesome !! And really that's not a bad rate at all for an unsecured loan. 

Did you know that Navy has a great 0% fee/0% 12 month CC promotion thru the end of Feb ?  I don't know if that would help you, but it would let you pay some of your debt down at 0% for the first year.

[ajburt22]

I did think about doing a balance transfer and keeping some cash on hand in case something comes up (so I don't have to use CCs).  My Navy card is my largest balance right now by far ($9,500) due to a similar promotion they had last November.  So I know technically I'm paying off a large chunk of interest free credit card debt with a loan that bears interest, but right now boosting my score and having one payment is kinda of my goal so I'll pay a little extra to make that happen.  But if I did decide to keep a few grand on hand I could transfer another balance over to my Navy card... great idea and definitely something for me to think about over the next day or two.  I didn't know they had the 0% going on right now.  They funded my loan already so I've just been looking at my checking account balance all day, wishing it wasn't from a loan.  :/  Haha

[ajburt22]

Logged into my Navy account and realized that the payment would have to post by tomorrow and I'd have to do the balance transfer the same day, since the promo ends tomorrow.  Cutting it close, not sure if everything will clear in time.    Oh well, I definitely still feel like I'm taking better steps to get where I need to be financially.  Thanks again for all your help and advice! 

[pizzadude]

Well like you said, even if you don't do a BT at 0%, you are most certainly still doing the right thing by taking the loan and consolidating/paying these cards.   You can always pay the loan ahead or early too.  

Congrats again on the approval and good luck !  Keep us posted on how it goes !