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Personal Loan vs. 0% Card + Other Tips Requested To Pay Down Debt Over Next 12 Months

The last year racked up quite a bit of credit card debt due to my business and managing cash flow sometimes by forgoing a paycheck or making a few loans to the business to meet payroll for my employees. Cash flow is luckily not a concern anymore and looking to get back on track with my personal finances. Also made a few other changes to pretty drastically cut expenses and am in a good place to raise my salary from the business. 

 

Right now my scores aren't terrible considering the level of debt I have- 717 Eq, 693 Tu, and 708 Ex. Those are based on a balance of $25,500 out of $27,500 limit. Amount of debt is big time hurting me. That is listed as Fair currently. FICO has payment history as Exceptional, Amount of New Credit and Credit Mix as Very Good, and Length of Credit History as Good. Have paid down the balance to $18,000 right now that will show on next statements and the FICO simulator estimates that will bring my scores to 755 Eq, 723 Tu, and 742 Ex. 

 

My balances after the recent payments are:

 

  • AMEX Blue- $5091/$7500 (68% utilization, 14% interest rate)
  • Chase Freedom- $3600/$7500 (48% utilization, 24% interest rate)
  • Citi AA- $7970/$10,500 (76% utilization, 16% interest rate)
  • Credit Union Credit Card- $1480/$2000 (74% utilization, 12% interest rate)

 

My question is about next steps. I am a 29-year-old male, now a $60,000 a year salary, a few student loans left ($140 a month), a car loan ($240 a month), and a personal loan ($380) that has another year on it. Will be saving $1,000 a month or so after a move and can put that to paying off credit card debt/new personal loan payment. 

 

Ideally would like to find a personal loan for $10,000-$15,000 to avoid paying the higher interest rates on the credit cards. With the estimated higher credit score above the interest rates of Sofi and Lending Club loans aren't bad (5-6% estimated on a place like Lending Tree), but I do wonder if I'll be approved based on debt-to-income ratios. A 0% balance card like Chase Slate would be a backup (if I qualify) and hopefully would get a high enough credit limit to transfer over the non-Chase cards and then pay down the Chase (might be unrealistic on my part). I think I could tackle that debt before the 15-months intro is over with a likely $2,000 tax return and the money I can set aside each month. Not sure if the 0% card might be better than a personal loan with higher interest 10%+. 

 

Potentially am going to graduate school next year so want my credit in the best shape it can be by May/June (assuming that's when I will have my credit pulled for student loans but might be earlier). That adds a little level of concern on making personal loan payments or the balance paydown while being a student, but I'd likely either get close to paying them off or instead have some savings to help offset that. 

 

Do people have thoughts on if I should apply for a personal loan as soon as these balances update and assuming my scores go up? Wait to pay off more of my debt? Does doing $10,000 instead of $15,000 make it more likely I would be approved for a personal loan given my income and debt? If I could get approved is a 0% balance card the right way to go as a backup? Thanks for bearing with all my questions. Any other important moves I can make to put myself in the best position for possible future student loans would be appreciated. Once I get my score up and debt down a bit I will definitely be working to get AMEX and Citi to raise my credit limit with their soft pull options. I am not sure if paying down the debt is really just my only concern right now and if I don't really need to worry too much about doing anything else to get the best rate on student loans with hopefully a mid-to-high 700 score in about 6-7 months. 

 

Thanks for any suggestions all!

Established Contributor
Posts: 652
Registered: ‎06-04-2015
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Re: Personal Loan vs. 0% Card + Other Tips Requested To Pay Down Debt Over Next 12 Months


MD08 wrote:

The last year racked up quite a bit of credit card debt due to my business and managing cash flow sometimes by forgoing a paycheck or making a few loans to the business to meet payroll for my employees. Cash flow is luckily not a concern anymore and looking to get back on track with my personal finances. Also made a few other changes to pretty drastically cut expenses and am in a good place to raise my salary from the business. 

 

Right now my scores aren't terrible considering the level of debt I have- 717 Eq, 693 Tu, and 708 Ex. Those are based on a balance of $25,500 out of $27,500 limit. Amount of debt is big time hurting me. That is listed as Fair currently. FICO has payment history as Exceptional, Amount of New Credit and Credit Mix as Very Good, and Length of Credit History as Good. Have paid down the balance to $18,000 right now that will show on next statements and the FICO simulator estimates that will bring my scores to 755 Eq, 723 Tu, and 742 Ex. 

 

My balances after the recent payments are:

 

  • AMEX Blue- $5091/$7500 (68% utilization, 14% interest rate)
  • Chase Freedom- $3600/$7500 (48% utilization, 24% interest rate)
  • Citi AA- $7970/$10,500 (76% utilization, 16% interest rate)
  • Credit Union Credit Card- $1480/$2000 (74% utilization, 12% interest rate)

 

My question is about next steps. I am a 29-year-old male, now a $60,000 a year salary, a few student loans left ($140 a month), a car loan ($240 a month), and a personal loan ($380) that has another year on it. Will be saving $1,000 a month or so after a move and can put that to paying off credit card debt/new personal loan payment. 

 

Ideally would like to find a personal loan for $10,000-$15,000 to avoid paying the higher interest rates on the credit cards. With the estimated higher credit score above the interest rates of Sofi and Lending Club loans aren't bad (5-6% estimated on a place like Lending Tree), but I do wonder if I'll be approved based on debt-to-income ratios. A 0% balance card like Chase Slate would be a backup (if I qualify) and hopefully would get a high enough credit limit to transfer over the non-Chase cards and then pay down the Chase (might be unrealistic on my part). I think I could tackle that debt before the 15-months intro is over with a likely $2,000 tax return and the money I can set aside each month. Not sure if the 0% card might be better than a personal loan with higher interest 10%+. 

 

Potentially am going to graduate school next year so want my credit in the best shape it can be by May/June (assuming that's when I will have my credit pulled for student loans but might be earlier). That adds a little level of concern on making personal loan payments or the balance paydown while being a student, but I'd likely either get close to paying them off or instead have some savings to help offset that. 

 

Do people have thoughts on if I should apply for a personal loan as soon as these balances update and assuming my scores go up? Wait to pay off more of my debt? Does doing $10,000 instead of $15,000 make it more likely I would be approved for a personal loan given my income and debt? If I could get approved is a 0% balance card the right way to go as a backup? Thanks for bearing with all my questions. Any other important moves I can make to put myself in the best position for possible future student loans would be appreciated. Once I get my score up and debt down a bit I will definitely be working to get AMEX and Citi to raise my credit limit with their soft pull options. I am not sure if paying down the debt is really just my only concern right now and if I don't really need to worry too much about doing anything else to get the best rate on student loans with hopefully a mid-to-high 700 score in about 6-7 months. 

 

Thanks for any suggestions all!


You might have options now, but you'd have far more if you got your balances down first.

 

I suspect you'll get a lot of varying opinions, but here is what I think I'd do *especially* given that you have an extra $1k/month to throw at the debt:

 

Pay that 24% Chase card off first. It's bleeding $ the worst at that rate, and you will get a score bump for having a card report $0. Then sock drawer it for a while.

 

Pay your other three cards to under 49%

 

THEN I would look for a 0% for 12 months balance transfer card. 

 

You'd have some good habits established from paying off the Chase and paying down the other three cards. Honestly, it's the habits that get us out of debt more than the interest rates we have. By then, I think you'd be working your way to getting out of credit card debt for good.

 

Don't go for some bandaid solution of getting a new personal loan to deal with just some of the debt and then running your debt back up. (I suspect this may have already happened.) It always seems like a good idea in theory, but never gets us anywhere. 

Ch 7 Discharge May 2015: EQ 588/TU 552/EX 570
Sept 2017: EQ 679/TU 660/EX 668 w/ 24% CC util reporting
Discover/Target/NFCU CLOC/NFCU Cash Rewards/PenFed Power Cash Rewards - $46k total revolving
Established Contributor
Posts: 652
Registered: ‎06-04-2015
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Re: Personal Loan vs. 0% Card + Other Tips Requested To Pay Down Debt Over Next 12 Months

Also . . don't get such huge tax returns! You're paying 24% interest while the government is holding $2k of your money.

 

You want to come as close to $0 as possible. If you're leery of calculating this yourself, see an Accountant now and do some planning. You can reduce or stop what you're paying in for the rest of the year and use that $ to hammer on debt NOW.

Ch 7 Discharge May 2015: EQ 588/TU 552/EX 570
Sept 2017: EQ 679/TU 660/EX 668 w/ 24% CC util reporting
Discover/Target/NFCU CLOC/NFCU Cash Rewards/PenFed Power Cash Rewards - $46k total revolving

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