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Member
Posts: 25
Registered: ‎01-07-2017
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Personal Loan to Rebuild Score

Hi all.

I'm looking at using a personal loan to pay off my credit card debt (about $1200 with a 19% APR on one card and $1000 on the othe with an introductory of 0% until next April). My goal is to try and finance a car for no more than 10 or 12k around October (I'll have probably $1,500 or 2k to put down).

However at this very moment I have lots of bills, low paychecks, and moving costs that are making it impossible to pay down my cards . If I were to take out say, $2,000 on a personal loan to pay off those cards, would that look better on my credit than the balances when it comes time? Bearing in mind I could probably pay that off in a year or less.

TU score according to Discover is 633 and my income is 24k/year.
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Registered: ‎07-17-2014
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Re: Personal Loan to Rebuild Score

There's two things to look at it: the best financial decision and the best credit scoring decision.

 

What you asked about was just the credit scoring piece.  That's easy.  It will look much better to have all of your current CC debt in the form of an installment loan (and your cards almost completely paid off).

 

But scoring should not be the only part of your decision.

 

For one thing, a very common thing to happen when someone uses a personal loan to pay off his cards is that the $0 balances on the cards make him want to spend money, and after a while he has CC debt AND the installment loan debt.  So the "use a loan to pay off the cards" idea is only good if you work out a really harsh budget that forces you to not go out to eat, not go to movies, not go on trips, etc. until your personal loan gets paid off and until you have built up a substantial amount of cash in a rainy day fund.  It's important to look carefully at how you got to a place where you were in debt on your cards and unable to make a dent in it.

 

Another drawback to using a loan to pay off ALL your cards is that one of your cards is at 0% and the personal loan will be much higher than that.

 

So my advice is to consider doing something in the middle, where you use a loan to pay off the 19% APR card and then work VERY hard with a really tight budget to pay down the 0% card.  What is your total credit limit right now (all cards added together)? 

 

Member
Posts: 25
Registered: ‎01-07-2017
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Re: Personal Loan to Rebuild Score

Thanks for the input! 

 

I'm not too worried about charging them up. The only reason they got high in the first place was because I got in a tight place with jobs (was working for a bad employer, got written up for something that wasn't even bad, got a job offer the day after, was told my start date was a month out, thought I'd be nice and give my current employer a month notice, went on vacation for a couple weeks over Christmas, had to charge a last minute plane ticket home to come back for my last couple weeks of work, was scheduled for one day!) that left me out of work for a couple weeks, then I got really sick and had to take a couple weeks off of work and once again money got tight. I don't see myself leaving my current job any day soon, except when I move upt a nurse assitant job and the illness was kind of a fluke - I'm usually super healthy! I don't go out much, I now get PTO, which will be used for my trip home over Christmas, ect.

 

My combined credit limit is $2200. So my cards are maxed. However, I tried to get pre-approved for a personal loan today from One Main and was denied. Not sure where to go from there.

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Re: Personal Loan to Rebuild Score

Yeah, you are likely going to get denied for all loans and credit cards due to all your credit cards being 100% maxxed out.  Chances of a car loan except at an obscene rate are also slim.

 

You may just need to find some way to bite the bullet for the next two years and pay off all your CC debt.

 

Hopefully you will get some advice from people who know more about what you can do.

 

PS.  A key piece of info we are now finding out is that your cards are all maxxed out.   When you are seeking advice this is something you want to tell people in the first sentence or two.  It;s going to be central to your situation.  Good luck!

Member
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Re: Personal Loan to Rebuild Score

This was why I had hoped to get them paid off. I was under the assumption that those that offer debt consolidation would assume there would be debt. Silly me.

 

I can definitely have them paid off or at least down quite a bit by probably end of September, but that cuts into how much I can put down on a car by about $500. Pretty bummed here.

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Re: Personal Loan to Rebuild Score

I would make sure that you begin paying at least triple the minimum payment on each if that's doable.  And any extra place on the high interest card.  Do that until both cards are < 69% and watch your credit limits to make sure the issuers are not "balance chasing" you.  That's what they do to customers who are very high risk, where they keep lowering the credit limit as you pay down the debt. 

 

Assuming no balance chasing occurs and you can get the cards down to < 69%, then switch to paying maybe 1.5 times the MP for the 0% card and everything else on the high interest card.  You may find that if you can get the cards paid down a good bit that you will qualify for a personal loan to pay off the high APR card, shortly before you buy the car.  Having most of your CC debt paid off will enable you to get much better terms on the car loan, including perhaps no need for a downpayment.

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Posts: 6,305
Registered: ‎02-24-2015

Re: Personal Loan to Rebuild Score


Mmonty wrote:
Hi all.

I'm looking at using a personal loan to pay off my credit card debt (about $1200 with a 19% APR on one card and $1000 on the othe with an introductory of 0% until next April). My goal is to try and finance a car for no more than 10 or 12k around October (I'll have probably $1,500 or 2k to put down).

However at this very moment I have lots of bills, low paychecks, and moving costs that are making it impossible to pay down my cards . If I were to take out say, $2,000 on a personal loan to pay off those cards, would that look better on my credit than the balances when it comes time? Bearing in mind I could probably pay that off in a year or less.

TU score according to Discover is 633 and my income is 24k/year.

In my opinion the best strategy for getting your scores up for the car loan would be:

 

1. do not apply for any new credit anywhere

 

2. pay your credit cards down as much as possible, try to have all but one report a zero balance & the other reporting a nominal balance (5% to 9%)


FICO8 EQ 736 TU 743 EX 733 FICO5 EQ 707 Total revolving 422500

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