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Established Contributor
Posts: 569
Registered: ‎04-26-2007
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CC debt or installment debt?

I'm looking for some advice in reference to an opportunity that just popped up. I got an offer from Discover for a debt consolidation loan @ 6.99% that would allow me to pay off a couple credit card balances at 15.9% & 13.9%.

My initial reaction is that it looks like a good idea to trade some CC debt for installment debt at a lower % rate, but, I've never done anything like this and so I'm trying to figure out the possible down side of a transaction like this. I'm sure there are some people out there who have done this, would you please offer your advice?

Thanks

FICO scores on November 17, 2014 (prior to applying for and being approved my mortgage)

EX=738
EQ=735
TU=754

FICO scores on March 4, 2015 after being approved for mortgage and buying the home, the mortgage isn't yet reporting.
EX- 689 EQ- 739 TU- 739
Valued Contributor
Posts: 1,794
Registered: ‎07-01-2010
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Re: CC debt or installment debt?

Was this a firm offer at 6.99%?

 

Or is 6.99% the best rate available?

 

When I have gotten these offers, it is the latter.

 

If the actual rate you get is something like 10-15%, then it might change things.

 

Valued Contributor
Posts: 2,079
Registered: ‎06-01-2008
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Re: CC debt or installment debt?

There are others who are way more knowledgeable than I am that I am sure will chime in, however I will share my experience.  I did that about ten years ago, through Capital One.  It was very attratictive becasue it was a very low intrest rate.  I then put every penny I could toward it and paid it off.  It worked out well for me.  Where I hear people get in real big trouble is if they do this, and then turn around and run the credit cards back up again.  Then you're in a world of hurt with the consolidation loan and the credit card balances.    If you are sure you have the discipline to not run any balances up again, I would think you would be okay.  Again, just my two cents.  

 

 

Year 2012: All Scores in the 520 range, during a foreclosure, CC Settlement and high UTIL. Very ugly days...
Sep 2017: EX8: 736; EQ8: 732; TU8: 743; EQ04: 730 FICO 9 Scores about 50 points higher
In My Wallet: Discover $60.2K; Cap1 Venture $30.7K; Amex ED $38K; Amex Optima $12.5K; Amex Delta Gold $15K; Cap1 Plat $8.4K; Barclay $7K; Citi TY Pref $13K; US Bank $4K; Dell $5K; Care Credit $6.5K. Total Revolving CL: $205.5K
My UTIL: Less than 1% - Only allow about $10 a month to report, on one account. .
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Posts: 17,480
Registered: ‎12-30-2011
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Re: CC debt or installment debt?

How long would it take you to hammer the debt otherwise?

 

Do the math to come up with the financial savings over the time horizon (money saved in interest) and if it's non-trivial, then do it.  Generally I'd trade a short-term ding to my FICO (which may or may not be the case, I keep getting no score change for adding accounts, getting twilightzonish with this last spree of mine) for a financial win.  Always if the amount if savings is significant.

 

Starting Score: EQ 5 561, TU 98 567, EX 2 599 (12/30/11)
Current Score: EQ 5 771, TU 4 758, EX 2 758, EQ 8 795, TU 8 762, EX 8 786 (7/28/17)
Goal Score:    EQ 5 750, TU 4 750, EX 2 750, EQ 8 800, TU 8 Blah, EX 8 800 (01/01/18)


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Regular Contributor
Posts: 140
Registered: ‎08-09-2013
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Re: CC debt or installment debt?

Seems like a no brainer!  The only alternative I see that could be better is if you could get a 0% promo on another card, especially something like Chase Slate with no BT fee.  

 

I had a similar situation less than a year ago.  Low 600's FICO, about $2,500 spread across about 5 or 6 high rate (20% average) credit cards with low limits.  All my cards were $200-850 limits.  This was the jumpstart my credit needed!  

 

My consolidation installement loan was at 12% compared to the 20+% on the credit cards, my credit score shot WAY UP, as my utilization went way down when the cards reported paid off.  I had 1-2 negative items on my report that I disputed and got removed.  Since then I have applied and gotten approved for the following:

 

Chase Freedom - $5,500

Chase Sapphire Preferred - $6,200

Amex BCP - $6,000

Amex BC - $15,000

Discover IT - $10,000

US Bank Cash+ - $5,000

Chase Ink Bold - $18,000 (charge card so this must be the soft limit?  Analyst gave me this on the phone)

 

My Credit Scores:  TU FICO 752 on 5/18/14 via MyFico, EQ FICO 762 on 5/29/14

 

I had low 600 scores in August of 2013, couldn't get prime cards, and was being eaten alive by high interest.  Now I have the above scores and cards, and have only a $310 balance remaining on a student loan at 2.5% as my only remaining debt.  I consider consolidating to an installement loan as the jumpstart that got me in the door of the prime lenders, I think my score jumped about 50 points just from going to a near maxed utilization to under 10%.

 

less interest, lower utlization on credit cards should outweigh the potential small inquiry and AAoA ding.

Established Contributor
Posts: 569
Registered: ‎04-26-2007
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Re: CC debt or installment debt?

Yes, 6.9% is the lowest available but all my scores are over 700 so I feel confident that if I accept the offer my rate shouldn't be over 10% and that's still a winner for me.

 

Thanks everyone for the feed back.

FICO scores on November 17, 2014 (prior to applying for and being approved my mortgage)

EX=738
EQ=735
TU=754

FICO scores on March 4, 2015 after being approved for mortgage and buying the home, the mortgage isn't yet reporting.
EX- 689 EQ- 739 TU- 739

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