Consolidation question for the experts

[danieljohnsonk]

CreditGuyInDixie and Revelate,
Thanks for clarifying that a paid off installment loan is not included in the installment loan utilization score.
The consolidation loan proceeds can be used for bills, savings etc. which allows me to choose the best plan possible. The hard part is deciding which plan is best for my situation. Because of job uncertainty my best course of action is to get a medium score boost and a decent reduction in payments. Paying off all credit cards boosts my score the highest but paying off some cards and some installment loans causes the best drop in monthly payments.

It would be nice if the simulator could be counted on to provide accurate feedback. It indicates that paying $7000 in CC’s will cause my score to jump 40 or 50 points which sounds too good to be true so it probably isn’t true. I guess I could try paying $7k on the CC’s and see what happens to the score but sometimes the CC companies like to take their sweet time reporting to the Bureaus and I’m too impatient.

[Anonymous]

You will definitely make the best decision for yourself.  You are the guy who can see what your monthly payment is on each of your many accounts, so you can see the best way to balance all of those three factors.

Our friend SouthJamaica suggested doing things in stages, and he may be right on the money as far as that goes.  Because you are allowed to put a lot of the 24k in savings, you can always choose to pay more things off in the next stage -- but you can't move backward. 

You have all the information you need to make the best choices for yourself.  In summary:

Paying down credit card utilization will get you much more of a credit score boost than paying down installment debt.

In fact, the only way paying down an installment loan could boost your credit score is if that "installment utilization" we talked about earlier goes down.  Paying off a loan entirely removes its original loan amount from that calculation. 

As overall CC utilization goes down, you largely get a boost the whole way down (though once you are lower than 9% overall there may be no more additional help).  But with installment utilization there may be only a few breakpoints where you get a boost.

Credit card debt tends to be by far the highest interest debt (unless a CC is 0% interest, which often only lasts for an introductory period).  Therefore paying down CC debt also gets you the biggest financial reward (it causes your debt level as a whole to go down the fastest).

Lastly, one of the best ways to protect yourself against job loss and being therefore unable to make payments is by reserving a portion of your funds for NOT paying down debt at all, but rather putting it into an emergency fund (savings account).  If the emergency never happens -- awesome.  You still paid off some of your debt early in the game and, during the time when the job loss never happened, you presumably continued to pay the debt down much further.  But if the job loss happens, you will have cash to make payments, a far better protection (in that scenario) than if it had been used up paying off low interest installment loans.

Best of luck!

[danieljohnsonk]

As the OP I just wanted to do a status update on this thread so that my experience might help someone else: 

My my.Fico TU score started at 681 in October 2015 and on Nov 14th it's 753. My my.Fico EX score is 747 but I don't know what it was in October.  I used a Prosper personal loan to pay off lots of credit card balances. I didn't have any negatives except for high CC utilization and today the utilization is 17%.  Two credit cards that I paid off still haven't updated with the CRA's yet so I would expect a few more points when that happens.    5 weeks after the Prosper loan was approved the account info has only been reported to Equifax which is strange because Prosper did a hard pull from Experian to approve the loan. I'm hoping that Prosper only reports to 1 or 2 CRA's because now that my score is 72 points higher I want to refinace that loan for a much better interest rate. The size of the Prosper payment really hurts my debt to income ratio.

Yesterday I was approved for a car refinance with NASA Federal Credit Union (yes THE NASA)  at 2.99%. The car refinance lowered my $286 monthly payment to $200.  I added the life, disability and unemployment insurance to that loan which isn't cheap but with my unstable job I have a feeling I'll be using that insurance someday.  The only drawback is the insurance won't pay for unemployment for the first 90 days of the contract kind of like a prexisting condition clause. 90 days seems a little unfair.

[NRB525]

Ok, so Prosper has only reported to EQ?

Hopefully it doesn't report to EX and TU, but keep us updated if it does or not.

What is the APR on the Prosper loan?

[danieljohnsonk]

As of today Prosper reported the new account to Ex and Eq. Still nothing showing on Tu. The loan was approved on Oct 6th which is about 5 weeks ago.

The Prosper loan was 20K/21%/36months/$759month with an Ex score of 707 and no lates or derogatories.

Normally consolidating at 21% is crazy but for me it worked great. My credit score jumped to 750 after consolidating most of my CC's and I'm able to get consolidation loans at 12.99%.  I was just approved this morning for a $10K/12.99% personal loan at NASA Federal Credit Union. I will use that $10K to pay off half the Prosper loan and I'm going to try to get 10K from another place today to pay the other half. This will cut my payment from $759 to about $360.