topic Re: Borrowing my way out of debt... in Credit Cards

Borrowing my way out of debt...

Anonymous — Wed, 26 Apr 2017 17:00:06 GMT

So I was recently pre-approved for a 15k Discover Loans personal loan to pay off 2 credit cards. The cards in question are at 17.99%/11k and 12.99%/4k. I have ran out of credit card companies to balance transfer from over the past 7 years, basically. I have been carrying a balance of around 20k on my cards (one 5k is still at 0% for a year) for 2 years now after paying taxes two year in a row with them. I have no derogatory remarks at all on my CR. Just high utilization. The Discover Personal Loan was approved at an insulting 17.99% originally but I said I was going to shop around mentioning a few other personal loan companies and I was transferred to another department which gave me 15.99%. The question here is: Would it be better to transfer the debt to this personal loan (or any personal loan company like SoFi, LendingClub, etc) for my credit score or should I just stay the course. I wonder if these personal loan companies are seen as derogatory and desperate. Thanks.

Re: Borrowing my way out of debt...

RockinRay — Wed, 26 Apr 2017 17:15:56 GMT

Can you share your scores with us? Without knowing, makes it kind of hard to recommend.

Local credit union? That would be my first stop.

If Discover is this high, Lending Club or Prosper will most likely be higher.

Re: Borrowing my way out of debt...

Anonymous — Thu, 27 Apr 2017 16:14:30 GMT

Hi. Noob here.

I know nothing about Lending Tree, etc.; but I do know that if you take personal loan from some foul (predatory) lenders, it will, indeed, affect your credit. Others here can say whether that is on a score basis, lender-review basis, or both.

It seems like your greatest asset right now is no degrogs on you credit report. Best I can think of is a credit-union. When you move all of that debt to another CC, you utilization remains high, as you know. But AFAIK, that would not be the case with personal loan from CU. In that case, you might get that message about "your installment loan balance is high relative to the origination amount" as one of reason your credit score is not 850, but that would be just computer printing something because it cannot think of a better reason (more or less). The actually score hit is low, from what I have seen on this Forum. I can see three benefits of such a move:

Your utilization would go down because because the debt would now be on an installment account versus a revolving account.
Your profile diversification would increase because you now have an installment account in additon to several revolving accounts.
You would save money because you would be paying less in interest.

You'll get a good boost on your credit score for dropping your utlization to zero (assuming that you can get a personal loan with that much). The CU might see your situation and be unwilling to loan, but I would tell them the truth: You are getting killed by CC interest.

When your score goes up, you might start receiving pre-qual letters for new CC's. I would adivise against taking any new CC's. Given that you have paid your taxes in past two years with CC's..OUCH!...my recommendation: What ever you do...if I were you, under no circumstances would I touch CC's if I were able to move the balances over.

If you think carrying around a heavy-load of debt for years on end on CC's is bad, there are plenty of people here who can tell you that carrying around a heavy-load of debt on CC's for years on end with ruined credit is far worse. If you open up those CL's, then get that "Whew...now I can breathe..." feeling, and start using the CC's again, along with the personal loan, there is a 98.6% chance that you will live to regret it.

Re: Borrowing my way out of debt...

Anonymous — Wed, 26 Apr 2017 17:37:38 GMT

OP, try SoFi. They are far from "foul" and "predatory".

Re: Borrowing my way out of debt...

sjt — Wed, 26 Apr 2017 17:39:44 GMT

@Anonymous wrote:
So I was recently pre-approved for a 15k Discover Loans personal loan to pay off 2 credit cards. The cards in question are at 17.99%/11k and 12.99%/4k. I have ran out of credit card companies to balance transfer from over the past 7 years, basically. I have been carrying a balance of around 20k on my cards (one 5k is still at 0% for a year) for 2 years now after paying taxes two year in a row with them. I have no derogatory remarks at all on my CR. Just high utilization. The Discover Personal Loan was approved at an insulting 17.99% originally but I said I was going to shop around mentioning a few other personal loan companies and I was transferred to another department which gave me 15.99%. The question here is: Would it be better to transfer the debt to this personal loan (or any personal loan company like SoFi, LendingClub, etc) for my credit score or should I just stay the course. I wonder if these personal loan companies are seen as derogatory and desperate. Thanks.

Have you checked out credit unions?

Also, when you get a installment loan you need to make sure that you dont charge up those cards you paid off. So many folks get a consolidation loan to payoff cards then those cards get charged up and you end up with double debt.

Re: Borrowing my way out of debt...

Anonymous — Wed, 26 Apr 2017 17:39:46 GMT

@Anonymous wrote:
Hi. Noob here.

I know nothing about Lending Tree, etc.; but I do know that if you take personal loan from some foul (predatory) lenders, it will, indeed, affect your credit. Others here can say whether that is on a score basis, lender-review basis, or both.

It seems like your greatest asset right now is no degrogs on you credit report. Best I can think of is a credit-union. When you move all of that debt to another CC, you utilization remains high, as you know. But AFAIK, that would not be the case with personal loan from CU. In that case, you might get that message about "your installment loan balance is high relative to the origination amount" as one of reason your credit score is not 850, but there should be a difference. I can see three benefits of such a move:
Your utilization would go down because because you now have an installment account versus a revolving account.
Your profile diversification would increase because you now have an installment account in additon to several revolving accounts.
You save money because would be paying less in interest.
You'll get a good boost on your credit score for dropping your utlization to zero (assuming that you can get a personal loan with that much). The CU might see your situation and be unwilling to loan, but I would tell them the truth: You are getting killed by the interest.

When your score goes up, you might start receiving pre-qual letters for new CC's. I would adivise against taken any new CC's. Given that you have paid your taxes in past two years with CC's..OUCH!...my recommendation: What ever you do...if I were you, under no circumstances would I touch CC's if I were able to move the balances over.

If you think carrying around a heavy-load of debt for years on end on CC's is bad, there are plenty of people here who can tell you that carrying around a heavy-load of debt on CC's for years on end with ruined credit is far worse. If you open up those CL's, then get that "Whew...now I can breathe..." feeling, and start usnig the CC's again, along with the personal loan, there is a 98.6% chance that you will live to regret it.

OP, don't pay your cards to ZERO. Let a tiny balance show on one of your cards. Pay them to ZERO you could get a nice DING for it.

Re: Borrowing my way out of debt...

HeavenOhio — Wed, 26 Apr 2017 17:46:04 GMT

Loans from consumer finance companies can ding one's score. It's better to go with a bank or credit union.

Pay off your statement balances, but make sure that one card reports a small balance that comes from a new charge. Once the statement cuts, pay in full. Then repeat the process monthly.

Re: Borrowing my way out of debt...

Anonymous — Wed, 26 Apr 2017 18:05:33 GMT

IKneadTheCredit: Thanks for the detailed response. I put the taxes on my CC because I was so afraid of the IRS coming after me and garnishing my bank accounts. Everything I read said "dont mess with the irs". I did not think it through logically and realize that the max penalty would have been 25% and that the IRS doesn't come after small fish like me with such furacity. I've basically paid 40% now over the two years plus the 2% fee for putting it on my CC

As for my scores, right now I am at TU: 652 EQ: 643 . I feel really bummed that I am at a point where I cannot even get new credit at a low APR (car loan) but technically I have never missed a payment

Re: Borrowing my way out of debt...

Anonymous — Wed, 26 Apr 2017 18:07:39 GMT

I know that the two previous times I got a personal loan from a personal-finance company (what used to be Citifinancial and is now OneMain), I ended up regretting it on both occasions, particularly the second. On that occasion (September 2008), I had already taken out one $7,500 loan, had gotten a mailer from them saying I was prequalified for - I can't remember now, but it was something like $1,500 or $2,000 more - went in to the local office, and like a classic chump allowed myself to be talked into another $7.5k personal loan; I forget how much the monthly payments were too, but it was something like $300 a month. At that, I might possibly have been able to scrape by except that I got furloughed from work for close to three months because of lack of projects, and had to use most of that money to stay afloat. Along with the damage I sustained from my hot water heater's springing a massive leak in late 2010, I think the whole fiasco was a significant contributory factor to my having to go to chapter 7 BK in 2014.

Long story short, I'm never touching another finance-company personal loan if I can help it. Even a credit-union personal loan would be viewed by me with great caution.

Re: Borrowing my way out of debt...

Kforce — Wed, 26 Apr 2017 18:19:31 GMT

I would not take out a new loan.

The interest rate is not low enough.

Make a budget and start paying off the dept.

Moving it from card to card will only work for so long,

the util will probably grow, your scores drop, and maybe

even CL decreases. You need to start paying off your dept,

not take a new loan.

Re: Borrowing my way out of debt...

austinguy907 — Wed, 26 Apr 2017 18:32:26 GMT

Ziploc + CC's + water + freezer = faster payoff

If you have to thaw them out to use them you'll think twice about using them. As for paying your taxes on them..... Sounds like you need to look at your W-4 elections and adjust them to withold the correct amount.

You can consolidate things but, what's the point if you can't keep yourself from adding to the debt pile?

There's the option to enter a repayment plan with the IRS when you file if you can't pay the whole amount up front as well.

https://www.irs.gov/individuals/payment-plans-installment-agreements

Re: Borrowing my way out of debt...

Anonymous — Wed, 26 Apr 2017 18:48:48 GMT

joe - your story sounds like mine, especially getting suckered by One Main. Reading it made me have deja vu. I, too, will be filing BK (ch 13 because I have a house and auto that I want to save/keep). I would also agree with you on having caution when seeking/applying for personal loans from credit unions. I have had a pretty good experience with the three that I dealt with, though.

Re: Borrowing my way out of debt...

Anonymous — Wed, 26 Apr 2017 19:10:38 GMT

Good advice. The Ziploc statement made me LOL (because it's so TRUE).

Re: Borrowing my way out of debt...

austinguy907 — Wed, 26 Apr 2017 19:14:31 GMT

I can't remember where I heard it but, it kills those spur of the moment decisions to charge things up. It also keeps you from using them while paying them off. The other method would be shredding them and not requesting a replacement until they're paid down. Either way you have to lose them from your wallet and live on cash if you're having an issue paying things off.

Re: Borrowing my way out of debt...

Anonymous — Wed, 26 Apr 2017 19:23:33 GMT

@austinguy907 wrote:
I can't remember where I heard it but, it kills those spur of the moment decisions to charge things up. It also keeps you from using them while paying them off. The other method would be shredding them and not requesting a replacement until they're paid down. Either way you have to lose them from your wallet and live on cash if you're having an issue paying things off.

What would be the equivalent, though, for items like the Amazon Store Card which aren't actually physical cards but are incorporated directly into your overall store (or other) account upon approval?

Re: Borrowing my way out of debt...

NRB525 — Wed, 26 Apr 2017 19:38:04 GMT

@Anonymous wrote:
IKneadTheCredit: Thanks for the detailed response. I put the taxes on my CC because I was so afraid of the IRS coming after me and garnishing my bank accounts. Everything I read said "dont mess with the irs". I did not think it through logically and realize that the max penalty would have been 25% and that the IRS doesn't come after small fish like me with such furacity. I've basically paid 40% now over the two years plus the 2% fee for putting it on my CC

As for my scores, right now I am at TU: 652 EQ: 643 . I feel really bummed that I am at a point where I cannot even get new credit at a low APR (car loan) but technically I have never missed a payment

OP you might have been able to "settle" with the IRS, but they would still expect big payments, so you either end up paying penalties plus interest, or doing the CC payment thing. Water under the bridge.

Can you list out the credit cards cards you Have? Bank, card brand limit and amount owed.

I would not not go to the Discover loan. There is probably another up-front-fee, and while Discover is better than many, the APR is not doing you any favors.

Re: Borrowing my way out of debt...

Anonymous — Wed, 26 Apr 2017 19:50:55 GMT

@Anonymous wrote:
@austinguy907 wrote:
I can't remember where I heard it but, it kills those spur of the moment decisions to charge things up. It also keeps you from using them while paying them off. The other method would be shredding them and not requesting a replacement until they're paid down. Either way you have to lose them from your wallet and live on cash if you're having an issue paying things off.
What would be the equivalent, though, for items like the Amazon Store Card which aren't actually physical cards but are incorporated directly into your overall store (or other) account upon approval?

Amazon actually sent me a card, and no its not the Visa. Its the store card.

Re: Borrowing my way out of debt...

Anonymous — Wed, 26 Apr 2017 20:04:01 GMT

My relationship with CCs was similar thru my 20s. I'd get a card, it would be extra money until I hit 90% then it's stay dormant with minimum payments while I went back to living thru my debit.

If utilization is really the only thing holding your scores down then you're in better shape then most. Spend a year with only your debit and a budget, and you should have decent utilization again. Then once that is under control swap the CC for the debit and treat it the same to include payments to the card for the balance you normally run thru your debit that process every payday. The last piece worked for my brain once I finally got my uti under control. My bank account pretty much only shows my CC payment and rent. The rest is on my card and it essentially pays itself.

Re: Borrowing my way out of debt...

SouthJamaica — Wed, 26 Apr 2017 21:37:58 GMT

@Anonymous wrote:
So I was recently pre-approved for a 15k Discover Loans personal loan to pay off 2 credit cards. The cards in question are at 17.99%/11k and 12.99%/4k. I have ran out of credit card companies to balance transfer from over the past 7 years, basically. I have been carrying a balance of around 20k on my cards (one 5k is still at 0% for a year) for 2 years now after paying taxes two year in a row with them. I have no derogatory remarks at all on my CR. Just high utilization. The Discover Personal Loan was approved at an insulting 17.99% originally but I said I was going to shop around mentioning a few other personal loan companies and I was transferred to another department which gave me 15.99%. The question here is: Would it be better to transfer the debt to this personal loan (or any personal loan company like SoFi, LendingClub, etc) for my credit score or should I just stay the course. I wonder if these personal loan companies are seen as derogatory and desperate. Thanks.

Yes these consumer finance companies register as a negative on some FICO scoring models.

You're better off with a credit union. Credit unions have better rates, and are not seen as a negative.

Re: Borrowing my way out of debt...

Anonymous — Wed, 26 Apr 2017 21:49:47 GMT

@Anonymous wrote:
I know that the two previous times I got a personal loan from a personal-finance company (what used to be Citifinancial and is now OneMain), I ended up regretting it on both occasions, particularly the second. On that occasion (September 2008), I had already taken out one $7,500 loan, had gotten a mailer from them saying I was prequalified for - I can't remember now, but it was something like $1,500 or $2,000 more - went in to the local office, and like a classic chump allowed myself to be talked into another $7.5k personal loan; I forget how much the monthly payments were too, but it was something like $300 a month. At that, I might possibly have been able to scrape by except that I got furloughed from work for close to three months because of lack of projects, and had to use most of that money to stay afloat. Along with the damage I sustained from my hot water heater's springing a massive leak in late 2010, I think the whole fiasco was a significant contributory factor to my having to go to chapter 7 BK in 2014.

Long story short, I'm never touching another finance-company personal loan if I can help it. Even a credit-union personal loan would be viewed by me with great caution.

Yep, did this last June with Risecredit for $2400. Kept telling myself I'll just repay the loan at the end of June. Nope...ended up keeping it open until September..like a moron. Paid that sucker off in full and told myself never again. At the time my max util was 95% and $23k in debt, no baddies. Scores were mid 600's.

Now its almost May and $15k left to go at 48% Util. Scores between 700-710. I'll get this debt paid off when October rolls around *yay*.