topic Re: Debt consolidation to eliminate high interest? in General Credit Topics

Debt consolidation to eliminate high interest?

Anonymous — Mon, 30 Jan 2017 08:12:18 GMT

Hi I had a quick question on debt consolidation. I was wondering if it would be a good idea to consolidate all my credit cards into one payment by using a comapny such as lendingree etc. Alot of my credit cards have all expired the 0% offer and I am paying alot of interest on them. I am aware of the hard inquiry I would get by applying but if approved it wouldnt matter because I would use the funds to payoff all the credit cards and just focus on my new monthly payment with my new loan. My fico scores are 750 759 and 755. Any input would be greatly appreciated. Thank you guys for your help

Re: Debt consolidation to eliminate high interest?

Anonymous — Mon, 30 Jan 2017 14:17:24 GMT

That can be a great choice. It just needs to be coupled with a very clear plan that diagnoses how you ran up the CC debt in the past and makes sure that you are always paying in full (and keeping CC low) for the future. Some people decide to put all their cards in a shoebox with a trusted loved one so that they simply have no access to them. (You can do that while still keeping them active.)

The risk in debt consolidation via a personal loan can be if you do not develop that plan -- and therefore a year after the payoff run your cards back up. Then you have a big installment loan debt and CC debt as well.

Re: Debt consolidation to eliminate high interest?

Anonymous — Thu, 02 Feb 2017 07:30:58 GMT

Thank you so much for your response. I definetely have a plan in place i am worried about how low my credit score will go down. I really worked on getting it to 760 these past years and not sure where it will end up after applying.

Also would know any great places to start applying. Sofi, lendingclub, marcus, prosper, discover loans? thank you so much for your help.

Re: Debt consolidation to eliminate high interest?

Anonymous — Thu, 02 Feb 2017 13:02:28 GMT

I hope someone else can comment. At this point you are really wanting to know how best to shop around for a personal loan to get the best rate, without incurring lots of inquiries. I lack experience in that area. What I always do (if I am looking for an auto loan, say) is call around and ask what their best rate is -- since my scores are high.

That may not apply to you. There may be a way to get soft pull interest rate estimates at some lenders -- start a new thread in a week's time if no one else has chimed in. Call it maybe How do I shop for a personal loan?

Re: Debt consolidation to eliminate high interest?

krielly — Thu, 02 Feb 2017 17:44:49 GMT

If your CC utilization is high, if anything, you should see a bump in FICO score.

Re: Debt consolidation to eliminate high interest?

Anonymous — Thu, 02 Feb 2017 20:46:26 GMT

Hi and thank you so much for your response. My credit card Utilization is at 30%. So getting the personal loan/debt consolidation would actually boost it up. I did not know that. Thank you for that info!

Re: Debt consolidation to eliminate high interest?

Anonymous — Fri, 03 Feb 2017 10:20:54 GMT

Just to be clear, Actually getting Approved for this loan will imporve my credit score??

Thanks

Re: Debt consolidation to eliminate high interest?

SouthJamaica — Fri, 03 Feb 2017 12:58:11 GMT

@Anonymous wrote:
Hi I had a quick question on debt consolidation. I was wondering if it would be a good idea to consolidate all my credit cards into one payment by using a comapny such as lendingree etc. Alot of my credit cards have all expired the 0% offer and I am paying alot of interest on them. I am aware of the hard inquiry I would get by applying but if approved it wouldnt matter because I would use the funds to payoff all the credit cards and just focus on my new monthly payment with my new loan. My fico scores are 750 759 and 755. Any input would be greatly appreciated. Thank you guys for your help

Personally I don't think it's a good idea unless you're able to really stop using the cards.

If you do go ahead with it I think you should use a credit union rather than one of those consumer finance companies.

Re: Debt consolidation to eliminate high interest?

SouthJamaica — Fri, 03 Feb 2017 13:03:31 GMT

@Anonymous wrote:
Just to be clear, Actually getting Approved for this loan will imporve my credit score??

Thanks

No that's not true.

If you get a loan,

(a) you might pick up some points for 'credit mix' if you don't currently have any installment loans

(b) you'll lose points for having a 100% utilization loan

(d) you'll lose points for the age of newest account being shortened

(e) you'll lose points for the reduction in average age of accounts

(f) if you go with a CFA rather than a bank or credit union you may lose points for that

As to whether you will have a net gain or loss, no one can say with certainty, but it's highly likely IMHO that you'll have a substantial net loss, at least in the near term.

IMHO you should just bite the bullet and pay your cards down. Stop using the cards if you need to do that.

Re: Debt consolidation to eliminate high interest?

Anonymous — Fri, 03 Feb 2017 15:17:22 GMT

Thank you for taking the time and helping me. Thanks for that info it makes absolute sense. I didn't know there are many ways you could lose points. As far as my credit cards go I have been paying them down. It's just that I'm paying so much interest on them. Each card which is about 12 of them, I'm paying around 30-60 in Interrst a month and that is too much. I wanted maybe to take a loan for 30,000 from let's say discover ,sofi, or lending club and maybe use 18,000 and pay them off.

Re: Debt consolidation to eliminate high interest?

Anonymous — Fri, 03 Feb 2017 21:54:07 GMT

Here's a simple way to think about it, which is to take credit scoring completely out of the mix. Instead, treat it as a purely financial issue.

Shop around and find out what interest rates you are likely to get, given your current scores. You'll end up with a number. Suppose it is a 9% loan. (Just picking that number at random.) Take 9% of 30k. Then divide that by 12. That's how much interest you will pay on your loan on the first month.

Then look at what you have paid on interest total on all your credit cards in the last month.

Then compare those two numbers. If the loan is saving you a lot of money -- enough that you feel really good about doing it -- then get the loan.

Otherwise, just keep your head down, pay off the highest interest cards first, etc.

As far as scores go, I think you will come out ahead on the loan, but not by much. The negative factors SouthJ gave you. But that will be counterbalanced in all likehood by creating a 1% total utilization with most of your cards reporting $0.

As SouthJ and I said, this is only a good idea if you are SURE you will keep all cards at $0 except one with the remaining card reporting a small balance each month. If you feel you would be at risk for using your cards a lot again, this is not a good idea.

SouthJ also rightly warns you to use a major reputable lender, like a CU. He's right that it is very important not to get a lender that might be tagged by FICO as a Finance Company.

Re: Debt consolidation to eliminate high interest?

Anonymous — Fri, 03 Feb 2017 22:16:16 GMT

Wow thank you so much for that info it's exactly what I've been researching for. Thank you. Ok yes I'm paying about $500 in interest a month on about 12 cards.

- Are lending club, discover, and prosper considered finance company's?

Re: Debt consolidation to eliminate high interest?

Anonymous — Sat, 04 Feb 2017 01:20:25 GMT

Discover is a well establsihed bank, but SouthJ and I have a general allergy to groups like Lending Club and Prosper. They don't feel like well established banks and credit unions, so I have less confidence how they will be perceived by FICO. Remember that FICO's punishment of finance company accounts is one of the least publicized aspects of what they do. So, much of the time, all one has to go on is a gut feeling.

Here is one thread of many that has some discussion of this:

http://ficoforums.myfico.com/t5/Auto-Loans/will-recent-prosper-and-lending-club-loans-effect-my-buying-my/td-p/4318654

Re: Debt consolidation to eliminate high interest?

wa3more — Sat, 04 Feb 2017 02:39:53 GMT

+1 on what Credit guy and south jam said. great advice.

Re: Debt consolidation to eliminate high interest?

Anonymous — Mon, 06 Feb 2017 08:28:19 GMT

Thank you guys for all the great advice I really appreciate it. I was gonna check out some websites and see what rates im offered since all they do is a soft pull. As I was gonna do this than I read somewhere about CD secured loans. They offer these loans at around 2-3 percent interest. I have a $15,000 CD that I opened a couple of months ago. I did not realize you can borrow against it and even improve my credit score at the same time. Do you guys think this would be a great idea? Thanks again

Re: Debt consolidation to eliminate high interest?

Anonymous — Mon, 06 Feb 2017 15:33:43 GMT

I am really puzzled, buddy. I have gone back over the thread and these two facts are what are jumping out at me:

(1) You have about 18k of extremely high-interest CC debt. My guess is that the interest rate may be 15% or 18% or possibly more.

(2) You have a CD for 15k, paying you presumably 1.5% or maybe 2%. On that interest you have to pay income taxes, so your real return is very low, not much more than 1%.

How did both things happen? The CD is about the worst possible choice for that 15k right now. By about a trillion miles, the better place for that cash is to use it to pay off your highest interest CC cards.

Re: Debt consolidation to eliminate high interest?

Anonymous — Mon, 06 Feb 2017 21:19:15 GMT

I know trust me. After opening the CD I started to go over my finances and realized my 0% introductory rate expired and was being charged between 12-15 percent in interest. I just went over all my credit cards and figured I'm paying $560 in interest a month. I'm very upset at myself for not realizing this sooner. Very irresponsible on my part. That's a lot of money in Interest it's like a very expensive car payment.

Re: Debt consolidation to eliminate high interest?

Anonymous — Mon, 06 Feb 2017 22:31:11 GMT

The typical penalty for breaking a CD before it matures is six months worth of interest. (That's for a CD that has a term of at least 12 months.) I encourage you to sit down and crunch all the numbers. You will likely discover that the correct choice (among your various options) is to cash in the CD, paying the 6-month penalty, and then pay off your highest interest cards. Then continue to pay down all remaining debt.

One of the takeaway lessons from this is that Awesome 0% Introductory Rates are worthless in an economy where the interest rates are already extremely low. They induce you to spend money and place you at risk if you forget the day that the 0% agreement expires. People should avail themselves of these with great care and with plans to pay them off far sooner than they think they need to.

On a personal note, I cannot tell you how many of these 0% offers I get. They seem to be the default for every new credit card I open. I have carried a balance on only one of these cards and then for only two months. Even that made me uncomfortable.

Re: Debt consolidation to eliminate high interest?

wa3more — Tue, 07 Feb 2017 00:16:59 GMT

good advice from credit guy.

Not sure i would use whole 15k to pay down debt. maybe keep 3-5k in savings to have some dry powder in case OP needs liquid cash in future...car breaks down and so.

Re: Debt consolidation to eliminate high interest?

Anonymous — Tue, 07 Feb 2017 00:59:13 GMT

From my experience I think it will be a net gain although obviously not as many points as it would be if you didn't have a loan at 100%. I bought two new cars, loans at 95% utilization. When I brought my credit card utilization from 24% to 9% I saw a 30 point jump on the bureaus that had my oldest account at 23 years. But I only saw a 10-point bump on the bureau with the the oldest account at 13 years.