Personal Loan & Credit Card Debt question.

iNathanDrake · ‎10-16-2017

Hello everyone, I have a question about personal loans. And I need soe advice.

I currently only use 2 cards, my newly opened Chase Freedom Unlimited (July 2017) and my Amex. Amex is currently clean out of 17k. And my Chase is at 1900 out of 4k.

I used my Discover card a lot until I got CFU in July. I do have a balance on it of about 4400 out of 10.5k.

I was debating on taking out a personal loan for 6500 to clear out both cards. My idea behind this is that, with time I can definitely clear out the cards without the pull/hit to my score for the loan. However if I take out the loan, I can wipe them all clean instantly, and I can have the loan paid off in 10 months without being overly generous on my payments (I can make it faster if needed). The loans are 12,24,and 36 months. But there is no penalty for early payoff. I intended to pay 650 monthly for 10 months (less than 1 weeks pay) for 10 months to finish it quickly.

During this time I intend to not use any credit cards and operate directly out of my bank account until the loan is paid off.

This is more of a mental thing where I'd feel more at peace killing this all in one shot rather than pay off each card slowly on a monthly schedule. ( I realize that the loan would be a monthly schedule as well).

Thoughts? Advice? Thank you in advance for any and all suggestions!

Anonymous · ‎10-16-2017

Many people choose to do this. It's a good idea if the interest rate on the loan will be much lower than the interest rate you are paying on your cards.

It is a bad idea (in my opinion) unless you create a solid barrier that prevents you from using an credit cards until the loan is paid off. This you are doing which is great.

Do you have any other open loans?

iNathanDrake · ‎10-16-2017

Currently they’re both in interest free periods. The 15 month intro apr free grace period lol. Discover ends in December of this year. So I would voluntarily be paying interest on this. I am also fully aware of this. And I’m fully comfortable with it.

I just want the instant gratification that the loan will bring. And with the loan being payed off quickly, it’ll also reflect well on my score. I have already taken my credit cards off of all monthly default payments and swapped my debt card in. I intend to leave all credit cards at home in a drawer and use only my bank account until the loan is paid off. And I intend to pay off the loan in 10 months or less. I will use only my paychecks for ALL spending over the next 8-10 months.

Thoughts? Thank you!

Anonymous · ‎10-16-2017

It depends on the interest rate. If you're going from 24.99% to 5% (and can actually put your credit cards away as you and CGID have both said) then by all means go for it.

If you're going from 19.99% on your credit cards to a 17% personal loan (or a similar scenario) you're just moving the $$ around and playing games with your own head and it will get you nowhere.

In short, if you qualify for a GOOD personal loan = YES

GARBAGE personal loan = NO

Sock drawer your cards either way. Already in trouble with a card you got three months ago is no bueno.

"Instant Gratification" and good financial sense rarely go together.

Anonymous · ‎10-16-2017

@iNathanDrake wrote:
Currently they’re both in interest free periods. The 15 month intro apr free grace period lol. Discover ends in December of this year. So I would voluntarily be paying interest on this. I am also fully aware of this. And I’m fully comfortable with it.

I just want the instant gratification that the loan will bring. And with the loan being payed off quickly, it’ll also reflect well on my score. I have already taken my credit cards off of all monthly default payments and swapped my debt card in. I intend to leave all credit cards at home in a drawer and use only my bank account until the loan is paid off. And I intend to pay off the loan in 10 months or less. I will use only my paychecks for ALL spending over the next 8-10 months.

Thoughts? Thank you!

Okay . . you were typing this as I was writing my previous post. This changes things a bit.

It makes ABSOLUTELY NO SENSE to move 0% balances to a loan that carries interest.

Pay minimum on Chase for now.

Pay everything you can on that Discover this and next month.

Just before Discover 0% expires, ask Amex and Chase if they have any balance transfer offers for you and find somewhere to move the leftover Discover balance at a no/low promo rate before standard interest kicks in.

iNathanDrake · ‎10-16-2017

Well I’m paying 0 interest on them. And I wouldn’t exactly call it in trouble, yes the cards only 3 months old but it’s debt is due to intentional minimal payment to build up enough usage for push chase for an increase. I make enough monthly to kill that card in less than the full month. It’s just intentional at the moment. And the only reason discover is where it’s at is cause I used it for a down payment during a promotional period and again I could pay that off in about 2 months if I heavily focused on it. I don’t want to do this because of don’t want to change my quality of life currently to focus on these in a shorter period. I also don’t want to leave it lingering and progressing slowly. Hence, I am fine paying the interest. And this would mean putting one pay check a month (less than that) to my loan monthly. Which I am also more than comfortable doing. As I said before I’m more after the instant gratification the loan with bring me. One bill for all my bills, and over pay and have it done sooner.

I’m not arguing against you, I just really want my situation understood entirely is all! Thank you very much for you advice and I hope you’ll keep on helping me!

iNathanDrake · ‎10-16-2017

Aha we did it again! I’ll wait for you to read my next one before I give a full reply again!

Kree · ‎10-16-2017

Another aspect that is worth considering is your future need for a high credit score.

pros

If you do not already have an installment loan, you might get a few points for taking one out.

By lowering your CC utilization you will most likely get some points.

cons

Up front you might lose a few points for high balance on installment loan

if you have a thin folder, adding a loan might lower your AAoA drastically and lose you a few points.

An inquiry, or 3, might lose you a few points.

If you need a higher score in 4 months for some other purpose, like an autoloan, then getting the personal loan might give you a temporary boost in that time frame. Whereas not needing credit for a year, might mean not taking otu the loan will increase your score in the long run, particularly if you already have installment loans in your mix. The inquiry might also effect future CC apps, depending on how many you have in a time frame.

DaveInAZ · ‎10-16-2017

@iNathanDrake wrote:
Currently they’re both in interest free periods. The 15 month intro apr free grace period lol. Discover ends in December of this year. So I would voluntarily be paying interest on this. I am also fully aware of this. And I’m fully comfortable with it.

I just want the instant gratification that the loan will bring. And with the loan being payed off quickly, it’ll also reflect well on my score. I have already taken my credit cards off of all monthly default payments and swapped my debt card in. I intend to leave all credit cards at home in a drawer and use only my bank account until the loan is paid off. And I intend to pay off the loan in 10 months or less. I will use only my paychecks for ALL spending over the next 8-10 months.

Thoughts? Thank you!

Instant gratification from a new $6500 debt??? It makes zero sense to me to pay personal loan interest to pay off 0% CC debt.And most of those personal loans charge a fee up front. my $5k loan from Prosper a couple years ago took a $200 fee. Granted Dec. isn't much time to pay off $4400 on Discover, but what is your APR on Discover? Mine is 14.99%, the rates on personal loans that Credit Karma tries to get me to take are around 12.5%, so no way I would take the hit of a couple hundred in fees, new HP & account for 1.5% difference in iinterest.

I actually did the opposite of what you're considering - I app'd & got approved for a Barclays card w/18 mo. 0% to payoff my Prosper loan 25 months early. The 0% BT enable me to pay it off in the 18 months.

Wouldn't you get instant gratification by taking a HP & new account for a new CC with at least 12 months 0% intro and use that to pay off Discover. With so many CCs offering 0% interest I see no point in paying personal loan interest. One last thing to consider is that some CRAs don't like personal loans - all during the time I had a Prosper loan I got a message in my TU Fico that negative items holding down my score included "too many consumer loans", I just had the 1 Prosper loan.

iNathanDrake · ‎10-16-2017

Alright, I got a lot of negative feedback on this idea lol. I guess it's not such a great idea after all lol.

Thank you to everyone who contributed and kinda talked me out of a pretty pointless and bad move.