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Take out a personal loan to pay off CC debt?

New Member

Take out a personal loan to pay off CC debt?

Would like to hear everyone's thoughts. I'm a newbie, after a few days of lurking. Apologies if I make newbie mistakes.

 

Background:

 

I have 2 CCs, Citibank Doublecash with $6,500/$25,000 and Capital One Quicksilver with $3,300/$3,800. I have a very thin credit file, with Fico8 scores EX:740, EQ: 727, TU: 747. In September 2017, I maxed out at 100% UTIL, which was constant through til March 2018. From April 2018, started to pay down the debt. In April 2018, My Fico8s were down in the 650s.  I'm now down to $10,000 CC debt at just over 30% UTIL. Paying off the remaining debt will take me until around May 2019.I have one HP from September 2017.

 

With my scores improving, I feel that I have a great chance of getting approved for a loan with a relatively good interest rate. I can then immediately pay off the $10,000 CC debt and hopefully taking out the loan would help with my thin file problem.  What does everyone think?  Take out the loan, or, just hang on in there and keep paying down the CC debt? I do plan on making 1 or 2 CC applications in 2019. 

Message 1 of 6
5 REPLIES
Established Member

Re: Take out a personal loan to pay off CC debt?

what is your income? I think that has much to do with loan approvals along with scores.

 

what are the interest rates on each card? I would look at the interest $ you are actually paying each month from your last statement. May is only about five months away and the $ difference in interest might not be worth the HP and effort. I would not take a HP just to pad your file with a loan you are going to pay off in five months.

 

if anything, does the DC card offer any no interest BT? absorb the 3300 and just pay it all off by May. or vice versa. alternately, apply for another card that offers no interest BT. depending on how high your income is (I imagine it is if you payed off ~18k just this year and another ~10k over the next five months) you might be approved to BT the total amounts at no interest.

 

sounds good.

Message 2 of 6
New Member

Re: Take out a personal loan to pay off CC debt?

Personal Income is $96,000. Household income, including SO, is $260,000. 

I hadn't thought about doing a BT. I can look into that with the citibank card. Thanks for the suggestion! Interest rate on the Citibank is 16.99% and it's 25.99% on the CapitalOne, so that would save me some $$ on the interest. 

I don't want to risk applying yet for a new card to do the BT, as my thin file and 2.8 AAoA, leaves me susceptible to a rejection. (I'm a relatively new immigrant, hence the thin file).  When I got the HP (and rejection) in September 2017, my Fico8s were up in the 760s and I was sure that I would be approved.  I don't want to risk another pointless HP.  The reason I had been thinking of the loan was that I feel much more secure that I would get an approval. So, the HP would not be pointless. 

I'll look into the BT option, and then if that's not possible, I'll probably just hang on in there and take the pain of waiting a few more months of paying down the debt. 

Message 3 of 6
Valued Contributor

Re: Take out a personal loan to pay off CC debt?


@ArrowClock15 wrote:

Personal Income is $96,000. Household income, including SO, is $260,000. 

I hadn't thought about doing a BT. I can look into that with the citibank card. Thanks for the suggestion! Interest rate on the Citibank is 16.99% and it's 25.99% on the CapitalOne, so that would save me some $$ on the interest. 

I don't want to risk applying yet for a new card to do the BT, as my thin file and 2.8 AAoA, leaves me susceptible to a rejection. (I'm a relatively new immigrant, hence the thin file).  When I got the HP (and rejection) in September 2017, my Fico8s were up in the 760s and I was sure that I would be approved.  I don't want to risk another pointless HP.  The reason I had been thinking of the loan was that I feel much more secure that I would get an approval. So, the HP would not be pointless. 

I'll look into the BT option, and then if that's not possible, I'll probably just hang on in there and take the pain of waiting a few more months of paying down the debt. 



If I were in you position and knowing what I now know, I would both open an additional credit card and take out a loan.  You have a number of things going on simultaneously.  In addition to wanting to pay of the credit card (revolving) debt as quickly as possible, you also need to thicken your credit profile.  And doing both will go a long way to accomplishing both things.

 

First I would look at a credit card that offers a no-fee Balance Transfer for an extended period.  One that comes to mind is the American Express EveryDay card which offers both $0 on balance transfers and %0 APR on purchases for 15 months.  Amex is generally amenable to thin credit files and with your scores you would have no problem getting approved.  Plus there's the possibility of earning 25,000 Membership Rewards if you want to start participating the the rewards game.  Just note that to get the MR you need to spend $2,000 in the first 90 days but BT can only be done in the first 60 days.  So the trick would be to complete the spend as quickly as possible, then request balance transfers from your current cards before the 60 days expire.

 

Amex cards take two statement cycles before reporting to the credit bureaus so in that period you can take out a loan while the new card is not visible to lenders.  Then once that's done you can decide how aggressively you want to pay off the credit cards and repay the loan.

 

The reason for doing both is simple; your FICO 8 score is optimized when you have at least 3 credit cards (but only one with a balance) and 1 loan reporting to the credit bureaus.  And you'd get you best scores when the one card is reporting a relatively small balance (below  28.9% of utilization) and your loan is at 8.9% or less of the original loan balance.  Both of these are easy to do when you have the income to make it possible; its just a matter of timing and paying attention to dates.





Message 4 of 6
Established Contributor

Re: Take out a personal loan to pay off CC debt?

How much can you afford to pay towards your CC debt monthly? Before you apply for anything I would suggest paying down the Cap One QS to under 29% first. TBH your debt isn't that bad with income at that level. It could be knocked down rather quickly with a little determination, $500 per month to each CC would take just under 1 year to pay off. 

 

Also remeber that dicipline comes in with taking out a loan to pay of CC debt, you can't rack up more charges just to be in the same boat later.

With those two CCs paid you could effectively pay back the loan rather quckly too. Which wouldm boost your chances for a new CC later this year.

Message 5 of 6
New Member

Re: Take out a personal loan to pay off CC debt?

In the intervening period since my post, I decided to take out the loan. It was more to help with the thin credit file. When I look at my credit score reports, they are always negatively affected by the fact that I do not have any history of loan repayments.  Prior to taking out the loan, I was paying down the debt at about $2,000 per month. I've been doing that religiously since April 2018, so I wasn't so much worried about the ability to pay off the CC debt. It was more about what would have the best effect on my overall longer-term credit scores. So, I saw the loan as a winner. I pay down the CC debt faster, and, I then have a loan repayment history on my file.  I know the risks of taking out a consolidation loan, only to then rack up debt again and be in double-the-trouble. However, it's always a good thing to be reminded of those risks. So, my genuine thanks for the reminder Janus. It would be foolhardy of me to say that it would never happen to me. However, the thought of being in so much debt again utterly terrifies me. So, I don't see myself falling into that trap. I fully intend to pay down the loan much quicker than the 3 year term. Then, be completely debt free with a fuller credit file and much better credit scores! I also applied for An Amex and Discover and was approved for both. All the advice I've been given in this thread has been very gratefully received. 

Message 6 of 6