Personal loans to pay off credit cards a bad idea?

Discuss anything related to interest rates & fees, like balance transfer offers, low rate cards, annual fees, etc.
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Nyaka
 
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Personal loans to pay off credit cards a bad idea?

Postby Nyaka » Wed Nov 10, 2010 6:06 pm

Should I reconsider using personal loans to pay off credit cards? I have around $11,000 in credit card debt and have an average rate of 18%. These credit cards are not maxed out but are close to it. I have been researching personal loans online and none of them will give you the interest rate up front but it doesn't sound like these loans are always a better rate.

I welcome any feedback on the best and cheapest way to pay off credit cards in this pickle I'm in. The rates I pay not are too high and I need to find a way to get them under control, whether that's using personal loans to pay off the debt or some other option?


rightmindedUSA
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Postby rightmindedUSA » Wed Nov 10, 2010 9:13 pm

Any type of unsecured loan will run a pretty penny and to the best of my knowledge personal loans are unsecured. What kind of rate are you expecting?

JL70
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Postby JL70 » Thu Nov 11, 2010 10:49 am

You are in the right path! This is the smartest thing to do if you want to get rid of CC debt once and for all (and faster). I did it and worked lovely for me.

-First thing to do is buy your FICO scores from myFico.com and see how it looks.
-Then go to your bank or local credit union ans ask the if they have unsecured loan products and what would be the APR range with your score.
-Apply for the total amount of your CC balances plus 10-20%, most probably they will come back with a counter offer and the terms.(rate could be between the 10-12% range and for 2-3 years)
-Take whatever they are able to loan you.
-Payoff the higher % cards first.

What to do if you don't get enough money to payoff all of you cards?

This is what happened to me:

I had a total of $12k on balances, I was approved for a personal loan at 10.5% for two years for $7k. Paid off two cards and had $5k left. When the cards reported to the credit rep. agencies as balance zero, my scores went to the roof from 700 to about 740 on average.(I don't have any baddies), and with those scores, I was able to go ahead and apply for a new CC at 0% APR for 15 month and tranferred the balance to it ,and will be finished hopefully before the 15 months

hope this helps.

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Mogul of Pineapples
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Postby Mogul of Pineapples » Sat Nov 20, 2010 5:38 pm

Smart strategy JL70, but do you think getting a personal loan to pay off credit cards will still work as easily now?
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JL70
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Postby JL70 » Sun Nov 21, 2010 6:34 pm

Mogul of Pineapples wrote:Smart strategy JL70, but do you think getting a personal loan to pay off credit cards will still work as easily now?


I did this in June. Sad my bank, BofA doesen't offer personal loans anymore, I had to go to my secondary bank, even though they didn't approve me for the whole amount I needed, they helped me out and that was a good thing.

I had to ask around, but with a good credit score I think it can be still achievable.

DoingHomework
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Postby DoingHomework » Mon Nov 22, 2010 5:23 pm

Yes, I also find your strategy interesting JL.

You did manage this well so it is hard to be too critical. But I'm not sure if this would be effective for everyone. As you said, you had fairly good credit, just high balances. But there is very little harm in trying.

But one thing I will say to the OP - don't go to online sources for this kind of loan. The rate will almost certainly be higher. And don't return the phone calls or emails of anyone who will not give you an interest rate. That number is critically important to you. Anyone that expects you to make a decision without know teh rate is trying to rip you off. It is as simple as that.

infomaniac
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Postby infomaniac » Thu Nov 25, 2010 10:44 am

DoingHomework wrote:But one thing I will say to the OP - don't go to online sources for this kind of loan. The rate will almost certainly be higher


The first place I would go for an unsecured personal loan to pay off credit card debt would be my credit union. The interest rates mine charges are almost always lower for everything.

2timetony
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Postby 2timetony » Sat Dec 04, 2010 4:38 pm

When I was getting into credit card debt I thought the solution was to go into more debt and borrow to pay the minimums on my card. Don't make that same mistake.

jds2001
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Postby jds2001 » Sun Dec 12, 2010 11:56 am

What I did a long time ago was to take a loan against my 401(k) to completely pay off my credit card debt. You are immediately qualified if your plan allows it (obviously it's your money!) and you pay the loan via payroll deductions.

There are some downsides - if you leave the employer, typically the loan would be payable in full immediately, I think, or taxed as a distribution, which is something that you DON'T want. So think of the loan as an "employment contract" for the length of the loan, and you'll be fine. The best part is that the interest goes straight back into your 401(k). Also, your money may grow faster in the 401(k) than the interest rate that you're paying to yourself. The most important part that most people mess up (I didn't) is DO NOT REDUCE YOUR CONTRIBUTION WHILE REPAYING THE LOAN. That pretty much ensures your retirement is reduced fairly significantly.

dmband
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Postby dmband » Sat Jan 22, 2011 3:03 pm

Gf and me just got approved for a discover personal loan for $19,000 at 11.99% which I didn't think was too bad given the amount and being unsecured because we have no collateral. I was very surprised that our local credit union could offer half a percent better rate at best. What do you guys think of this? We are paying off all cc's and she has a judgement and a ton of old debts we are gonna pay off. THANKS!



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