Credit card consolidation loans -- good idea?

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BOB1492
 
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Credit card consolidation loans -- good idea?

Postby BOB1492 » Fri Mar 07, 2014 9:23 am

I recently received an offer to borrow money from The Lending Club in order to pay off my credit cards. Although I am currently having no problem meeting the minimum payments of my four cards (and always pay more), I like the idea that the 3-year set monthly payments will be lower than what the combined minimum payments are now in case that consideration should become important to me at some point in the future.

What I am concerned about is that if I accept this offer and pay off my credit cards, how will this affect my credit rating? Although I have no desire to start running up credit card balances anew, I’m concerned that one or more or all of my credit cards will close my accounts seeing that I borrowed money to pay them off. I would like to have some additional credit available for emergencies, and I need credit cards for certain automatic deductions that I have authorized and for online merchants. Is this concerned justified? Also, does anyone have any input about borrowing form The Lending Club?

Thank you very much for any advice offered. It’s most appreciated.


thom02099
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Postby thom02099 » Fri Mar 07, 2014 11:55 am

I've done the same in the past, and just did the same recently due to some high medical bills that I'd put on my credit cards. For the same reason, took out a loan, paid the credit cards, saw a score jump of 28-32 points and I expect another 15-20 when it's all said and done with reporting in March. Your credit card issuers really don't care that you got a loan and paid the credit card balances, they are not going to close your account(s). I've done this before over the years, and there's no adverse response; you do have the fixed monthly payments that you have to make, so the debt doesn't go away, just that you pay it off in a more structured manner. Installment loans are factored differently in your FICO scores, but you don't want too many installment loans; more than 4 could be troublesome.
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BOB1492
 
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Postby BOB1492 » Fri Mar 07, 2014 12:24 pm

@thom Thank you very much for your very helpful input. It’s much appreciated!

Bob

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Postby dickey1331 » Fri Mar 07, 2014 12:46 pm

Ive done the same. Took out a loan with Lending Club. My credit skyrocketed and none of my credit card companies cared.
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Postby Obi-dan » Fri Mar 07, 2014 4:15 pm

If I may give some unsolicited advice on this. What everyone has said is correct but I would add if you accumulate more CC debt while you are paying off the loan you are really just treading water. Take the loan, use the difference in payment to save for an emergency account so you can avoid future borrowing. Just my two cents. When I worked in a bank I saw many clients do consolidation loans only to be in same boat again three years later.
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thom02099
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Postby thom02099 » Fri Mar 07, 2014 9:50 pm

Obi-dan wrote:If I may give some unsolicited advice on this. What everyone has said is correct but I would add [color="red"]if you accumulate more CC debt while you are paying off the loan you are really just treading water.[/color] Take the loan, use the difference in payment to save for an emergency account so you can avoid future borrowing. Just my two cents. When I worked in a bank I saw many clients do consolidation loans only to be in same boat again three years later.


Absolutely! Couldn't agree more. And just to be clear, I'm not advocating taking out loans to shift credit card debt. When I've done it, I've paid off the loan quickly, more so than I would have with the individual credit card debt. It's a means to an end, but by no means something that should be done on a regular basis.
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JoDa
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Postby JoDa » Fri Mar 07, 2014 10:38 pm

So long as you've got a plan to keep from running the cards up again, and it sounds like you do, then it won't hurt.

I'm curious why you think more than 4 installment loans is problematic, Thom. While I know, technically, mortgages and installment loans are different categories, they're both basically the same thing, and I'll have 4 with my new purchase (3 mortgages and a student loan). Does this mostly relate to unsecured/dischargeable debt (obviously, everything I have is either secured or basically ineligible for discharge)?
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thom02099
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Postby thom02099 » Sat Mar 08, 2014 8:53 am

JoDa wrote:So long as you've got a plan to keep from running the cards up again, and it sounds like you do, then it won't hurt.

[color="Red"]I'm curious why you think more than 4 installment loans is problematic, Thom.[/color] While I know, technically, mortgages and installment loans are different categories, they're both basically the same thing, and I'll have 4 with my new purchase (3 mortgages and a student loan). Does this mostly relate to unsecured/dischargeable debt (obviously, everything I have is either secured or basically ineligible for discharge)?


I've read at a variety of locations that having more than 4 installment loans can be a problem, primarily due to the commitment of funds that one will necessarily have to pay back the loans. This would be in addition to a mortgage loan(s). And indeed at one time, I was carrying 5 personal loans, and my scores did take a bit of a hit due to that. As soon as I paid one of them off, the scores went back up. Paying off another loan and dropping to 3 resulted in a few more point increases.

And just as a means of explanation; I'm not in the habit of taking out loans willy nilly!! Two of the most recent loans that I've taken out were for my partner (who has lousy credit) and one for my daughter, who had limited credit at the time. Both of them made payments to me for the loans, so I wasn't out anything other than the minor ding on my credit, which is strong enough to absorb it.
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JoDa
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Postby JoDa » Sun Mar 09, 2014 7:21 pm

Ah...that sounds to me more like "debt to income" concerns than the number of loans as a sole factor. I do, in fact, watch my DTI carefully so I'm not over-extended, but never considered that having an arbitrary *number* of people I owed money to mattered, only the *amount* owed. And, as I mentioned, most of it is tied up in secured mortgages (only an unsecured student loan, and my chances of trashing that in BK are basically zero), and even those mortgages and SL keep me under 35% DTI. I have no plans to take out personal loans (though they do sometimes make sense), but it does sound more like it's the dollar figure than the number. And, of course, paying off structured debts does improve that old score...
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Postby samhradh » Sun Mar 09, 2014 8:38 pm

I'd never heard of TLC before. After checking out the website, it's an intriguing concept. Anyone here every invested with them? I'm turned off by the stock market/haven't the time needed to properly invest in it. Looking for alternative options.
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