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Thread: Personal Loan or Cards?

  1. #1
    Yekhefah
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    Personal Loan or Cards?

    As y'all know, I don't always make enough to live on. Over the past five years, I've run up about eight grand in credit debt (including some healthcare expenses). The interest rates on these cards are oppressive, which I don't understand because I have terrific credit (about 760 last time I checked). So all I'm paying on these cards is interest, and the debt stays where it is, which is causing me a lot of heartache and depression.

    I also have a personal loan which I used for my car. I bought the car new when I was married, but my ex-husband wanted to buy a house a year or two ago, so I got a personal loan to pay off the original auto loan and get his name off that debt. I still owe $4000 of the original $7500 loan (which had 10% interest).

    I can't help but notice that the principle on the personal loan is dropping a lot more quickly than the balance on the cards. I've tried to apply for better cards to transfer the balance over and cancel the oppressive ones, but they won't give me the card because my debt-to-income ratio is too high. So would my bank give me another personal loan to pay off the cards? I'd rather take the $8000 and condense it into one loan with a 10% interest rate than keep treading water with these cards. But I don't want to take the hit on my credit if I apply for a loan and they deny it.

    I guess my question is, will they deny me because of my DTI ratio? Or will they accept an explanation that I'm using the loan to knock out the cards? I'll be cancelling them as soon as I pay them off, so I'm definitely not going to be running up any further debt!

  2. #2
    God/dess Emily's Avatar
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    Default Re: Personal Loan or Cards?

    Quote Originally Posted by Yekhefah View Post
    As y'all know, I don't always make enough to live on. Over the past five years, I've run up about eight grand in credit debt (including some healthcare expenses). The interest rates on these cards are oppressive, which I don't understand because I have terrific credit (about 760 last time I checked). So all I'm paying on these cards is interest, and the debt stays where it is, which is causing me a lot of heartache and depression.

    I also have a personal loan which I used for my car. I bought the car new when I was married, but my ex-husband wanted to buy a house a year or two ago, so I got a personal loan to pay off the original auto loan and get his name off that debt. I still owe $4000 of the original $7500 loan (which had 10% interest).

    I can't help but notice that the principle on the personal loan is dropping a lot more quickly than the balance on the cards. I've tried to apply for better cards to transfer the balance over and cancel the oppressive ones, but they won't give me the card because my debt-to-income ratio is too high. So would my bank give me another personal loan to pay off the cards? I'd rather take the $8000 and condense it into one loan with a 10% interest rate than keep treading water with these cards. But I don't want to take the hit on my credit if I apply for a loan and they deny it.

    I guess my question is, will they deny me because of my DTI ratio? Or will they accept an explanation that I'm using the loan to knock out the cards? I'll be cancelling them as soon as I pay them off, so I'm definitely not going to be running up any further debt!

    The hit for applying for a loan isn't that bad. Inquiries only account for 10% of your score and are erased after a year. it's a hell of a lot better than paying extra interest. They might reject you, but I think the potential reward is worth it.

  3. #3
    God/dess VenusGoddess's Avatar
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    Default Re: Personal Loan or Cards?

    The only thing I can see hurting you is the income situation.

    But, you know, if you have a good payment history...and are using the money to pay off debt...and you've been with them a while...it's definitely worth a try.

    Good luck!

  4. #4
    Yekhefah
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    Default Re: Personal Loan or Cards?

    Thanks, y'all. I did it! I was approved for a $10,000 loan at a fixed interest rate for four years, with no penalty if I can pay it off sooner. Hopefully I can actually knock it out in two. I'm going to pay off my credit cards and put the remainder to my short film, so not only am I getting my debt shit together - I'm also finally making my movie so I can get some festival attention!

  5. #5
    God/dess Emily's Avatar
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    Default Re: Personal Loan or Cards?

    awesome! and remember to close your credit cards out to help your credit (and so you don't charge them up again!)

  6. #6
    Yekhefah
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    Default Re: Personal Loan or Cards?

    Oh yeah, definitely! I'm going to keep the lowest one open for emergencies, but not use it. And I'm closing out the other two, the nasty student cards with the atrocious APR's.

  7. #7
    PhillyDancer1982
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    Default Re: Personal Loan or Cards?

    Quote Originally Posted by Emily View Post
    awesome! and remember to close your credit cards out to help your credit (and so you don't charge them up again!)
    Sometimes that helps, but definitely not always. My friend M--k made that mistake of closing out a credit card, and his credit score took a hit for some time. That happened to me too, when I closed out a few credit cards some years back, including the oldest card I had. I didn't have many years of established credit as it was(my credit score STILL hurts a little from not having many years of credit under my name), so killing those cards plus the card that I'd had the longest(about 3yrs) wrecked my score...we're talking 100pts here. Part of your score is determined by how long you've had credit, plus the average age of your accounts. So that portion of your score will already take a slight dive when you open up a new loan/card, because the age of that new loan/card will lower the average age of your credit accounts. Killing a few long-standing cards will make that portion of your score drop even more.

    Also, keeping a credit card open with a $0 balance(or close to $0) will HELP her debt-to-credit limit ratio in the future, because the debt($0) and credit limits will get averaged into the overall debt-to-credit limit ratios. Having a new loan(with a balance equal or nearly equal to the original amount of the loan) hurts the debt-to-credit limit ratio slightly(the FICO scoring model prefers that loans have a balance of <80% of the original balance)...but owing more money on a loan does not have nearly as big of an effect as owing more money on a credit card.

    However, it might not hurt Yekhefah as much if she has years(at least 7yrs+) of good credit, and other long-standing credit cards or loans. I think she should definitely keep her longest-standing card open...just pay it off and do not use it, so no more interest accumulates(or, make just enough minimal purchases to keep the account staying open). Perhaps close out some of the high-interest, high-annual fee newer cards(for example, a card that maybe she opened last year as opposed to 7yrs ago). But if credit score isn't an issue, then I guess it doesn't matter. Even if her credit score decreases, she still has good payment history, so her score might go down but it won't actually become "bad." It's definitely not going to go from say, a 760 to a 460 just by closing out a few paid-off accounts.

  8. #8
    Featured Member scorpio's Avatar
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    Default Re: Personal Loan or Cards?

    philly, you are exactly wrong here. Leaving cards open with zero balances will negatively affect your score, since you now have the potential to run up more debt. Closing accounts shouldn't drop your score. The biggest thing that will drop your score is a high debt to limit balance.

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    Default Re: Personal Loan or Cards?

    Argh, I don't mean to be a bitch, but Philly, we -----ALL---- know his name is Mark, so drop the ---- already!


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    Default Re: Personal Loan or Cards?

    off topic -- I was wondering when she was going to drop the M--k thing as well as she has done it so often that only one male name can fit into that easily hence it is Mark thus there is no point. Why not instead just call him M or Mr M or give him a little nickname like I do all the guys in my life: The Fireman, Mt Isa Boy, etc.

    I always wondered if a personal loan was better to have for credit ratings than a credit card because I'm thinking I might be better off taking out a personal loan and paying that off over the years that might benefit me for awhile than a credit card with a $500 limit that may not benefit me for the same length of time as such.


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  11. #11
    PhillyDancer1982
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    Default Re: Personal Loan or Cards?

    Quote Originally Posted by GoldCoastGirl View Post
    off topic -- I was wondering when she was going to drop the M--k thing as well as she has done it so often that only one male name can fit into that easily hence it is Mark thus there is no point. Why not instead just call him M or Mr M or give him a little nickname like I do all the guys in my life: The Fireman, Mt Isa Boy, etc.
    LOL there are other names that could fit...Mork, Moak, or even Meek(which isn't a name, but pretty much describes his personality!)

    Quote Originally Posted by Scorpio
    philly, you are exactly wrong here. Leaving cards open with zero balances will negatively affect your score, since you now have the potential to run up more debt. Closing accounts shouldn't drop your score. The biggest thing that will drop your score is a high debt to limit balance.
    It is true that leaving a paid-off card open can hurt your score, but this is mostly for someone who has long-established credit and big limits on their cards. For someone like ME or my friend MARK, we both only had a few years of established credit, so closing our paid-down cards WAS absolutely wrong. If you only have say, 2yrs of credit history and the only components of it are 2 cards with say, $300 limits each, then "killing" one of the cards WILL harm your credit score. It reduces the average age of the accounts, because now this closed card is not averaged into that calculation. It also does not show extensive credit history.

    If Yekhefah has like, 10 good-standing accounts on her credit report and 7+ years of credit history, then closing one of the cards probably won't harm her as much as it harmed me or Mark when we did that. (I think I already mentioned this in my previous post) I do not know what else is on her credit, so I can't really elaborate too much. So yeah, come to think about it, perhaps she has good enough established credit that:
    a) the impact of closing cards won't be as big of an impact as for someone who has little-to-no credit history, and would thus be closing out the only credit accounts to their name
    b) her score is 760, so she can afford to take a slight hit and still have A credit

    If the only 2 cards on her credit report are the two that she paid off with the recent personal loan, then yeah killing both cards would cause a drop in her score; If she has like, 4 other cards and the two cards she's looking to close are fairly new accounts, then maybe it wouldn't be such a bad idea to close them.

    However, I think the best idea would be to keep the cards open, rack up a small balance each month for living expenses, and pay it off in full each month so that no interest is accrued. This way, a 20% balance or so will show on her monthly statements, so that it will not look like she has too much available credit; as long as she pays off this statement balance in full by the card's due date, then she will not pay any interest.

    Here is an article that explains what I am talking about:



    money.aol.com/bankrate/credit/canvas3/ _a/cancel-a-card-hurt-your-credit-score/20061129154909990002



    Unfortunately I didn't stumble upon this article until immediately after I paid off the cards and noticed a 100pt drop in my TransUnion credit score. I wish I'd been better informed. The "closing accounts hurts your score" thing DEFINITELY hurt my credit more than most people, because I didn't have very much of it and I was left with no credit history at all except for some dinky store card.

  12. #12
    Yekhefah
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    Default Re: Personal Loan or Cards?

    I have three cards. I will be closing two of them. At this point, if that hurts my credit a little bit, then I don't care. I'm tired of the cards and their rates are oppressive. Whatever hit I take on my credit will be made up in spades by the time I pay off the personal loan, so I'm not too worried about it. And I've got 10 years of good credit history.

  13. #13
    Banned Katrine's Avatar
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    Default Re: Personal Loan or Cards?

    Close those cards! Congrats on the loan Yek!

    And I like philly's M--K. I think its become a nickname in of itself. Of course we all know, philly is a smart girl. Its cute.

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  14. #14
    Yekhefah
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    Default Re: Personal Loan or Cards?

    Thanks! I hope I didn't fuck myself, but this does feel safer. I've just been paying interest for years and it blows. At least with the personal loan, the rate is fixed so I know what interest I'll be paying, and the principal will drop as well.

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    Default Re: Personal Loan or Cards?

    My Opinion, Just Dance Don't Do Either...



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