Is it a good idea to pay off credit card debt with a personal loan?

[alarimer]

My credit card company just raised my rates, from 10% to 15%. I can decline these changes but then my card is essentially cancelled; I won't be able to use it and after I pay it off (at the current rate, not the new one) they will cancel my account. That isn't so bad and the rate is better than most personal loans I have looked at. But I don't have another card to use for emergencies. So I thought about paying it off with a personal loan, which has fixed terms, and only keeping this one for emergencies.

I know having debt is bad; I am not stupid so I don't really need any lectures on that score. I am just trying to decide what is best.

[Writer]

1. What would be the interest rate and terms of payoff on the new loan?

[alarimer]

2. I don't know yet

I haven't gotten as far as applying. More than 10% though but less than 15%, I think. Wells Fargo quoted 14.25% but that was probably an average; theirs ranged from 8.99 to 24%. I presume, with my credit, it would be closer 13-14%. So in that case, it would be better to let them close the account and continue to pay it down at the 10% rate I think. I could do that in 2.5 years. Most personal loans are 36 months or more.

[Writer]

3. Let me preface this by saying that I'm not a financial expert...

but the trick here would be, I think, to make sure that the interest rate you're getting into beats the interest rate you're currently paying for the length of time you're paying it. I don't think that the 13-14% you'd get through a personal loan (if that is what you actually qualify for) is good enough.

Also, it sounds like you're in a variable interest credit card - can you transfer that balance to a fixed interest rate card? Also, many credit cards offer deals that permit you to apply to cards with 0% intro rates on transferred balances for 6 months or 12 months. Could you look into one of those?

[alarimer]

4. I thought all credit cards were variable interest, to some degree

I mean I have had this rate for years but have always known it could change especially since I have had a couple of late payments (It was only late by a day in each case but still.)

I might look into one of those low introductory deals. I quit getting a lot of those offers since I put a fraud alert on my credit reports (someone stole my SS card).
Thanks.

[Writer]

5. We have had a card for the last few years that is fixed at 7.99%.

All credit cards have a clause stating that they will increase an interest rate if you pay it late or if it's over the limit.

Here is a great financial site that may help, btw: http://www.bankrate.com.

Good luck.

:)

[kath]

10. SInce you were only a day late on the payments, it would be worth a try to

call them on the phone and ask nicely if, since you were only one day late and have otherwise been a good customer for X number of years, they would consider keeping you at the 10% rate. If they hem and haw a bit, explain that you are not willing to pay the 15%, so you would make no new purchases on that card, pay off the balance at 10%, and find a lower rate than 15% elsewhere. Ask nicely to speak with a supervisor if the first person you reach is being stubborn...

You'd be surprised how much good a phone call can do you - I've had overlimit fees waived several times on my Visa card, had a late fee waived on my GapCard, etc.

If you have a decent credit rating, you really should be able to find a card at less than 15%,

Good luck! And definitely make that phone call.

[grace0418]

6. I would apply for a card with 0% interest on balance transfers. They usually are

for six or twelve months. Then do everything in your power to pay the balance off within that time period.

Once you completely the balance transfer, call your original cc company and tell them you will cancel your card if they don't give you a better rate. Many times they will do just that, and if they won't, cancel the card. I never carry a balance anymore, but just in case I need to, I kept the card with the lowest rate and canceled the card with the highest.

[alarimer]

7. It's a little too much to pay off in that short a t ime.

Otherwise that is a good suggestion.

I want this monkey off my back.

[grace0418]

9. Okay, well, it will still give you a grace period to pay as much as possible off of it

before the interest kicks in. And if you can convince your original cc company to lower the rate, you can always transfer the balance back to it later. Hopefully it will be much lower and easier to manage. Good luck.


P.S. I'm not necessarily advocating this plan, but a friend of mine did the balance transfer thing back and forth with 2-3 cards for a few years until she had it all paid off. She never paid any interest in that time.

[alarimer]

12. I have heard that that method of paying off balances doesn't look good on your credit rating

Although I would think that paying it off would be the best thing. I don't know. I suppose I ought to check out some financial advice websites and see what they say to do.

[grace0418]

20. I would believe that. That's probably why I hesitated about recommending that method.

Motley Fool is a good personal finance website.

[MrCoffee]

8. ok, prepare for rant in 3...2...1

1) Do you want to maintain a relationship with a credit card company that arbitrarily raises your interest rate 5%? No, no you do not. Call them and tear them a new one, tell them you're closing the account and transferring all the balance to a new 0% interest card. They'll lower the rate for you.

2) Did you originally get this card "for emergencies"? I did, hell, I got 5 of them "for emergencies." I haven't had an open credit card for 2 years, and when emergencies come, it's somehow easier because I don't have to worry about adding to my already crushing debt.

3) Personally, I think anything you can do to get rid of the credit card debt is better than carrying the credit card debt.

[alarimer]

11. When I talk about emergencies, I am talking about somebody dying and having to fly home

Last-minute airfares are very expensive. I don't have much savings. I do have another card, actually. The card itself is expired and I am not sure why they never sent me a new one but it is a low rate. I think I will just decline these changes and pay off the balance on the old card and try not to worry too much about emergencies.

[kath]

15. For future reference, if you have to book a last minute flight for a death, you can

sometimes get a lower rate by asking for a "bereavement fare". You may have to provide a copy of the death certificate after the flight to get the discount.
Still can be expensive, but not as hugely expensive as paying full fare for a last-minute flight.

[ok_cpu]

13. Probably. If interest rate is lower

As said up thread.

Couple downsides. Minimum payment on a CC is usually lower than the fixed payment on a personal loan. Which means less flexibility but if you're not crunched that probably doesn't matter.

One other thing to think about is whether the personal loan will be secured by anything. Car, equity, etc. Then you'd have stuff that could be taken if you'd run into trouble.

[alarimer]

14. This would be an unsecured personal loan

And so have interest rates near 13% or so. Right now it seems like the best idea is to decline the change in interest rate, let them lock my account until I pay it off (2 years, give or take). I think overall I would pay less interest and take less time than a personal loan. And of course I would not be adding to the balance on the card.

I can pay a lot more than the minimum. My minimum payment was never raised to 4% or whatever it was supposed to go. It was always 2% but I always paid more. But I kept using it for stuff so my balance hasn't gone down.

[MissMillie]

16. I think it would depend on the interest rate of the loan

but I do believe for sure that you would be more likely to pay it off sooner.

Making minimum payments on credit cards means you end up paying them for years and years and years.... whereas a personal loan will have a set payment and will have set terms.

[Lydia Leftcoast]

17. A friend of mine did that but ended up running up her cards again

You have to be careful.

[A HERETIC I AM]

18. Don't do it.

1st a disclaimer;
Asking for financial advice on a public message board is unwise.

Having said that, take everything you read with the appropriate sized grain of salt INCLUDING this.

Much of your decision would have to be based on the outstanding balance of the card in question. Regardless of the balance however, revolving, high interest debt is a financial killer. There is no way paying off this card and canceling the account will adversely affect your credit score. In the 90's i let myself get almost $15,000 in debt to credit cards AND i was paying off an American Express bill every month that ran $300 (I traveled all the time). I finally got that monkey off me in '04.

PAY IT OFF AT THE LOWEST RATE YOU CAN AS SOON AS YOU CAN.

You said above that you get offers for credit cards all the time. Fine. You currently have a credit card that is basically demanding you pay a higher interest rate or they will cancel you. Let them cancel. If you can stay with a lower rate while you pay off the balance, why wouldn't you? If your credit is good enough to get an unsecured bank loan, its good enough to get another credit card from a company that will offer a lower rate.

They are trying to force your hand. Don't let them. As a poster above suggested, call them up and tell them you aren't interested in doing business with them if they are going to raise your rates. They might back down, they might not. Either way it is a free phone call and maybe 15 minutes of your time.

As far as cards that offer zero interest for transferred balances, they can be beneficial but read the fine print very carefully.
I get offers like that all the time too (most people do) and some of them sound good in the large print until you read that the card has an annual fee or a charge for each transfer, etc.

A poster above suggested Bankrate.com. Good site.

Here is another one that has all kinds of useful financial calculators;
www.fincalc.com

Best of luck.

On edit to say I know you don't see me post in the lounge very often but i do lurk here occasionally. I hope you don't mind me giving my $.02

[alarimer]

19. I don't mind anyone's .02

I came to the conclusion not to get a personal loan and to "decline" the changes and just pay off the thing at the 10% rate. I should be able to do that easily enough.

[A HERETIC I AM]

21. There you go. Smart move. n/t