Transferring credit card debt to personal loan?

[SwimDeep]

Would this be a good idea?

I feel like I've been playing a game for years now trying to pay off my credit card debt - shifting it from one 0% APR on balance transfers to another and never really being able to pay down the balances in any significant way.

Well, the transfer offers dried up last year, and now I've got about twenty grand on four different cards with high APRs.

The one time I managed to pay something off was a personal loan for medical debt. I'm craving that win again, and I keep getting offers for personal loans. But no offers for balance transfers.

I'm feeling so hopeless... I'm thinking about bankruptcy 😵

A personal loan to consolidate and clear the credit debt would be better, right?

Posting and running because it's dinner time, but I'll be back. I've got to do something. The balance transfer game has really screwed up my finances. I need help 😪

[sadlebred]

Could you do something else like the snowball method? Pay your smallest balance first and then go up to the big one. It makes you feel like you are paying them off faster--of course you'd need to pay the minimum on all of them to keep them current.

There are really only two ways to do it--reduce spending or increase income with a 2nd job, side hustle, etc.

[wanderingback]

If you qualify for 1 personal loan with a lower interest rate I do not see why this would be a bad idea. Obviously it is taking out more debt but if the interest rate is lower, there aren’t hidden fees and you’re committed to not using the cards anymore then yes it seems like financially the best move to save money on interest.

[quesyrah]

Probably not the answer you’re looking for…

I know he’s not popular, but we did the Dave Ramsey snowball method and it really does work. We were in an absolute mess and were able to totally turn things around finally.

List your debts smallest to largest ignoring interest rates. Throw as much as you can at the smallest debt while paying the minimum
payments on the others.

It’s the only method that worked for us to get the debt paid off. But being honest about our spending, actually sticking to a budget and really changing our financial habits is what has kept us debt free with savings in the bank.

We learned that quick fixes don’t work if you don’t change your habits. If you consolidate to a single loan with one payment and get it paid off, you have to be diligent about staying out of debt.

[livinitup]

Will you qualify? What is the interest rate of the personal loan? Using a debt calculator, how long will it take to pay off? What amount, in real dollars will you pay in interest? Compare that to your current debt repayment plan - how much time to pay off and how many dollars in interest paid.

Taking a personal loan to “pay” the credit cards isn’t a solution to paying the credit cards. You still have the debt. You just moved it. You’re still dancing.

Plus, the glow of zero balances on your cards will fade and life expenses will keep happening. How will you keep your expenses low enough to not creep up charges that can’t be paid each month?

That has to be a big part of your plan right now. Pay down debt, reduce expenses overall, build up savings, pay for unexpected expenses from your savings account not your credit cards.

[sadlebred]

Another question would be....can you focus on paying off the debt and not running up the CCs again. Could you cancel the CCs (keep one for an emergency and freeze it in ice in the freezer), so you can't use them?

[ellipses84]

For $20k I’d get a personal loan as long as the interest rate is lower than your credit card interest rates (and the fees are typically lower than balance transfer fees for a large amount). Shop around for the best rates. With multiple balance transfers you’ve probably been paying a lot of fees. You might be looking at a $600/ month payment at 10% for a personal loan but that’s better than making (4) $150 payments/ month at 20-30% interest. It should help your credit score to have the credit cards paid off and a better credit availability ratio, and paying a monthly loan can help your credit score. You also don’t want to get the loan and run up the credit cards again. Often for balance transfers you have to sign up for a new card but that’s a recipe for adding to your debt. The better credit score you have, the more offers you will get.

I wouldn’t even consider bankruptcy in your situation. There are national debt relief programs that can negotiate with your creditors and set one payment / less fees / less interest. That would impact your credit score for a while but it’s not as harmful to it as a bankruptcy would be. Part of the deal is you have to 💯 stop using all credit cards though. You could at least set up a phone call to talk about options if you’d rather go that route (make sure it’s a reputable non-profit).

[heygrey]

My question is how did you come into this debt in the first place? If it's unforeseen emergency expenses, that's one thing. If it's because of undisciplined spending and living beyond your means, that's another. What effort are you making to pay down the debts currently?

The debt won't go away by using a personal loan, it will only lower the interest rate. You need to make the sacrifices and do the work to pay off the personal loan, too.

I like to follow debt pay off accounts on Instagram and what always sticks out to me is that even with modest salaries, the people who go hard core are often done in a relatively short amount of time. I wouldn't trade 7+ years of bankruptcy for 1-2 years of serious debt pay off.

[ellipses84]

Also consider if there’s anything you could do to bring in a little extra cash for a few months, like babysitting, pet sitting, dog walking, food/ grocery delivery, selling stuff you don’t use online or online admin things like Fiverr, etc. to pay off the debt and give yourself a little more cushion. Thinking about it as a short term thing, like I’m going to spend my free time for 6 months or 4 hours per weekend making money instead of spending money might make it a little more bearable. Inflation has been rough on everyone’s budgets and it’s been hard to get ahead.

[wanderingback]

I’m not understanding the advice re: the snowball method as being better than a personal loan with lower interest.

If the personal loan has a lower interest doesn’t that save money in the long term vs paying higher interest?

[quesyrah]

Feb 9, 2024 0:28:53 GMT -5 wanderingback said:

I’m not understanding the advice re: the snowball method as being better than a personal loan with lower interest.

If the personal loan has a lower interest doesn’t that save money in the long term vs paying higher interest?

I can only speak for my experience. If you’ve been in a position of transferring the debt around but never paying the debt off, most of the issue is your spending habits.

Yes, transferring the debt to a lower interest rate loan with one payment makes sense from a numbers standpoint.

But, if you’re still using the CCs just doing the personal loan doesn’t solve the problem. Because then you end up with a loan payment AND a balance back on CCs. Ask me how I know lol

We did the 0% balance transfer cycle and then took out a 401K loan. Dumbest thing we ever did.

We finally got it all paid off when we did Dave Ramsey’s baby steps because we learned to changed our spending habits and follow an actual budget.

Quick fixes don’t work unless you also do the work to change your habits

[SwimDeep]

Thank you, everyone, for the advice and perspective. I was panicking a bit last night and feeling completely exhausted. I want a quick fix, but that's basically what I've been chasing with balance transfers.

I'm keeping up with the minimum payments, but I'm going to take a hard look at my budget and start the snowball method (again). No way out but through, right?

I'll get there 🙂

[wanderingback]

Feb 9, 2024 0:51:59 GMT -5 quesyrah said:

Feb 9, 2024 0:28:53 GMT -5 wanderingback said:

I’m not understanding the advice re: the snowball method as being better than a personal loan with lower interest.

If the personal loan has a lower interest doesn’t that save money in the long term vs paying higher interest?

I can only speak for my experience. If you’ve been in a position of transferring the debt around but never paying the debt off, most of the issue is your spending habits.

Yes, transferring the debt to a lower interest rate loan with one payment makes sense from a numbers standpoint.

But, if you’re still using the CCs just doing the personal loan doesn’t solve the problem. Because then you end up with a loan payment AND a balance back on CCs. Ask me how I know lol

We did the 0% balance transfer cycle and then took out a 401K loan. Dumbest thing we ever did.

We finally got it all paid off when we did Dave Ramsey’s baby steps because we learned to changed our spending habits and follow an actual budget.

Quick fixes don’t work unless you also do the work to change your habits

Oh yes, I totally understand the advice to not spend anymore. I was just wondering if I was missing something re: lower interest rate from a personal loan.

[heygrey]

SwimDeep, back in the day MM was all about reviewing budgets and finding ways to pay off debt. We’re here to help if you want fresh eyes to look at your spending.

[ellipses84]

If you take out the personal loan, I’d keep your oldest and/or lowest % credit card/s and cancel the 2-3 others over the next couple months because they are such high interest you don’t want to be tempted to use them again. This might impact your credit score for a bit due to the ratio of credit used: credit available, but once you are making regular loan payments your score will increase and you can sign up for a new, lower interest card to use in emergencies or for things you have to use cards for. You can also ask for a credit line increase on the one you keep. The duration you’ve used credit also impacts the score, so it’s generally recommended to keep your oldest card open, although it’s averaged between all of your cards.

I like the credit score monitoring tools on my Capital One card and Citibank tends to have a lot of 0% interest or balance transfer offers, but then the rate jumps. Ideally you’ll be able to get a card that has low interest all the time and no yearly fee, which you pay it off every month so you aren’t being charged any interest or fees.

[quesyrah]

Feb 9, 2024 6:32:12 GMT -5 SwimDeep said:

Thank you, everyone, for the advice and perspective. I was panicking a bit last night and feeling completely exhausted. I want a quick fix, but that's basically what I've been chasing with balance transfers.

I'm keeping up with the minimum payments, but I'm going to take a hard look at my budget and start the snowball method (again). No way out but through, right?

I'll get there 🙂

You will. You’ll get there.

We are nearly 5 years on the other side and doing great. It took a LOT of hard work and sacrifice but it was worth it.

You can do it!!

[flygirl]

I’m not opposed to a loan to consolidate unless you still use the cards. If you use the cards still, then you’re just chasing your own tail.

[mich1]

Feb 9, 2024 15:13:49 GMT -5 flygirl said:

I’m not opposed to a loan to consolidate unless you still use the cards. If you use the cards still, then you’re just chasing your own tail.

So much this.  You need to stop using the cards if you are going to get a personal loan.  

I did the balance transfer bit to pay off nearly $40K in credit card debt.  The ONLY card I used was AmEx that needed to be paid off monthly.