Does getting a "Debt Consolidation Loan" negatively effect your credit in any way?

[MichaelD]

Vi_Edit's thread about helping his buddy got me thinking. I want to consolidate my bills. I have too many CCs that I make too many payments on every month. I have "perfect credit" in that I haven't been late or missed a payment in 8 years. Not bad at all. But, I owe everyone under the sun.

My GF works for a Credit Union. She told me that at her place, when you do a debt consolidation, they physically take the credit cards that you're paying off w/the loan and cut them up and close your account w/that creditor.

I dont' want to negatively effect my credit rating at all, as it's pretty decent right now. Can anyone offer some insight/advice on this? Thanks much.

 

[Jimbo]

When it comes to debt consolidation you need to do the math and ask some questions.
Is the cost of the consolidation, when compared to the outstanding debt and that debt's interest rate, actually saving you money of just lowering the payment?
The actual act of paying off your credit cards with another loan that has better terms will not harm your credit at all. In fact it will improve it. Where you MIGHT have a problem is if ALL of your consumer debt is paid off and then closed. This affects the FICO scoring model and may make you somewhat less creditworthy in the eyes of some lenders.
If you have the discipline to pay off your cards and NOT run up the balances again then you may want to find a way to consolidate without closing accounts.
If you have any doubts that you can do this then I would take the credit union deal and live without the plastic, with the exception of one or two for strictly emergencies.


Jimbo

 

[pyonir]

i have a question to add to this: i have a citibank card. i want to transfer the funds from an associates national bank card onto the citibank card so i can eliminate high interest rates. if i have 1500 on my associates card and only 900 of room on my citi card, will citibank just raise my limit if i call and ask to whatever i am transferring over? understand? 😱 that was kinda confusing.....

 

[Jimbo]

pyonir The only way to know for sure is to pick up the telephone and ask. It is likely that they will do this for you in that they make more money as your balance increases. The whole process could take less than 10 Minutes. Have your statement with all account and contact information on it as Associates National Bank will likely need it.
Good luck!
Jim

 

[Oyeve]

Yes, it will effect negatively. But, if you have a lot of credit card debt then that negative also and consolidating will actually improve your rating, eventually. The best way is to try and get a bank loan and pay off all you cards in one shot and just pay off the bank loan. Near impossible to do but it could happen. Some debt consolidators, if you choose to use them, will offer, say, after a year or so, to give you a loan to completely wipe out your debt. You will owe them of course. Theres always bankruptcy in the most critical case. Its harder to do now because everyone seems to be doing it.

 

[dirtboy]

I do know credit counseling loans, do ruin your credit.

As far as debt consolidation loans, it may depend on the financial institution. It is very common to see people cash out equity or take a 2nd mortgage out on their homes to pay off their credit cards.

The credit union may be giving you a personal loan. Who knows? Definately don't be in a hurry. Take your time and do some research.

One thing you can do to help matters is, pay the minimum on all your cards except one. Focus all the extra money you normally pay to that card. You may want to try to knock off the card with the highest interest rate or the lowest balance first, depending on what you want to do. Then as you get a card paid off, attack another card, then another and eventually someday, you'll get them all paid off! 🙂

 

[pyonir]

<< One thing you can do to help matters is, pay the minimum on all your cards except one. Focus all the extra money you normally pay to that card. You may want to try to knock off the card with the highest interest rate or the lowest balance first, depending on what you want to do. Then as you get a card paid off, attack another card, then another and eventually someday, you'll get them all paid off! 🙂 >>


that is what i am trying to do now....but i have a LONG way to go.

 

[Maetryx]

pyonir and MichaelD,

If you decide to use a credit card to transfer balances from other credit cards, WATCH OUT for cash advance fees. Some cards let you transfer balances when you first get the card for free, but after that they treat the balance transfer as a cash advance, along with it's huge fees.

I've never obtained a consolidation loan from a bank. Whenever I've decided to consolidate credit card debts, I simply find some credit card deal online with low interest and free balance transfers. I get that card and move all my debts to it.

 

[pyonir]

<< I've never obtained a consolidation loan from a bank. Whenever I've decided to consolidate credit card debts, I simply find some credit card deal online with low interest and free balance transfers. I get that card and move all my debts to it. >>


i've tried that. i get turned down for the card. 🙁

 

[Ameesh]

move all your debt onto one car using balance transfers, make sure the balance transfer has no fee or a very small one like $40 or less, also make sure the balance transfer has a low rate, like 1.7 or below, i routinely get 0.9% offers in the mail, if you dont get them call your card up, discover has always been really good with me. tell them some other card is giving you .9% but you would rather use their card because you like their webiste and online billpay better. try to get the term to be for a long time like 6 months or so and start to work off the debt . once the time is expired you can move all the debt to another card. and keep doing that until its paid off.

PM me if you want more details.

 

[MichaelD]

Thanks everyone. This is kind of depressing news, though. 🙁 I didn't realize that a debt consolidation loan was akin to bankruptcy. Maybe I misunderstood...I thought it was just a loan you get from the credit union/bank and as part of THEIR agreement, you surrender the plastic you're trying to pay off and they close they account.

I'm in the same boat as Pyonir; I've tried to get a CC w/a low rate in order to transfer everything else to it, but I got turned down due to the amount I currently owe out. I have no probs making double my minimum payments on all my cards...but the amount I owe total is too much to pay off at once.

I belong to two Credit Unions. My main one is a really stuffy, old-money-and-all-our-members-have-six digits-in-their-savings type credit union. They have the strictest loan guidelines I've ever seen and have turned me down for everything from a personal loan to a vehicle loan.

What's ironic about that, is that I've already had TWO vehicle loans w/them that I successfully paid off as well as a $3K signature loan that I paid off. Never missed a single payment. When I bitch to them that "how can you turn me down? look at my history with you!!" They say "that was before and this is now." If it weren't for the fact that they are totally no-fee (free checking, free ATMs, etc) I'd have closed my account w/them a long time ago.

The other CU is where I have my truck loan. They gave me a pretty good rate (6.6%) and seem pretty relaxed...they went by my payment history as opposed to how much I owe. Sheesh. Everybody OWES, for cyrin' out loud. The question is: "are they paying?" In my case, the answer is yes.

I guess I'll try to get a personal loan with the second CU. I won't waste my time with my main one. They'll just laugh at me.

Thanks again.