Pay off 15.9% CC with 12.9% loan – worth it?
Question: I’ve had a credit card with CitiBank for 2 or 3 years now. It’s got a variable interest rate – prime plus 5.4 percent if my balance is above $2,500 (which it is right now), and prime plus 7.4 percent if it’s below $2,500 (which it will be next month 
. Those work out to 13.9 and 15.9 percent, respectively.
I also just got a splat-inum card from FUSA that’s at 4.9% until June – a short enough time period that it’s essentially useless. After that, it’ll be at 12.99% (unless they screw me over like they did other people in here. 
Yesterday, I got a personal loan offer from CitiBank proper – “up to $7,500″ at a 12.9% rate. Given that it’s a loan, it’s a different type of credit-report entry than a credit card (I don’t want to have a lot of credit-card entries on my report) and if I could qualify for even half of that maximum, it’d basically let me “refinance” my credit card at a lower, fixed rate.
It seems like a good idea, at least on the surface. The only downsides are the uncertainty about how much of a loan – if any – I qualify for, and how long it would take to process. Naturally, if they send me $2,500 at a point when my CC balance is $2,200 or whatever, they’re getting some money back *real* fast!
Theoretically, any loan at all at 12.9% would be good, as it’d let me drop part of my credit card debt to that lower rate. I’m just curious whether it’s good in practice.
Any thoughts on these loans? Anyone else done this?
Answer: Hi, Dan! I’ve done this several times over the years. It’s one of the ways many financial advisors suggest to get out of higher interest so you can pay off debt faster.
Just a few years ago, before all these “limited time low-interest” credit card offers started popping up all over the place, shopping for a loan with interest as low as you could find, to pay off credit cards (which always had way higher interest than personal loans, IME) was pretty much the *standard* “smart move” people used.
Then, of course, you freeze the card in a block of ice till the loan’s paid off, or cut it up, so you don’t start running it up again.
But I’d shop around for a *better* loan interest-rate than that–there may be one that’s lower available to you. Phone other places. If you qualify for membership in a credit union, sometimes they offer the best personal-loan deals.
I wouldn’t just jump at one offer because they happened to send me something. I look at those mail offers as *advertising*, and I never just run out and buy something from a place just because I’ve seen an ad from them; I figure they’re paying for that advertising–maybe someone else who isn’t blowing so much on advertising can offer a better deal! Y’know, kinda like house-brand versus nationally-advertised brand when it comes to groceries!!
I’ve never had any trouble switching existing cc debt to a loan–but the bank making the loan usually wants to make sure the money *will* go onto the existing cc debt, and may insist on the payment (loan proceeds) being paid by them directly to the cc company. Also, if it looks like you’ve been “abusing” credit or really over-stretching yourself on credit, some places want you to hand over the credit card so you “can’t” do it again (tho I can’t figure how they think you couldn’t just go out and apply for another card!!)
If you’ve otherwise been responsible about money, I think the bank usually is willing to lend you the full balance that’s showing as debt on the credit card. *Don’t* try to borrow more than that just because you get a chance at lower interest.
Shouldn’t apply to anyone who hangs out here, but–*don’t* say something like “I want to pay off a credit card and get some extra money so I can buy (fill in anything that’s not a necessity of life here).
My friendly loan/mortgage officer at my bank has told me some of the crazy stories about loans that weren’t granted because in the same breath the person was saying “I really, really want to deal with my debt and be responsible” and then “My wife and I have *always* wanted to go to Bermuda and there’s this good deal on right now…”.
Anyway, Dan, I’d say check it out–not just the offer you’ve received, but the possibilities. Good luck!
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