Hey Money Minder,
I was checking out Credit Karma for some debt consolidation options because I can’t seem to pay off my credit card for at least a year. SoFi offers me $18,000USD, which is what I need, but they’re giving me $16,740USD in cash.
The loan term is for 2 years with an APR of 17.930%* after discounts. With around $3k in interest, it makes my monthly payment almost the same as my credit card minimum. Not really saving money each month, but that’s okay.
I’m wondering if taking this loan will affect my credit score negatively. Since my credit card utilization will drop to $0, would that be better than having the loan instead?
This is more like a short-term credit dilemma since I need to boost my credit score before the year ends for some business loan needs.
Thanks for the help!
Sincerely,
Money Woes No More
Response from THE MONEY MINDER:
Hello There,
I understand the dilemma you are facing regarding debt consolidation and the impact it may have on your credit score. Taking out a loan with SoFi to pay off your credit card debt may provide some relief by consolidating your payments into one, but it’s essential to weigh the pros and cons before making a decision.
In terms of your credit score, consolidating your debt and bringing your credit card utilization down to $0 can potentially have a positive impact on your credit score. Lowering your credit utilization ratio is generally viewed favorably by credit bureaus. However, taking out a new loan may initially result in a temporary dip in your credit score due to the hard inquiry and new account opening. Over time, as you make timely payments and reduce your overall debt, your credit score should improve.
Regarding the loan terms presented by SoFi, it’s crucial to consider the total cost of borrowing, including the interest you will pay over the term of the loan. While the APR of 17.930% may seem high, it’s important to remember that paying off credit card debt with high-interest rates can save you money in the long run.
Ultimately, the decision to consolidate your debt with a loan should be based on your individual financial situation and goals. If you are confident in your ability to make consistent payments on the loan and use it as a tool to pay down your debt efficiently, it could be a beneficial option to consider.
Remember to continue practicing good financial habits, such as making on-time payments, monitoring your credit score, and avoiding taking on additional debt. Improving your credit before the end of the year for your business loan needs is a commendable goal, and taking steps towards reducing your debt is a positive first step.
If you have any further questions or need assistance in navigating your financial journey, feel free to reach out. Best of luck on your path to financial wellness.
Farewell from THE MONEY MINDER.
