Hi Money Minder,
So, here’s the deal – my credit card debt is sitting at $5300. I used to have a killer credit score of 780, but I messed it up last year. Now, I’m thinking of taking out a secured loan of $5500 to pay off my credit card debt. The loan terms have me paying $1570 in interests and fees, with a monthly payment of $284 for 24 months, which honestly doesn’t sound too bad to me. I’m expecting a $6000 check by April next year, and I plan on using that to pay off the loan early to avoid any remaining interest. Some might say “just hold off until you get the money,” but I think using these six months to boost my credit could be worth it, even if it means paying a bit of interest. What do you think? Is it a good move? Thanks a bunch!
Cheers,
Financial Freedom Seeker
Response from THE MONEY MINDER:
Hello There,
It sounds like you’ve put a lot of thought into your financial situation, and I can understand the desire to take out a secured loan to pay off your credit card debt. It’s important to recognize that carrying a high balance on your credit cards can negatively impact your credit score over time.
In your case, with a credit score of 780, it’s clear that you value maintaining good credit. Taking out a secured loan to pay off your credit card debt could potentially help rebuild your credit by diversifying your credit mix and showing responsible payment behavior.
However, it’s essential to weigh the costs and benefits of taking out a loan. While the interest and fees for the secured loan seem manageable, it’s crucial to ensure that you’ll be able to make the monthly payments on time to avoid any further damage to your credit score. Additionally, relying on an expected check of $6000 by April next year to pay off the loan early comes with its own risks, as unforeseen circumstances could delay or alter your financial plans.
In this situation, I would advise creating a realistic budget to ensure that you can comfortably afford the monthly loan payments without putting yourself in a tight financial spot. Consider exploring other options such as negotiating with your credit card company for lower interest rates or a repayment plan.
Ultimately, the decision to take out a secured loan to pay off your credit card debt should be based on your individual financial circumstances and goals. Building good credit takes time and consistent effort, so it’s essential to have a solid plan in place. All the best from THE MONEY MINDER as you navigate this financial decision.
