Help a Reader: Getting a Loan

Here's an email I recently received from a reader:

I am looking to consolidate my credit card debt into one personal loan. Unfortunately my credit is not perfect.  Right now my credit score is 630 and I have loads of credit card dept.  I've estimate I would need a personal loan of at least $15,000.  Since I don't own a home this loan would have to be unsecured.  I currently have a car loan which I pay monthly and student loans that I have been paying on for 4 years and I have never missed a payment.  I rent and pay utilities on time.  I have a full time job where I bring in about $50,000 a year.  So would joining a credit union boost my chances for getting a sizable personal loan as opposed to going through my current bank (PNC)?

What's your advice for her?

Comments

[Matt]

Give it a try. My Credit Union is quite flexible.

But also talk to your bank. They may counter offer just to keep your business.

[KH]

Why do you need another unsecured personal loan?

You're unlikely to get one at a good interest rate with your current debt and credit score, and I'd worry that even if you got a new loan, you'd be tempted to spend some of the new loan on things other than your existing debt.

I would think it would make more sense to just "frugal up" and pay off your current debt as fast as possible, starting with the card that charges the highest interest. Looking for yet another loan is a distraction.

[Mookie]

I would also check out peer-to-peer lending sites like prosper.com.

[Roy]

Would need to know how much Credit Card debt and interest rates you are paying. If you could do a lot better by consolidating I would try Lending Club or Prosper. You will still need to learn to control your spending to get out of debt and stay out.

[kego]

When I had about 20K credit card debt, my company's credit union rejected me for a personal loan because I had too much debt. Eventually, I just paid it off in two years without consolidation. In fact, the personal loan's interest was 8%, it was not cheap either. When I had about 10K left, I used the credit card's transfer balance offer. It usually has a very low interest like 0% or 1.99% for 12 months or 24 months. It charges 3% of the amount transferred though. So, do your calculation.

[Everyday Tips]

I have no idea how much debt you have, but you are making a decent salary. Is there any chance you could really slash your expenses and put more money toward your highest debt?

I hate big banks and love my credit union. However, I have no idea who is more likely to give you a decent loan rate.

Good luck!

[rzrshrp]

It really depends on how the credit breaks down and what the interest rates are. Unless they're really high, consolidating may not save you much and will only give you another credit rating hit for opening a new account. Also, if you're not disciplined enough, consolidating can tempt you to run up those accounts all over again since they're now clear. But to answer your question, I believe that you'd getter a better rate with a credit union IF you are approved.

[CubeMonkey]

If you have a 401 (k) with enough of a balance to take a loan out for that amount, it's reasonable to think about that option. I know it's typically personal finance taboo to even mention it, but the psychological benefits of being credit card debt free alone are probably worth the downside. That is true, as long as you're willing to cut up the cards afterward.

[John]

You don't need loan. Just suck it up and pay the $15,000. With $50K, you can do it in 6 months tops. Yeah, you'll be paying some interest but that's all right. The first thing you do after reading this post is melt your credit cards. Then list all your debts from smallest to largest. Pay the smallest one off. Then apply the monthly payment to the next one. Keep doing this. You'll be debt free soon. Read FMF, listen to Dave Ramsey, etc.

[Old Limey]

I have been a Credit Union customer since 1956.
I know that no well run Credit Union is going to make an unsecured loan of $15,000 to someone that just walked through in the door. Put yourself in their position, would you hand over $15,000 to a complete stranger without receiving collateral worth quite a bit more than $15,000?

Your best bet is to ask your Dad for a loan!

[Tim]

Try Lending Club. They offer loans to all sorts of borrowers, then the interest you pay goes to individual investors instead of a bank.

[Apex]

As others have said it is unlikely you could get any unsecured loans. However the comment by KH is the one that is most important here because even if you could get the unsecured loan to lower your interest rate, you should not do it and here is why:

Unless you have had a serious life epiphany with regards to debt, consolidating your debt will only make it more likely that you will run up more. This has been proven time and time again with those who did have equity in their houses and took Equity loans at cheap interest to pay off their high interest credit card debt. It sounds like a good idea in theory but in practice almost all of them paid the minimum on the equity loans and within a few years had managed to put 20K back on the cards which had previously been fully paid off by the equity loan. Now they had the equity loan for the old credit card debt and all the new credit card debt, effectively doubling the debt that was due to credit card spending.

The process of forcing yourself to cut back and pay down the credit cards will be the best inoculation to running them up again. If you find an easy consolidation path to lowering your debt payments and have not had a serious debt epiphany, the stats say it is almost certain you will find yourself in a much bigger hole a few years from now than you are right now.

You can pay those down if you make some tough choices. That is by far your smartest move in this situation.

[Tyler]

Joining a credit union wont help. I sat on the board of one of the largest in my state and I can assure you they wont look at you any different than a traditional bank. Loan of X risk profile of X= loan with x rate or no loan. I dont know, but it sounds like a no loan situation to me.

[Jeff McKinstry]

I have always been one that likes to do business face-to-face whenever possible. I know that it is getting harder with banking and bill pay done more and more over then internet.

While not guaranteeing an approval, you will be able to sit across the desk from the one that will make the lending decision. Regardless, it will probably be an uphill battle like Tyler said.

If you do end up getting a loan, make absolutely that you do not acquire any more debt until you pay off the loan. I made the mistake 25 or so years ago and it took a very long time to dig myself out of the hole that I had made.

[Georgia]

We were $28-32k in cc debt in 1987. It took us about 15 years to pay it off. But, I had learned a very valuable lesson. I paid all my debts ON TIME EVERY TIME. If I had to borrow from 1 cc to pay another, I did.

How it helped was that I began getting all the great cc offers. When a financial magazine said that you were ahead of the game if your cc interest was at 14%, I had all my cc's at 9.9%, UNTIL PD OFF! Later I got an offer of 4.9% until paid off. The last 3 years I was able to do the 0% for 1 year offer from 3 different companies.

Working so long and so hard to pay that off (and these were our main debt) I valued the freedom from owing someone. I have 2 cc's that I use for most everything in retirement and pay them off each month. Experience is a great teacher and a great motivator. Try it.

And I agree with others - it is very unlikely you will be able to get a $15k unsecured loan, and that's even if you had nearly perfect credit.

[Mike]

Do you have a 401k you can borrow from.i know a lot of people don't like to hear about this method at first, but it is very effective. You can pay off all those high interest rate cards and just concentrate on paying yourself back at a much lower interest rate. if not there are plenty of good credit consolidation services out there for you that will be able to work with you no matter what your score is.