Consolidation Snowball - CC or Loan?

[tess_bk]

I'm talking about the good kind of snowball, where you "snowball" your debts until you pay them off. (Google it! It's really cool.) I already did it once quite successfully a couple of years back, then got a bit sloppy with using CC's and ended up with a few thousand in credit card debt again. Unfortunately, it's all at relatively high rates (the lowest is 18.99%). So I want to consolidate it and keep paying my total "snowball" payment to get it all paid off again as quickly as possible.

Bear in mind that I also have a chunk of student debt that will follow me for several years (and which I'm making payments on faithfully). My goal is to get all the cc paid off within a year so I can devote my "snowball" payment to my student loans and get them paid off faster.

So here is my question: is it better for my credit, long-term, to get a 0% introductory rate cc, and complete the payoff within the intro period to avoid paying interest (even if there's a scary penalty rate attached, and/or a high-ish rate that starts at the end of the intro period); or to get a regular low-interest personal loan from my credit union?

Specifics: Credit card would be 0% interest for 18 months (possibly from CitiBank); interest rate would probably be 21.99% after the intro period assuming I don't get it all paid off by then. The personal loan from my CU would be 15.49%, fixed. I devote $400 a month to my "snowball" payments so that's the amount I would be paying. The total amount of the debt is $5000, so I could have it paid off in about a year, give or take a few months, either way. My credit rating is in the low 700s. My credit rating goal is to inch it up to 800.

Thoughts?

[Amy26]

Do you have a bankruptcy on your report? If you do, then getting a zero percent interest rate card might be a bit tricky. There are a couple things to consider.... if you're not going to be doing much with your credit in the year it takes you to pay off the debt, then I wouldn't worry about what it would do for your credit so much. If you put it on a credit card and max it out, then that will damage your score a lot. If you get an installment loan, that will not hurt your score as much but installment loans don't do a whole lot for you. Paying zero interest is of course way better than paying 15%.

If it were me, I'd probably do the zero percent interest rate route... the credit score would bounce back after the amount got below 30% of the total limit of the card.

[tess_bk]

Yes, I'm almost 10 years post-BK

Do you have a bankruptcy on your report?

Yep. Discharged in November 2003. You make some very good points. I'm sure the 0% credit card would be maxed out from the start, so you might be right, it could be more harmful than not.

The other thought I had was that if I apply for the credit card and get it, but only get something like a $500 limit, I won't be able to transfer much to it so it won't help me that much. (Any card that I owe less than $500 on will be off the books in a couple of months anyway because I'm making high payments on my "snowball" plan.)

I did find another credit union that might be able to do the same kind of personal loan, but at 10.9% interest rather than 14.9%.

Thanks for your advice!

[tess_bk]

Ack. I just found out my credit score has dropped from the low 700s (early this year) to the high 600s (as of today). No late payments or anything, a few inquiries, mostly passive. No idea why it dropped. I am bummed because the 14.49% that was offered to me by the credit union was based on my assertion that my credit was in the low 700s (plus they pulled my credit report, but the loan offer hadn't been approved by underwriters yet as of Friday). What to do? I still think consolidation will help me pay everything off faster, but now I'm wondering if I might damage my credit even further. Any idea?

[Amy26]

Well, 1. where are you pulling your credit score from? Also, scores vary from report to report so, which bureau would the credit union be looking at? If you're not getting your actual FICO score then the one you're looking at is probably not very accurate. It also matters what version of a score the credit union subscribes to. If your utilization went up at all, that could explain the point drop.

I would wait and see what they come back with. Which credit union is it? You may want to look at Digital Credit Union as I was approved there with a 691 score for a 5k CC and 2 auto refiances at 3.49% with my BK from 2009 showing. Perhaps they might be able to favorably help you.