Should I do a debt consolidation Loan? If so, where?

2 years ago

Mon Nov 14, 2022 9:08 am

Credible

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I always advise against debt consolidation. Personal loans for the purposes of consolation of credit card debt is a dirty mark in FICO 10(T). Debt consolidation does not solve one's debt problems; it just creates more opportunities to go further in debt. That said, if you have the discipline to not go further in credit card debt when consolidating it can be of help. If you intend to apply for such a loan, yesterday a TV commercial was promoting the ẃebsite sofi.com for those who intend to consolidate debts.

2 years ago

Mon Nov 14, 2022 8:03 pm

BrutalBodyShots

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Credible wrote: ↑Mon Nov 14, 2022 9:08 am I always advise against debt consolidation. Personal loans for the purposes of consolation of credit card debt is a dirty mark in FICO 10(T).

Can you elaborate on this a bit more? How does the 10T algorithm differentiate between a personal loan used for the purposes of debt consolidation verses another personal loan type?

2 years ago

Mon Nov 14, 2022 8:42 pm

Credible

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BrutalBodyShots wrote: ↑Mon Nov 14, 2022 8:03 pm
Credible wrote: ↑Mon Nov 14, 2022 9:08 am I always advise against debt consolidation. Personal loans for the purposes of consolation of credit card debt is a dirty mark in FICO 10(T).
Can you elaborate on this a bit more? How does the 10T algorithm differentiate between a personal loan used for the purposes of debt consolidation verses another personal loan type?

I got this information from the discussion in the myFICO forums. https://ficoforums.myfico.com/t5/Credit ... 741/page/2 Reading that discussion is where I have gotten most information I know about the newest version.

2 years ago

Mon Nov 14, 2022 11:36 pm

BrutalBodyShots

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Ah yeah, I actually remember that thread. Lots of participation from @Cassie and @Saeren in there. I love the Anonymous posts!

2 years ago

Tue Nov 15, 2022 1:07 am

Cassie

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Experian has a good overview of how these types of loans will affect FICO 10 T: @NoMoneyNoHoney : In your situation, I'd definitely try for the consolidation loan! --------------------------------------------- (From Experian at link above.) Personal Loans Might Lower Your FICO® 10 Score Early reports about FICO® 10 revealed that personal loans would be treated differently than they were in prior FICO® versions, and that consumers might be penalized simply for having personal loans on their credit reports. This is a notable difference in how FICO® Scores have traditionally treated personal loan accounts. Personal loans, sometimes called signature loans, are unsecured installment loans that are commonly used to pay off credit card debt. This process, called debt consolidation, involves taking out a personal loan for the purpose of paying off higher interest credit card debt. Debt consolidation has long been recognized as not only a smart financial move, since interest rates on personal loans can be much lower than those on credit cards, but also a smart credit score improvement strategy. When you convert revolving credit card debt to an installment loan, your credit scores may improve. Even under FICO® Score 10, this strategy is still a good idea if you're trying to eliminate expensive credit card debt. "While there are certain high-risk consumer behaviors associated with the use of unsecured personal loans, there are also circumstances where a consumer's FICO® 10 and FICO® 10 T score can benefit from the presence of an unsecured loan," says Dornhelm. One notable exception, however, is if you use those newly paid off credit cards to make new purchases—building up new balances while you're also paying off the consolidation loan. In this situation, your score will likely take a hit under FICO® 10. This emphasizes the importance of avoiding a scenario where you pay off or pay down credit card debt with a personal loan, but then get right back into credit card debt again.

2 years ago

Tue Nov 15, 2022 8:13 am

BrutalBodyShots

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I guess what I fail to understand is if there's a way for 10T to differentiate between a personal loan acquired to consolidate debt and one acquired for a different purpose. If the algorithm is just looking at the loan type in and of itself (the way F8 would look at a CFA for example as being bad) then we'd have to treat a personal loan with 10T like a CFA for F8 and always advise against them. I think it would make more sense if the algorithm had a measure built into it where if it sees a personal loan added to a credit file within X days of revolving debt dramatically reducing that it would be flagged as a debt consolidation loan and handled appropriately.

2 years ago

Tue Nov 15, 2022 12:42 pm

Cassie

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BrutalBodyShots wrote: ↑Tue Nov 15, 2022 8:13 am I guess what I fail to understand is if there's a way for 10T to differentiate between a personal loan acquired to consolidate debt and one acquired for a different purpose.

It looks like the software is looking for a reduction in revolving debt along with the addition of a loan. One month with high revolving util, next month with almost $0 revolving debt and a large loan: flagged as debt consolidation loan. From what they said, it looks like if someone doesn't start running up the revolving debt over the next few months (which @Credible had in mind - good point too) , FICO 10 T won't be that harsh.

2 years ago

Tue Nov 15, 2022 12:51 pm

BrutalBodyShots

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Level27 Last INQMonday, May 23, 2022 Gardening For2 years, 3 months, 15 days, 21 hours, and 56 minutes Next Level in15 days, 2 hours, and 4 minutes on September 23rd INQ 1yr onTuesday, May 23, 2023 INQ 1yr reached1 year, 3 months, 15 days, 21 hours, and 56 minutes ago INQ 2yr onThursday, May 23, 2024 INQ 2yr reached3 months, 15 days, 21 hours, and 56 minutes ago Goal24 months Goal DateThursday, May 23, 2024 Goal Achieved3 months, 15 days, 21 hours, and 56 minutes ago

Cool, that makes the most sense and if that's the way the algorithm is handling it I'm glad to hear it.

2 years ago

Tue Nov 15, 2022 4:26 pm

NoMoneyNoHoney

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So is SOFI.com is the best & only option? No other bank recommended that's got no upfront fees and interest rate under 18% ? Anyone else do this or have any other place to get a loan when you have a below average FICO??

I put some info about NFCU, is that a good option for me considering my situation?? I don't want to apply if it's likely to get denied.

What's their income verification look like?? If you read my original post, most of my income I don't have proof for - but I can prove I have a job that earns around $60K...I heard the more income you put down, the better the interest rate so I def want to put a high total. And I'm not lying as I do have a personal biz, just its mostly cash.

THANKS everyone for the help!!!!!!!!!!!!!

2 years ago

Wed Nov 16, 2022 8:12 pm

Cassie

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NoMoneyNoHoney wrote: ↑Tue Nov 15, 2022 4:26 pm I put some info about NFCU, is that a good option for me considering my situation?? I don't want to apply if it's likely to get denied. What's their income verification look like?? If you read my original post, most of my income I don't have proof for - but I can prove I have a job that earns around $60K...I heard the more income you put down, the better the interest rate so I def want to put a high total. And I'm not lying as I do have a personal biz, just its mostly cash.

Can you provide them with a tax transcript, like a 4506-T using this year's returns? I'm pretty sure they would also use contiguous bank statements showing those deposits over time. Paging @Slabenstein , who probably knows exactly how many ways it could be done with a bank.

2 years ago

Thu Nov 17, 2022 4:46 pm

NoMoneyNoHoney

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Cassie wrote: ↑Wed Nov 16, 2022 8:12 pm
NoMoneyNoHoney wrote: ↑Tue Nov 15, 2022 4:26 pm I put some info about NFCU, is that a good option for me considering my situation?? I don't want to apply if it's likely to get denied. What's their income verification look like?? If you read my original post, most of my income I don't have proof for - but I can prove I have a job that earns around $60K...I heard the more income you put down, the better the interest rate so I def want to put a high total. And I'm not lying as I do have a personal biz, just its mostly cash.
Can you provide them with a tax transcript, like a 4506-T using this year's returns? I'm pretty sure they would also use contiguous bank statements showing those deposits over time. Paging @Slabenstein , who probably knows exactly how many ways it could be done with a bank.

Prob not. I just started this business. It's mostly cash. Do I really want to get the IRS involved? I already pay enough in taxes. Basically I need a consolidation loan where they aren't too strict with asking for income verification. Like some recent paystubs will do.

2 years ago

Thu Nov 17, 2022 4:51 pm

NoMoneyNoHoney

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Credible wrote: ↑Mon Nov 14, 2022 9:08 am I always advise against debt consolidation. Personal loans for the purposes of consolation of credit card debt is a dirty mark in FICO 10(T). Debt consolidation does not solve one's debt problems; it just creates more opportunities to go further in debt. That said, if you have the discipline to not go further in credit card debt when consolidating it can be of help. If you intend to apply for such a loan, yesterday a TV commercial was promoting the ẃebsite sofi.com for those who intend to consolidate debts.

Thanks for your reply. I guess it might cause a short term black mark, but seems like Debt consolidation lowers interest paid per year, allowing you to pay off debts faster, the borrower pays less interest over time. Looking for a bank other than SOFI. SOFI is really strict on income verification.

2 years ago

Fri Nov 18, 2022 1:33 pm

Cassie

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Level54 Last INQFriday, February 14, 2020 Gardening For4 years, 6 months, 24 days, 21 hours, and 56 minutes Next Level in6 days, 2 hours, and 4 minutes on September 14th INQ 1yr onSunday, February 14, 2021 INQ 1yr reached3 years, 6 months, 24 days, 21 hours, and 56 minutes ago INQ 2yr onMonday, February 14, 2022 INQ 2yr reached2 years, 6 months, 24 days, 21 hours, and 56 minutes ago

NoMoneyNoHoney wrote: ↑Thu Nov 17, 2022 4:46 pm Basically I need a consolidation loan where they aren't too strict with asking for income verification. Like some recent paystubs will do.

I don't know much about this, but have you tried this place? https://www.lendingclub.com/loans/resou ... ligibility Over the years, I read some positive things about it here and there, but that could have all changed by now.

2 years ago

Fri Nov 18, 2022 11:34 pm

Slabenstein

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Thank you for the page, @Cassie, though unfortunately I don't think I'm going to have a lot to offer. In general, if a person is looking for a debt consolidation loan at a good rate, I think local credit unions are the best place to start. But in your particular case, @NoMoneyNoHoney, I don't know that they would be worth the HP for three reasons: 1) $65k is quite a bit higher than the maximum amount a lot of credit unions are going to lend unsecured in most circumstances. (Though I'm sure there are some that are set up to go that high for high-income members, and the big boys like Navy probably go a higher than smaller, local CUs.) A second mortgage for debt consolidation is where I think a lot of them would steer you for a loan of that amount, if you own your home and have the equity, but in that case you'd be looking at income verification for sure. 2) They will only want to count business income that has an established history, not projected income for a new business. I think most credit unions will probably ask for documentation of business/self-employed income, and, while you probably wouldn't be looking at a 4506-T, I'd expect to be asked for something like two years of tax returns or two years P&L. 3) The ratio of your total unsecured debt to your income is 69%, with your business income included, which would be a large approval hurdle with any credit union that looks at that ratio as part of the underwriting process. Obviously, I don't know how every credit union operates (even remotely). I've made several generalizations above, based my limited experience in the industry, but credit unions vary quite a bit among themselves. It could still be worth your time just to call the big national ones and the ones in your area and ask what documentation they require for business income on personal loans and what their maximums for unsecured debt consolidation loans are. Sorry I couldn't be of more help!

2 years ago

Tue Nov 22, 2022 7:25 pm

NoMoneyNoHoney

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THanks for your help. So I know credit cards often don't verfiy income or have less strict income requirements. Wondering if there was a way to pay off some cards (which would raise my score to an acceptable level) that code experian, then somehow apply and get approve for some 0% offers.

Just one 0% balance transfer card that had a balance of $20K would save me a ton of money on interest. Or get a loan somewhere that has less strict income verification requirements.

Once your score gets to acceptable level, it becomes easier to get loans/credit cards. I think Chase codes experian and my experian score is already much higher than trans/EquaFax. So just thinking out loud here, considering trying to pay off Chase first, then maye two of the small capital one credit cards (they code all three) but it would prob take 5-6months to come up with the $16K ...I dont want to pay off barclays, cuz those bastards just reduced my credit line for no reason (I think barclay codes Transunion). I've never missed a payment on any debt vehicle in a decade. I might have to declare bankruptcy if I can't do something soon. BTW, I have an investment retirement account with around $35K in it (down 80% from two years ago), a car worth $6K, some collectables stuff, so I have some collateral.

Here's rough breakdown of my credit cards and loans

Capital one quicksilver (25.9%) 4,700 - available 300
Capital one quicksilver2 (18%) 2100 - available 400
Capital Venture (21%) 24,000 - available 6,000
Chase (25.9%) 9,000- available 1,000
barclay (25.9%) 7,500 - available 500
Citi (0% balance transfer) 3,000- available 500
Discover (15%) 12,000 - available 500
credit union loan (uses experian 6.95%). 11,200
credit union loan (uses experian 6.95%) 14,300
NFCU visa (0% balance transfer). 2,500 - available 5,000 (recent increase but can't use balance transfer anymore)