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So my friend is trying to get his act together and I'm trying to help him with his finances. His balance on his discover card is ~5000. At one point he was JUST making minimum payments. He got frustrated when he wasnt getting anywhere on his debt and it wasn't going down. I showed him that he would lose a lot of money just doing the minimum and most of it was going to interest. He's currently making payments of $350 a month. Using a tool I found online (http://www.bankrate.com/calculators/managing-debt/minimum-payment-calculator.aspx), we figure he could pay it off in ~18 months and only spend ~700 in interest.

As of now I can think of three ideas:

  • He continues to make $350 monthly payments and takes the $700 hit (in terms of money going to interest)
  • He could apply to a credit card with 0% transfer fee (or a low one), transfer his ~5000 discover balance to the new card and pay it off. Assuming he continues to make payments of $350, this would save him ~$700 in the long run if he pays it off within the credit card's 18 month 0% period. We were looking at the Chase Freedom card and the Chase Slate card. I'm afraid that if he applies, he will either be declined or be approved for something like 1500.
  • He applies for a personal loan through discover. If he can get a $5000 loan at 7%, then he could pay it off a lot quicker than his ~15% interest rate through discover. Not sure if Discover would approve him for this though... and if they do, whose to say they don't make the interest rate 16%. My understanding is that he doesn't have to take the loan after they come back to him, but regardless it will count as a hard inquiry on his credit score.

He makes roughly 15k a year and has a credit score of ~620.

What would you do in my friend's boat? Would you apply to a credit card or a loan in the hopes that you save $700 (roughly 2 months of his income) or would you just stick to the $350 monthly payments? Keep in mind if he applies to either it would count as hard inquiries on his credit score, which isn't great...

  • I know product suggestions are frowned upon but the Chase Slate card has 0% APR with 0% transfer fee promotion going on right now. If he gets declined or approved for a small amount he can call chase (or whatever issuer) and tell them that he intends to transfer this balance over for the purpose of paying it off. They may work with him under those circumstances. – quid Mar 28 '16 at 20:54
  • Depending on how bad things are, your friend may want to consider debt negotiation (through a lawyer, not through one of those non-lawyer companies). He may even try to get/use more credit cards, max them out, and then debt negotiate (definitely check w a lawyer if doing this). – barrycarter Mar 28 '16 at 22:03
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    Definitely do not settle the debt. Settled debts are a black spot on your credit. And while a score of 620 is not great, that's still not in "bad" territory. – quid Mar 28 '16 at 22:27
  • Thanks for the responses everyone! The Chase Slate card with the 0% APR and 0% transfer fee seemed really promising, but that is really the only benefit of the card. It seems weird to me to have him get it, use it for a year or two, then get rid of the card (I would assume since it offers no other benefits he just wouldn't use that card anymore, so he might as well get rid of it) Is it worth applying to a card if the intention is to only have it for a year or two? – Bill Mar 29 '16 at 12:50
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I wouldn't worry about his credit score. The hit from a credit inquiry is not that big and it's absolutely worth it in the long run.

I suggest you sign him up for a free budgeting app (just google budgeting app) that will help him not only take control of his spending but also help him with his loans.

Transferring debt comes with a few caveats:

  1. Even if he can get 0% APR for 18 months (most offers I see are for 12 months), there is usually an upfront transfer fee (usually around 4%)
  2. You generally can NOT balance transfer from the same institution meaning that Discover will not let him transfer his high interest Discover balance to a low interest Discover card.

His credit score is bad so I don't know if he'll be able to get 0% loan, but even if he gets 6% - 8% that will save him money; just don't forget about the transfer fee.

If he has checking/savings account it's worth talking to that bank first - they might be able to give him a better deal for being their customer. Also if he tells them his story and credit score they might be able to give him an idea what they can offer him without doing a credit check.

Another option is to become a member of a local credit union - they have great rates on loans / credit cards.

Credit card or personal loan doesn't matter much, whatever he can get. With his credit score I doubt he'll be able to get a good rate at Chase or one of the other big credit card companies.

Good luck.

  • Figured the inquiry hit wouldn't be too bad (maybe 5 points?). Even a 4% transfer fee would be good, its $200 compared to $700 (saving him a month's plus worth of income). I didn't take into account that Discover wouldn't give a loan to someone under Discover, but that does make sense. A 6-8% loan for 5000 would be great too (saves him a month at least). I just don't want to recommend him to apply for a loan only for it to be like 13% and it to negatively impact his credit for no real gain. Would you personally rather do a loan or look for another credit card? – Bill Mar 28 '16 at 20:39
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    Good answer. Welcome to Money.SE! +1 for not worrying about the credit score hit from the inquiry, the watchouts for balance transfers, and for the mention of credit unions. :) – Ben Miller Mar 28 '16 at 20:53
  • +1 for mentioning credit unions. Also, budgeting is his long term solution. Good answer. – jkuz Mar 29 '16 at 15:12

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