Is it a good idea to get an unsecured loan to pay off a credit card that won't lower a high rate?

My wife and I just called the customer service department of a credit card company, only to find them “unable” (at the account manager level) to lower the 25% APR on the card. The guy went on to say that everything’s been switched to automated with no ways for them to do anything about it and that the system “periodically” checks all accounts to adjust the rate accordingly (up/down (yeah right on the down…)). We did manage to get one month’s finance charges waived, but on this balance that’s not going to be much aid.

My wife and I would like to get a house in 1-2 years, and getting a lower rate on that debt would increase our likelihood of being able to do so. We make a good income and could definitely afford a loan payment.

  1. Would it be a good idea to get an unsecured personal / consolidation loan to pay off this company and thus reduce the rate (also, there’s no chance we’ll use the card after paying it off)?
  2. Will it have consequences regarding getting a mortgage?

6 Responses to “Is it a good idea to get an unsecured loan to pay off a credit card that won't lower a high rate?”

  1. I am answering this in light of the OP mentioning the desire to buy a house.
    A proper mortgage uses debt to income ratios. Typically 28/36 which means 28% of monthly gross can go toward PITI (principal, interest, tax, insurance) and the total debt can go as high as 36% including credit cards and car payment etc. So, if you earn $5000/mo (for easy math) the 8% gap (between 28 and 36) is $400. If you have zero debt, they don’t let you use it for the mortgage, it’s just ignored. So a low interest long term student loan should not be accelerated if you are planning to buy a house, better put that money to the down payment. But for credit cards, the $400/mo carries $8000 (banks treat it as though the payment is 5% of debt owed). So, I’d attack that debt with a vengeance.
    No eating out, no movies, beer, etc. Pay it off as if your life depended on it, and you’ll be happier in the long run.

  2. Go where your money is treated best. If you can lower your APR, great.

    It should help a little bit with getting a mortgage if you can reduce your payment. Your debt-to-income ratio would go down.

  3. Take the consolidation loan and pay it off. Don’t close the card.

    Opening a new account will have no bearing on your mortgage a year or two down the road. Keep paying on time — that will make a big difference!

    JohnFX’s suggestion to open a new card and do a transfer is a great idea if you have good credit. Just read the fine print — most cards charge a 3-5% transfer fee and some cards accrue interest if you don’t pay within the promotional period.

  4. Why not just get another credit card and transfer the balance? Many of them will give you special perks like x months of no interest for doing so.

    Also, once you call to actually cancel the card you will see for sure whether they really have any power to negotiate rates. From their perspective 15% APR is more than 0%APR which is what they’d get if they lose your business.

  5. I think it depends on how you’re approaching paying off the credit card. If you’re doing some sort of debt snowball and/or throw all available cash at the card, it’s not likely to matter much. If you’re paying a set amount close to the minimum each month then you’re probably better off getting a loan, use it to pay off the card and cut up the card. Well, I’d do the latter in either case…

    Mathematically it would matter if the interest rate on the card is 10%-15% higher than the personal loan but if you’re throwing every spare dime at the card and the some, it might not matter.

    Another option if you have the discipline to pay the debt off quickly is to see if you can find a card with a cheap balance transfer, move the balance over and close the inflexible card.

    1. i think it’s always a good idea to lower the interest.
    2. it will probably lower your credit score a little when you get a loan (unless it’s a persona loan not reported to credit bureaus), but since you’ll pay off your debt faster, having less debt when you apply for mortgage is always better.