It’s time to get my big fat eraser out and point it at my credit card debt. I’m using a debt consolidation loan as one my tools for erasing this debt.
One of my initial debt payment goals was to sign up for a debt consolidation loan. I had done some preliminary research but hadn’t completed it. So in my effort to find a good debt consolidation loan, I went hunting on Google.
I found several different review sites, and came up with a target list to research deeper. I wanted to stay with a reputable company and not “Easy 123, Loans R Us” type of companies. There seems to be a lot of sharks in these waters, so I did my best to avoid them.
Here’s the list of companies I targeted:
They each seem to have a wide range of loan types and terms available. I jumped in and applied for the largest loan I could get with each company. For comparisons sake, I went with fixed-rate loans with a payment term of 5-years (60-months). Here are the results:
With SoFi, I applied for a personal loan. Their loan amounts range from $5,000 to $50,000. SoFi seems focused on student loans, but they have varied loan deals for all kinds of needs. They had the highest loan amount out of the four companies at $50,000. They also have fixed and variable rates available, with terms of 3, 5, and 7 years. I applied for $40,000 and here are the terms I received:
Loan amount: $40,000
Interest Rate: 8.125%
Monthly Payment: $814.67
I applied for a personal loan here. Best Egg seems similar to SoFi, except that they seem focused on debt consolidation loans. I applied for their max loan amount of $35,000 but was only qualified for $31,000, which was the first red flag. The second red flag was the interest rate…28%!! What?? I’m better off with my credit card rates.
Loan amount: $31,000
Interest Rate: 27.99%
Monthly Payment: $916.81
Lending Club is a peer-to-peer company, providing loans to borrowers and investing opportunities for investors. Basically, investors fund the borrowers. I applied for a max amount personal loan of $35,000. It was weird because I already have an account with Lending Club, but learned that you need to have one account for investing (that’s the account I had already created) and one account for borrowing. I got the amount I wanted but again, the interest rate is off the charts. Big disparity among these companies so far.
Loan amount: $35,000
Interest Rate: 20.63%
Monthly Payment: $892.59
Same deal here as with Lending Club, they are a competing peer-to-peer loan company. I needed to open an account as borrower. I applied for a max amount personal loan of $35,000. Red flag number one jumped out when they approved me for only $25,000, and then they hit me with red flag number two…the HUGE interest rate!
Loan amount: $25,000
Interest Rate: 17.35%
Monthly Payment: $630.76
There wasn’t much of a decision needed with this comparison. SoFi is the winner, by a long shot.
Every other company hit me with HUGE interest rates and/or lowered the loan amount requested. Those red flags made this an easy decision. There is no way I would take a debt consolidation loan that has a significantly higher interest rate over my current credit card rates. No brainer.
I don’t have anything negative to say about the other companies. I can only assume that they have enough loans out to borrowers already. I assume their pipeline is full and they are slowing down incoming loans by jacking up rates for any mid or lower tier borrowers, like me. I’m sure they are still accepting desirable borrowers for their investors. It seems more of a business decision than an indictment of my financial situation. At least, that’s what I’m telling myself so I feel good about it.
The Final Choice and the Process
Once I decided to go with SoFi, I pressed forward with the process. SoFi handles everything online, which is very convenient. The website and interface were great.
I created an account and was walked through a series of pages where I entered my personal information. I was stopped when I needed to provide supporting documentation for my loan application. I needed to go find the documents.
I needed the following info to support my loan application:
• Pay verification – I looked up an electronic pay stub and downloaded .pdf copy.
• Address verification – I pulled up a recent electronic bank statement and downloaded a .pdf copy.
• Citizenship verification – I used my birth certificate, scanned a copy to a .pdf format.
• Identity verification – Used the birth certificate again.
I was able to quickly upload these documents once I got them together. It took me longer to get the documents than anything. I had to ask my company HR reps for instructions on accessing my pay stub and I had to ask my wife for the key to our fire box, where we keep important paperwork, like birth certificates and social security cards.
With all the documents uploaded and the application complete, I pressed send. A couple of hours later, I received a phone call from a SoFi rep. She let me know that they received the application and that it was approved. That was fast! She told me the next step was to review and sign the completed loan documents at my online account.
I read and signed the final documents with my electronic signature. Once that was done, they said it will be 1-2 business days for my bank account to be funded with the loan amount.
SoFi also gave me a small discount of 0.25% on my interest rate when I signed up for autopay. Now my payment will be made automatically every month, right from my checking account, and I get a small break on interest.
The Final Numbers
SoFi had a number of loan terms available. I decided to go with the longest term of 7-years, in order to lower my monthly payments to the lowest amount possible. I know this drove up my interest rate, but it was worth the drastically reduced payment.
I’m planning to pay off my highest interest rate credit cards with this SoFi loan. Currently, I’m paying $933.81 per month in minimum payments on those cards. The SoFi loan will give me a savings of $286.74 per month. That is significant cash flow, giving me more cash each month to put towards the next credit card on my list, using my debt avalanche pay down method.
Here are the final numbers on my debt consolidation loan from SoFi:
Loan amount: $40,000
Interest Rate: 9.125%
Monthly Payment: $647.07
If you would like to check out SoFi for yourself, they gave me links for a referral bonus, where you make some money for using them and I make some money for the referral. One link is for personal loans, the other is for student loans:
Now I have a big fat loan coming to me and a big fat loan payment to make every month. BUT…I will have less going to the credit card companies and more going into my bank account every month. Well, that extra money will only make a short stop at my bank account. It won’t get too cozy because it will be used to pay down other credit card debt right away.
Next thing I want to do is update my debt pay down results. I wrote up an intricate plan a few months ago, but now I need to update it and get organized to reflect the action that I’ve taken recently. I smell another blog post coming up.
Have you ever used a personal loan for debt consolidation or anything else? Have you ever used one of the companies mentioned here? Leave a comment and let me know about your experience.
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