Goldman Sachs Is Offering Debt Consolidation Loans: What You Need to Know

Goldman-Sachs

There’s a new credit card debt consolidator in town — but its name is likely familiar to you.

Investment banking giant Goldman Sachs announced on Thursday that it will begin offering unsecured personal loans to people looking to pay off high-interest credit card debts. The loans will be offered through a new online platform, Marcus: By Goldman Sachs, named after Marcus Goldman, one of the firm’s founders.

Borrowers can apply for fixed-rate, no-fee personal loans of up to $30,000 for periods of two to six years, the firm said in a press release. According to Marcus’ website, applicants will be offered annual percentage rates (APRs) ranging from 5.99% to 22.99%. Late payments, partial payments, missed payments or defaults on the loan can show up on your credit report.

The platform isn’t fully open to the public just yet: Initially, applications will require a code that millions of prospective customers will receive by mail. You can request one on Marcus’ website.

“The feedback we expect to hear from the initial group of customers will help us to refine the Marcus experience,” the firm said in the release. It plans to offer the personal loans to a broader audience in coming months.

Debt Consolidation 101

Goldman — or, maybe we should say, Marcus — isn’t the only one who wants to pay off your plastic. Consolidating high-interest credit card debt with a personal loan has long served as a way for people to potentially cut down the lifetime costs of their existing debts and provide themselves with a hard date for when they can be out of the red.

But there are risks involved with this strategy: For instance, undisciplined spenders could find themselves worse off if they take out a personal loan, pay their credit card balances down and run them right up again. And when converting your revolving credit card debt to an installment loan, you’re locking yourself into a fixed monthly payment you will have to make (otherwise, your credit score could take a hit), which could be problematic if you hit financial setbacks down the line.

Plus, generally, only good credit scores qualify for a lender’s best terms and conditions, so if your credit isn’t exactly stellar — a strong possibility for folks carrying large amounts of debt — you may not be an offered an APR lower than the one you’re already paying. In any event, it’s a good idea to shop around and read the fine print of any offer you receive to be sure it’s right for you. You can learn more about the pros and cons of debt consolidation loans here.

If you decide to shop around, it can help to brush up your credit score ahead of time. (You can view two of your scores, updated every 14 days, for free on Credit.com.) If your score is currently looking shoddy, you can potentially fix it by paying down high credit card balances (we get it, that’s sometimes easier said than done), disputing errors on your credit reports and limiting new credit inquiries while your score rebounds.

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The post Goldman Sachs Is Offering Debt Consolidation Loans: What You Need to Know appeared first on Credit.com.

Which Credit Card Is Dead Weight in Your Wallet?

Do you have too many credit cards? Perhaps you are having trouble managing all of your open accounts, or are unable to pay the annual fees for all the cards that you have. If you’ve decided that you don’t need some of your credit card accounts, then you should carefully consider which are the best ones to close.

Here are a few factors to consider.

1. Which Cards Have the Highest Annual Fees?

If annual fees are one of the reasons that you’ve decided to close some credit card accounts, then it only makes sense to start with the ones that have the highest. But instead of just closing the most expensive cards, consider how much value the card offers to you compared to its annual fee. For example, an airline frequent flyer card with a $95 annual fee might offer you benefits such as free checked bags that are worth much more to you than another card with a $49 annual fee that has very little additional value. In that case, you might be better off canceling the card with the $49 fee and paying the $95 fee.

2. Which Cards Do You Use the Least?

Another thing to consider is the rarely used cards, but keep in mind all of the ways you might use the card, not just how often you make charges. Some cards might offer valuable benefits, like car rental insurance or roadside assistance, that you use on occasion, even though you rarely make charges.

3. Which Cards Have Rewards That Are Forfeited When the Account is Closed?

With some credit cards, your rewards can only be redeemed if your account is open and in good standing, so the last thing you would want to do is to close one of those cards before redeeming your points. However, if you gain points and miles through loyalty programs offered by airlines, hotels or other partners, you can usually keep them. 

4. Which Cards Offer the Best Customer Service?

Beyond the terms and conditions of a credit card, many customers value the relationship and customer service they have with their card issuers. If you’ve had trouble with your card issuer’s customer service, then you might not wish to keep the account. But likewise, if you’ve been impressed with your interactions with the card issuer, you may reconsider before deciding to close an account.

Alternatives to Closing an Account

Before you close a credit card account or consolidate your debt, there are some alternatives to keep in mind. First, if the card has no annual fee, you might wish to keep your account open and just place the card in a proverbial, or actual sock drawer. Doing so could help keep your debt-to-credit utilization ratio lower. This ratio is the total amount of credit you have been extended, divided by the sum of all of your balances. For best credit scoring results, experts generally recommend keeping the amount of debt you owe below at least 30% and ideally 10% of your total available credit limits. So, if you’re carrying high balances on your other credit cards, closing one with a high credit limit could wind up hurting your credit. (You can see where you currently stand in this category by viewing two of your credit scores, updated each month, for free on Credit.com.) 

You can also give the card issuer an opportunity to retain your business before closing your card. For example, many card issuers will offer to waive the annual fee or to give you a one-time credit for additional rewards in order to keep you as a customer. Finally, many card issuers will offer you a no-fee version of a card before closing your account. A no-fee version will have fewer rewards and benefits than the similar card with with an annual fee, but it may be a better alternative for some cardholders.

Having a credit card account is not a lifelong commitment and it’s inevitable that customers will close their accounts one day. But take some time to consider all of these factors to help make the right decision.

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I Took Out a Higher Interest Rate Loan and I’m So Glad I did

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About a few months ago, my condo building had a leak that damaged several units including mine. The total damage came out to be over $11,000. Although I had homeowners insurance, the process to file a claim would’ve taken over two months. If you’ve ever experienced anything like this, I’m sure you understand the dire need to get contractors out to fix the damage ASAP.

This is when I looked into getting a personal loan to cover these expenses until the insurance company finalized the claim. I started my research on LendingTree and Credit Karma by looking at customer reviews, and started to apply for personal loans through their sites.

The good thing about these two sites is that you can check your rates without impacting your credit score. They’ll automatically find the best interest rate and terms for you by matching you with several lenders, but I soon realized one thing that most people overlook: getting the lowest interest rate is not necessarily the best option for you.

My Initial Findings: Origination Fees

I was pre-approved by most lenders, including: Prosper, LendingClub, and Upstart. Each offered a fair interest rate and monthly payment that I could afford. As I started to complete the application for LendingClub, it wasn’t until the very last page that caught my eyes.

The exact loan amount for $11,000 that I requested wasn’t the amount I’d be receiving. Their origination fee of 6% is taken right out of the loan. So let’s do some simple math:

$11,000 x 6% = $660. My final loan amount: is $11,000-$660 = $10,340.

See the dilemma here? In order to get the full $11,000 that I needed for the home repair, I’ll have to take approximately $12,000. To make matters worse, I’ll have to pay interest on the $12,000 that I “borrow”, not the actual amount that I receive.

But here’s the Bigger Issue…

Since the insurance company is expecting to finish the claim in a few months, what happens if I want to payoff the loan? Although almost every single lender out there claims that they don’t charge a prepayment penalty, aren’t these origination fees basically the same thing?

According to the Examiner, “Experts argue that high loan origination fees act as prepayment penalties in disguise”.

I couldn’t agree more. If I paid back the loan within 4-6 months, my APR would skyrocket.  If you want to take a closer look at how loan origination fees impact your loan, you can view a chart that compares your loan with and without origination fees.

Your Loan Should Be Tailored Towards Your Needs

If you’re taking out a loan and expect to pay it back earlier, you might be better off taking out a higher interest rate loan. The origination fees may seem small at first, but you’ll end up paying more if you decide to pay it back faster.

If you’re thinking that you’ll need the entire length of the loan to pay it off, getting a lower interest rate loan will be more beneficial for you.

Origination fees can seem like a small fee especially if you’re in dire need of cash, but in reality, these fees can end up costing you a lot more in the short term. Always figure out a game plan to see when you can pay off your loan. This will help you make the best decision to make sure you’re getting the best deal.

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Should I Take Out a Loan to Pay Off My Credit Cards?

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Anyone who has ever had credit card debt knows these two things: It’s expensive, and it can take forever to pay off.

You can save a lot of time and money by increasing the amount of money you pay toward the debt every month — using a credit card payoff calculator like this one helps you figure that out — but that’s not the only way to reduce the cost of getting out of credit card debt. You could also use a personal loan to consolidate your balances.

Personal loans often have lower interest rates than credit cards. Credit cards also tend to have variable interest rates, which can make paying off the balances a little less predictable than personal loans, which generally have a fixed rate. On top of that, people sometimes struggle to pay off debt while continuing to use their credit cards. Because personal loans are installment loans — you can’t add transactions to them like you can a credit card — it can be easier to work toward that end goal of getting out of debt.

Personal loans can also be extremely helpful for people whose credit card debt involves multiple cards. By paying off all your credit card debt with the personal loan, you make the debt easier to manage with a single payment and a single interest rate.

Keep in mind you have to apply for a personal loan, which will result in a hard inquiry on your credit report and a slight ding in your credit scores, and the better your credit score is, the better your interest rate on your personal loan will likely be. Interest rates and loan approval also depends on how much much you’re asking to borrow and your ability to repay the loan (like your income or other debt obligations you have).

Before you apply for a loan to consolidate your credit card debt, get an idea of where your credit stands: You can get a free credit report summary, updated every 30 days, on Credit.com. That summary will show you an aspect of your credit scores called “account mix” and if you happen to have no open installment loans, a debt consolidation loan could actually help you in that area.

Personal loans aren’t the only strategy for paying off credit card debt. You might also want to consider a balance transfer (here’s an expert guide to picking a balance transfer credit card), which can give you some breathing room from your debt during a promotional period of 0% interest. Again, you’ll want to check your credit and consider the balance transfer fees involved before applying.

More on Credit Cards:

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