Q. I currently have debt on two credit cards that has been accrued within the past year. One balance is on Chase Sapphire which has a 20.99% APR and the other balance is on a Barclays American Airlines Visa with 29.9% APR.
Fortunately, I have not carried this much debt before and could pay off card balances while accruing points or miles, but now I have more debt on those cards than I can pay and am sick over the additional finance charges I am paying each month.
Today I got an email offer from Amex for a personal loan between $25,000-$40,000 to put toward credit card consolidation with an 8.98% APR for a 36-month loan. I can also pay it off early without any additional fees, which I would intend to do over 24 months.
So, is it worth it to take out this Amex loan at a much lower APR, pay off the two cards, and then just have one bill to pay each month – and hopefully pay more than just the minimum payment?
I think it might be a good idea, but there must be a catch, right?
– Sabrina, Philadelphia
A. That AmEx personal loan is likely a good deal for Sabrina, but the question is whether it’s the best possible deal, says Matt Schulz, chief credit analyst at LendingTree.
The answer depends on whether she has good credit, ideally a credit score 700 or higher. If so, a 0% balance transfer credit card would likely be a better option, Schulz says.
“If she doesn’t, then she could do far worse than the personal loan that AmEx offered up,” Schulz notes.
Ted Rossman, senior industry analyst at Bankrate.com, agrees that a 0% balance transfer would probably be a smarter choice than a personal loan.
“The Wells Fargo Reflect, BankAmericard, Citi Simplicity and Citi Diamond Preferred all have 0% introductory periods lasting up to 21 months,” Rossman says. “There’s a 3-5% transfer fee, but that’s nothing compared with all of the potential interest savings.”
But if Sabrina goes the transfer route, it is wise to refrain from making new purchases with the balance transfer card, even if they’re interest-free for a while.
Rossman’s advice? “Divide what you owe by the number of months in your 0% term and try to stick with that level payment plan.”
Keep in mind that zero-percent balance transfer cards aren’t as easy to get as they were a year or 18 months ago, but they’re still widely available to consumers with top credit scores.
“Judging by the fact that she has a 29.9% APR on her American Airlines card, that may be a problem for her,” LendingTree’s Schulz notes. “That is currently the highest APR offered on that card, meaning it is typically reserved for those with less-than-perfect credit.”
“The good news is that the AmEx personal loan she has been offered is a pretty good consolation prize,” Schulz adds.
While it isn’t the 0% offer with the balance transfer card, it still has a far lower APR than what Sabrina is paying today and comes with no early-payment penalty and no origination fees.
“It could save her a lot of money over the life of the loan,” Schulz says. “Plus, being able to consolidate a couple of payments into one means one less bill to worry about managing, and that’s always a good thing.”
