While 80% of Discover Financial Services revenue comes from credit cards, they still earn $8 billion a year from personal loans. So, should you consider Discover to consolidate your debt? Here is our Discover debt consolidation loan review to help you decide. If you have a Discover Card, you might think it would be really easy to just get a loan from them as well. Unfortunately, that may not actually be true.
Two options for debt consolidation
Discover boasts that they have two options for debt consolidation. The first is balance transfer and the second is a traditional loan.
Balance transfer is where you use the available credit on a Discover credit card to pay off other debts. They will entice you with a “promotional APR” for a set period, but that isn’t an effective debt payoff strategy in many cases. Why? Well, even if the credit card has a lower APR than the debt you are transferring to it, each credit card payment only pays 2 to 4% of the principal. That means you can be paying off credit card debt for years. Personal loans, on the other hand, are amortized to ensure you pay the loan off in a set period of time.
Debt consolidation loan
Their second debt consolidation option is more traditional. Discover debt consolidation loans go up to $40,000 and allows you to set your term between 3 and 7 years. Picking a term as long as seven years will allow you to keep your monthly payment low, but it will mean you are paying interest for a long time. You might end up paying more interest than you would have if you hadn’t consolidated.
The APR of Discover’s debt consolidation loans are between 8 and 24%. But, don’t count on 8%. That is probably pretty hard to get, regardless of your credit score.
What credit score do you need to get a Discover debt consolidation loan?
According to their 2022 annual report, 98% of the loans Discover issues are to people with credit scores above 660. Only 2% of borrowers have a credit score below 660, or no score at all. It is unlikely that you will get their best rates unless you are well over 700.
Are there benefits to being a Discover credit card holder
If you are considering taking a Discover debt consolidation loan, it might be because you have a Discover credit card. Surely, your current relationship with them would be to your advantage. But, here’s the thing. If you take a debt consolidation loan from them, you will be required to use at least two-thirds of the funds to pay creditors directly. But your Discover card can’t be one of them. For example, assume you get their loan and have Discover use 70% of the funds to pay other creditors directly. Then you can ask them to deposit the remaining 30% into your credit card account. Nothing is stopping you from using those funds to pay down your Discover Card. But, if your Discover card balance is more than 30% of the debt you want to consolidate, you won’t be able to pay it off.
If you really want to include your Discover Card in the debt consolidation, you might need to consider other options.
Shop around for a debt consolidation loan
We recommend that you apply to at least three to four lenders before you decide whether to take a loan. You owe it to yourself to get the best rate with the best terms that you can. We wanted to make the process of shopping around easy. At the Yukon Project, you can apply to up to 40 lenders all at the same time. The lenders do a soft credit check, so applying won’t affect your credit. It’s easy. And it’s a fast way to check with several lenders at once.