Pros and Cons of a Discover Credit Card Debt Consolidation Loan Review. Bonus Review of Discover Balance Transfer.
Welcome back to The Yukon Project! In this video, we’re going to explore using Discover for credit card debt consolidation. We’ve spent years in the lending industry, analyzed millions of credit files, and designed programs that help improve people’s financial lives. We want to use that experience to help you understand the pros and cons of Discover’s credit card debt consolidation loans as well as their option of doing a balance transfer to a Discover credit card.
First, let’s look at Discover’s traditional loan. One big advantage is that they don’t charge an origination fee. Origination fees are upfront costs that many lenders charge, often a percentage of your loan amount. Not having this fee means you’ll receive the full amount you borrow. You also aren’t typically reimbursed if you pay off your loan early.
Another pro is that Discover offers competitive APRs on their Credit Card Debt Consolidation loans ranging from 7.99% to 24.99%.
The competitive APR is a two-edged sword. It means that they have fairly stringent lending standards. They say that their minimum FICO for approval is 660. So, Discover is really for people with pretty decent credit scores. If yours is lower, you could be approved, but it becomes increasingly unlikely.
Discover also offers the convenience of directly paying off your credit cards with the proceeds of the loan.
It streamlines the whole process. You don’t have to receive the funds and then pay off your other debts. This is convenient. But, there’s another reason it’s important. It shows that Discover understands that the loan will replace current debts instead of stack on top of them. This should make it easier to be approved compared with a lender who does not offer this service. And when you are borrowing from Discover for credit card consolidation, you are required to use at least two-thirds of your loan to pay off other debts.
On the downside, Discover doesn’t allow cosigners on their personal loans or credit card debt consolidation loans.
A cosigner is someone who agrees to take responsibility for your loan if you can’t make payments. If you can get the loan you need without a cosigner, it’s best not to include one. But if you might struggle to be approved or get the amount you need, a cosigner can help. Discover does not let you add a cosigner, though.
Another potential issue is that you can’t use a Discover personal loan to pay off a Discover credit card. That’s right. If you want to consolidate your Discover Card balances, you would have to use a different lender. Of course, you can get around this a little bit by asking to borrow extra money and using that extra money to pay down your Discover Card. Still, if you have significant debt on a Discover Card, this could be a deal breaker.
Now let’s talk about the other way you could consolidate your credit card debt with Discover: a balance transfer. This involves moving your balances from other credit cards onto a Discover card. You should not even consider doing this if the interest rate on the Discover Card is not 2-3 percentage points better than what you are paying on the existing debt.
Discover likes to entice you to do balance transfers by sometimes offering introductory 0% APR periods.
That can be really tempting. Paying zero interest for several months could be great, but only if you use the money you save to pay down the debt. If you are not using that introductory period to aggressively pay down the debt, the balance transfer might end up just be moving money around. Remember that part of the problem with credit card balances is that paying the minimum payment doesn’t get you out of debt very fast. Paying the minimum usually means taking 14-20 years to pay off the debt.
The good thing about personal loan designed for credit card consolidation is that it forces you to make higher principal payments. You get out of debt much faster.
It’s also crucial to read the fine print when considering credit card balance transfers. Balance transfers often come with fees, usually a percentage of the amount you transfer. And if you don’t pay off your balance before the intro period ends, you could start accruing interest at the regular APR, which could be higher than what you were paying before.
Here’s the bottom line: balance transfers can save you money, but only if you secure a lower rate AND you use the money you’re saving to pay extra principal payments each month. If you just move your debt around without a plan to pay it off, you could end up in a worse position. If you need the built-in discipline to maintain higher payments, balance transfer might not be a good solution for you.
As always, we recommend comparing offers from multiple lenders before making a decision. Every lender has a different algorithm on how to decide who to lend to and at what rate. You should shop around to be sure you’re getting the best deal you can get. At The Yukon Project, we’ve tried to make shopping around easy. On our marketplace page, you can apply to one of our featured lenders and we will check your rate with up to 40 others behind the scenes. They use soft credit pulls, so applying won’t affect your credit score. We will show you all the companies that approve you so you can pick the best lender for you.
If you found this information helpful, please give the video a like and consider subscribing to our channel. We’re dedicated to providing content that helps you make smart financial choices. Thanks for watching, and remember, you have the power to achieve a debt-free life!
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