So my friend is trying to get his act together and I'm trying to help him with his finances. His balance on his discover card is ~5000. At one point he was JUST making minimum payments. He got frustrated when he wasnt getting anywhere on his debt and it wasn't going down. I showed him that he would lose a lot of money just doing the minimum and most of it was going to interest. He's currently making payments of $350 a month. Using a tool I found online (http://www.bankrate.com/calculators/managing-debt/minimum-payment-calculator.aspx), we figure he could pay it off in ~18 months and only spend ~700 in interest.
As of now I can think of three ideas:
- He continues to make $350 monthly payments and takes the $700 hit (in terms of money going to interest)
- He could apply to a credit card with 0% transfer fee (or a low one), transfer his ~5000 discover balance to the new card and pay it off. Assuming he continues to make payments of $350, this would save him ~$700 in the long run if he pays it off within the credit card's 18 month 0% period. We were looking at the Chase Freedom card and the Chase Slate card. I'm afraid that if he applies, he will either be declined or be approved for something like 1500.
- He applies for a personal loan through discover. If he can get a $5000 loan at 7%, then he could pay it off a lot quicker than his ~15% interest rate through discover. Not sure if Discover would approve him for this though... and if they do, whose to say they don't make the interest rate 16%. My understanding is that he doesn't have to take the loan after they come back to him, but regardless it will count as a hard inquiry on his credit score.
He makes roughly 15k a year and has a credit score of ~620.
What would you do in my friend's boat? Would you apply to a credit card or a loan in the hopes that you save $700 (roughly 2 months of his income) or would you just stick to the $350 monthly payments? Keep in mind if he applies to either it would count as hard inquiries on his credit score, which isn't great...