This is part of our Pay Debt Quickly series sponsored by
PDQ Pay Debt Quickly kit.

Question: I am contemplating using a convenience check from my credit card company instead of taking out a personal loan from my credit union. The convenience checks carry a 3.99% interest rate for the life of the loan. However, a personal loan from my credit union would carry a 10.25% interest rate for the life of the loan which can be no longer than 5 years.

I am thinking about borrowing between $10,000 to $15,000. I have about a $400 balance on my credit card and would pay that balance off completely if I used the convenience check and resolve not to use the credit card again until the “convenience check” loan was paid.

I don´t have any debt obligations at the present time and was wondering which route would be the best route to go. Thanks in advance to any advice you could provide. ~ John

Answer: Hi John, excellent question. I can’t tell you exactly to do without knowing more info, but I can ask some questions that might get you thinking more broadly and lead to the answer that is best for your situation.

First, what will you be using the $10,000 – $15,000 for? How do you plan to pay it back?

If you pay it back using the minimum payments (15,000 loan at 4%), it will take you 209 months to be rid of your debt. In that time, you will pay $2,275.87 in interest. (play with it yourself at BankRate.com). This is a minimum payment of 2.5% of the balance or $375 per month.

If you take 5 years to pay it off (like the personal loan from the credit union) (found at BankRate.com), it will cost you $276.18 every month.

Interesting with the 2nd calculator: if you pay $375 per month, you’ll pay it off in 43 months.

Another thing to check is the fine print. Can they raise your rates if you are late on any other bill? This is a new “twist” many credit card issuers are adding (see previous article on Universal Default).

Just be sure what you are able to afford in terms of payback and the use of the money. Set aside reserves for the life’s usual “emergencies” like home/auto repair, medical expenses, job layoff or reduction, etc. Please don’t use the money to create additional lifestyle expenses like purchasing a boat or airplane or fancy car. These “toys” are far more expensive to keep up than the initial payment!

Hope this helps. Let me know if you need more info.

Warmly, Cindy Morus