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Guide to Payoff

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Few things hold you back from reaching your financial goals more than credit card debt, which reached an all-time high of $930 billion in the U.S. by the end of 2019.

But while credit card balances have shrunk in recent months, 46 percent of households are facing “serious financial problems” as a result of the coronavirus pandemic, according to a September report from NPR, the Robert Wood Johnson Foundation and the Harvard T.H. Chan School of Public Health. A full 21 percent are struggling to pay their credit card bills, loans and other debts.

If you’re experiencing financial hardship—or just ready to get rid of your credit card debt—debt consolidation could be a solution worth looking into. While there’s no shortage of banks and credit unions to consider, here’s what you need to know about Payoff, a personal loan for debt consolidation powered by the financial services company Happy Money.

What is Payoff?

The fintech boom led to a proliferation in online-only lenders that harness alternative credit data to make loans to borrowers who may otherwise be shut out of traditional financing. Though not a direct lender, Payoff is an online lending platform that connects credit card debtors with a handful of partner banks and credit unions for debt consolidation loans.

Unlike many personal loans that can be used for just about any purpose (such as home improvement projects, vacations, weddings, emergency expenses or medical bills), Payoff loans are primarily designed for one reason: consolidating high-interest credit card debt into a single loan, with a (hopefully) lower interest rate and fixed monthly payment.

How do Payoff loans work?

Payoff works with lending partners to originate unsecured personal installment loans aimed at helping borrowers eliminate their credit card debt once and for all. Here’s a snapshot of the rates and terms offered:

Loan amounts $5,000–$40,000 (minimum $5,100 in New Mexico and $6,100 in Maryland)
Repayment periods 2 to 5 years
APRs 5.99%–24.99% fixed (minimum 6.99% for loan amounts above $15,000)
Origination fees 0%–5%

Paying an origination fee is never fun—it eats into your overall personal loan proceeds, potentially leaving with you with less cash than you need to pay off those pesky credit card balances.

Notably, however, Payoff loans do not charge application fees, early- or extra- payment fees, late fees, check-processing fees, returned-check fees, annual fees or prepayment penalties.

How to sign up

You can check your rate and start the process of qualifying for a Payoff loan by filling out a short online application, provided you meet the basic eligibility requirements:

  • You’re at least 18 years old (19 if you reside in Alabama)
  • You have a valid Social Security number and a valid checking account

Note that as of October 2020, Payoff doesn’t offer loans in Massachusetts, Mississippi, Nebraska or Nevada.

The application form asks for your name, birth date, address and phone number, as well as your pre-tax annual income. Because Payoff doesn’t allow co-signers, you can’t include your spouse or partner’s earnings. The same goes for any alimony or child support you might receive.

You’re also asked to input your housing costs, but only what you pay as an individual—not the total amount of your monthly rent or mortgage.

Finally, to see your rate and potential loan offers, you’ll have to create an account login and password, as well as review and consent to Payoff’s terms of use, privacy policy and other authorizations.

Who can qualify

One of the things that sets Payoff apart from other personal loan platforms is its transparency. To that end, the Payoff website clearly outlines the factors used to evaluate your application for a loan:

  • Minimum credit score: 600
  • Minimum credit history: 3 years
  • Current delinquencies allowed: 0
  • Maximum debt-to-income ratio: 50%

Payoff might also consider your credit utilization ratio, as well as the number of “open and satisfactory trades” listed on your credit report. (A trade line is a type of credit account, such as a car loan, retail card or mortgage; “satisfactory” means the account reflects an on-time payment history.)

How Payoff affects your credit score

Checking your rate for a Payoff loan results in a soft credit check, which doesn’t impact your credit score in any way.

If you decide to accept a loan offer, you’ll have to complete a full-length application with your employment details, your Social Security number and your bank account information.

Payoff doesn’t do a hard credit check until just before it finalizes your loan. Although a hard inquiry can lower your score by a few points, the effect is only temporary.

In the long term, a Payoff loan used for debt consolidation shouldn’t hurt your credit, as long as you consistently make on-time payments. Payoff provides borrowers with their free FICO score every month, too, so you can keep tabs on it over time.

Payoff vs. other debt consolidation options

A Payoff loan isn’t the only way to consolidate debt, of course.

If you’re a homeowner, you can leverage the value of that asset using a home equity loan or line of credit, both of which offer interest rates that are usually lower than what you’d find on a debt-consolidation loan.

Here’s a quick look at some other solutions that might make more sense for you.

Personal loans

A personal loan is an installment loan that provides borrowers with a lump sum of money in exchange for fixed monthly payments for a certain period of time, typically no more than five years. Personal loans are usually unsecured, which means they don’t require you to put up collateral that the lender can seize in the event of nonpayment.

There’s really no difference between a Payoff loan and a personal loan, other than that Payoff makes loans with the primary purpose of eliminating a borrower’s credit card debt. Payoff’s starting APR of 5.99 percent is competitive among online personal loan lenders, too, though it’s always a good idea to shop around and compare rates to make sure you’re getting the best deal.

Balance transfer cards

A balance transfer involves moving debt from one credit card to another, usually from a card with a high interest rate to one with an introductory 0 percent APR that, in some cases, can last nearly two years. Used correctly, a balance transfer credit card can save you hundreds (or even thousands) of dollars in interest payments.

While minimizing interest charges is probably your main goal, sometimes you’ll need longer than a couple of years to settle your debt in full, which means a balance transfer card might not be the right fit.

But you may be better off using a balance transfer offer to pay down as much debt as possible during the intro period, after which you could pursue another balance transfer or a personal loan to take care of the rest.

Whether a personal loan or balance transfer offer is a better choice for you depends on factors such as your total debt, the length of the repayment period, your creditworthiness, associated fees and more. Bankrate’s debt consolidation calculator can help you explore your options.

Should you use Payoff to get out of credit card debt?

Payoff can be an excellent option for people with qualifying credit scores who are disciplined enough to avoid taking on new debt while making payments to rid themselves of the old.

However, while you can opt to have your loan proceeds sent directly to your card issuers, you’re not actually required to close those cards. That can make it all too easy to keep swiping them for new purchases after the fact. If you do, you’ll end up right back at square one by the end of your repayment term—if not sooner.

And if debt consolidation isn’t your primary goal, or if your existing card balances don’t add up to Payoff’s minimum loan amount ($5,000), you’ll need to look elsewhere for your financing needs.

Written by
Kelli Pate
Personal Finance Writer
Kelli Pate is a former contributor to Bankrate and a freelance writer and copy editor living in Kansas City, though she's a Jersey girl at heart. When she's not writing about personal finance and credit cards, she's immersing herself in the world of travel hacking.