Payoff Review: credit card refinancing with a twist

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Payoff Review: credit card refinancing with a twist

Paying down credit card debt? It can feel like chipping away at a giant block of ice with a butter knife. High interest rates can eat away at your monthly contribution, leaving with you just a few bucks left over to pay down the principal. If you have multiple cards you’re trying to pay down, interest rates can make the entire endeavor feel pointless. To make matters worse, you may have to use those credit cards to make ends meet every month, creating new debt at the same rate you’re paying off old debt.

If you’re drowning in credit card debt, Payoff wants to throw you a life preserver. At its core, Payoff is simple: they offer you a loan which you can use to pay off your credit cards. While it may seem counterproductive to go into debt in order to pay off debt, it can make financial sense if the interest rate on the loan is lower than what you were paying on the credit card. It also helps consolidate your debt into one easy payment, making it easier to budget for and pay.

But Payoff wants to be more than just a loan company or a front-end for some bank; they want to help you get out of debt completely, not just get into new debt that they control. But can their product actually help change behavior? Or will it just help debtors get into more debt?

How exactly does Payoff work?

The actual workflow for a Payoff loan is very simple. From their site:

  1. Apply online

  2. Receive money

  3. Pay off cards

  4. Pay back Payoff

This is basically the workflow for literally any loan. But as with any loan, the details are what matters.

Let’s start with the loan itself. Payoff offers loans between $5,000 and $25,000 – if your credit card debt is above or below that range, you’re out of luck. (The average household owes $7,281 in credit card debt according to data from earlier this year.) Payoff loans have fixed rates between 6.00% and 19.65%. Combined with their Platform Fee (a one-time fee that combines the origination fee and maintenance fee into one payment, deducted from your request amount when your loan is issued), the effective APR of a Payoff loan will be between 8.00% and 22.00%.

To many who are currently in debt, these interest rates may not seem too different than what their credit card offers. These rates are not particularly low, but they are in line with other personal loan providers.

You can get your Payoff rate without affecting your credit score; Payoff does a "soft pull" on your credit score, which, unlike a hard pull, does not show up on your credit report and does not change your FICO score.

Payoff offers loans with terms of two years, three years, four years, and five years. You can make extra payments and pay off your loan at any time.

Payoff does not charge an application fee, a late fee, a check processing fee, an annual fee, or a prepayment fee. The only fee it charges outside of the Platform Fee is a returned payment fee – if you don’t have enough money in your bank account to cover your monthly payment, Payoff will charge you.

In order to get approved for a Payoff loan, you need to hit certain minimum criteria:

  • Your FICO score needs to be at least 660.

  • Your Debt-to-Income Ratio (your total unsecured debt divided by your annual income) needs to be less than or equal to 50%.

  • You need to have at least three years of credit history.

  • You need to have at least two open and satisfactory trades (lines of credit which you’ve opened and made payments on time) and more than one installment loan within the last year.

  • No current credit delinquencies (payments you owe and have not paid) or delinquencies greater than ninety days within the last year.

For some in debt, these criteria will be difficult to meet. However, if you do not meet these criteria, Payoff has tools that may be able to help you reach better financial standing.

Payoff's Member Advocates and Lift program

Payoff doesn’t want to just give you a loan and let you run wild. It also wants to help make sure that you actually pay down your debt with them and change your financial behavior so that you don’t run up more credit card debt. Payoff has two programs that help users towards these goals.

The first is called a Member Advocate, and everyone who gets a loan through Payoff gets one. Member Advocates are real people who work out of Payoff’s headquarters in Costa Mesa, California. You can think of them as a mix between a financial advisor and a personal customer service representative. They’re there to help you navigate your loan, but they’re also there to help you rebuild your financial life so that you don’t get into debt again.

Payoff wants you to think that Member Advocates are like credit counselors – independent professionals who can help guide you towards different debt management strategies – but it’s important to remember that Member Advocates work for Payoff, not for you. Payoff customers should remember to independently verify any financial advice given. Member Advocates are not available to users who don’t qualify for a Payoff loan.

If you don’t get a loan, you’ll still be invited to join Payoff’s Lift program, which is open to anyone, regardless of whether or not they apply for a loan. Lift is a free tool that promises to help you organize your entire financial life, though it’s not as full-featured as competitors.

Lift, like Mint and other online budgeting tools, connects to your bank account and automatically categorizes your spending. But most of Lift’s help comes in the form of articles and tools that help you understand your credit score, cut your spending, and call companies to reduce your interest rates, amongst other topics.

Unfortunately, you need to create an account in order to access the resources, which many other sites would (and do) offer without requiring your email address. Lift feels like a long-term customer onboarding process – even if you can’t get a loan now, you can use Payoff’s resources until you’re in the state where you do qualify for one of their loans. That doesn’t mean that some users won’t find it a useful tool for getting out of debt. On top of having useful resources, the Lift site is well designed and easy to navigate.

Payoff also features a short Financial Personality quiz that is not part of the Lift program. The results are supposed to help you understand how you approach your money. The results didn’t give me any particularly insight about my own behavior, but for users just starting down a path towards financial responsibility, the quiz may be a useful tool.

Who are Payoff’s competitors?

There are lots of competitors out there offering personal loans at pretty competitive rates:

  • Discover offers personal loans with rates between 6.99% and 29.99% APR.

  • SoFi offers personal loans with rates between 5.50% and 10.24% APR.

  • Upstart offers personal loans with rates between ~5.00% and 25.26%.

  • Earnest offers personal loans with rates between 5.00% and 9.25%.

  • Basically any bank or credit union offers personal loans with various rates.

If your credit score isn’t high enough to qualify for Payoff’s loans, their competitors may be able to get you a rate. Every lender will have their own application criteria for deciding what your rate is. Rates will also change depending on how much you want to borrow and how long you need to borrow for. The only way you can know for sure how much you’d pay at each lender is to apply to each one. As long as the lender is only performing a soft pull on your credit report (not all of them do), it is safe to get rates from multiple loan companies. (You may need to apply to get a rate – if you apply, make sure you’re not locked in to the loan and that it’s just a soft pull on your credit score.)

A personal loan may also not be the right choice for you. Depending on how much debt you have, it may make more sense to consolidate your debt using a balance transfer. A balance transfer is when you use one credit card to pay off another. This may seem even more counter-productive than taking out a loan to pay off debt, but hear me out! There are many credit cards that offer introductory rates of 0% APR for up to fifteen months – basically, fifteen months to pay back your credit cards without having to worry about interest. If you can pay off all of your debt within the time frame of the introductory APR, it’s like getting a free loan from the credit card company.

Should you use Payoff to pay off your credit cards?

Paying down credit card debt isn’t just about finding the right financial tool or picking the best strategy or getting a cheap loan. It’s mostly behavioral; if you don’t understand why you got into debt in the first place, you’ll either never make it out of debt or you’ll find yourself back when you started.

Payoff understands that, and built tools to directly confront the psychological reality of paying off credit card debt. Even if you’re not a Payoff customer, you can use their free resources to help you take control of your finances.

Of course, you can find both personal loans and financial resources elsewhere and build your own version of Payoff through a mish-mash of other sources. A personal loan may also not make sense for your debt situation – you may be better off with a balance transfer or a debt management plan administered by a credit counselor. One huge negative of a personal loan is that it instantly frees up all of your lines of credit, making it easy to start abusing them again.

It’s admirable that Payoff is merging the both a financial product and education into one platform. There’s a lot of room for growth – Payoff could eventually help customers pay off student loans or mortgages, or help them save and invest. They do seem to care a lot about getting their customers out of debt, and it’s hard not to get at least a little excited about a financial company that appears to care about their users.

If using a personal loan to pay off your credit cards makes sense for your financial situation, check out Payoff and get your rate today.

Disclosure: We may use affiliate codes when linking to third parties. These codes earn us a small commission, but their presence does not influence which services or apps we choose to recommend, or our reviews of them.

Image: Duncan Rawlinson