Payoff review: A better way to pay card debt?

If you have more credit card debt than you can pay off, you’re not alone. According to the credit bureau Experian, the average credit card debt for Americans increased by 3% in 2019, giving cardholders an average of $6,194 in unpaid credit card balances. And with the COVID-19 pandemic wreaking havoc on the workforce, even cardholders who avoid carrying a balance might find themselves in a pinch this year.

That’s where Payoff comes in – a financial service that will loan you money to pay off your credit card debt. Essentially, Payoff will give you a personal loan that you can use to pay off your credit cards in full. Then you’ll make fixed monthly payments to Payoff until you pay back your loan.

Let’s take a close look at how Payoff works, who qualifies for a Payoff loan and how to decide whether Payoff is right for you.

What is Payoff?

Payoff is a financial services company that issues personal loans to people who want to consolidate and pay off their credit card debt. The service was founded in 2009 and is currently part of Happy Money, a fintech working to help people “leave the world of sad money by paying off their credit cards.”

Is Payoff legit? Yes. Payoff has received an A+ rating from the Better Business Bureau. It is also a BBB Accredited Business, which means that it makes a good faith effort to resolve customer complaints.

While there are some complaints about Payoff’s customer service and the amount of time it takes to open or close a loan, there are also many positive Payoff reviews. Our sister site, Bankrate, gave Payoff 4.6 out of 5 stars.

How does Payoff work?

The Payoff loan is designed to help you pay off your credit card debt by consolidating multiple high-interest credit card payments into a single monthly loan payment. Since debt consolidation is one of the three best strategies for paying off credit card debt, applying for a Payoff loan could be a smart move.

However, it’s important to understand how Payoff works before deciding whether or not to sign up. Payoff offers fixed loan rates between 5.65% (5.99% APR) and 22.59% (24.99% APR), depending on your creditworthiness. You can apply for a loan amount between $5,000 and $40,000 and select a repayment term between two and five years.

If you are approved for a Payoff loan, Payoff will charge an origination fee that can range between 0% and 5%. The money you are borrowing from Payoff will be automatically deposited into your personal checking account, and you can use those funds to pay off your credit card balances. Then you’ll pay a fixed monthly payment to Payoff until your loan is paid off in full.

Aside from the origination fee – which is used to cover the costs of servicing your loan – Payoff does not charge any additional fees. This means you won’t be charged early payment fees, late payment fees, check processing fees or any of the other fees sometimes associated with borrowing money.

According to Payoff, a person who takes out a two-year Payoff loan of $16,000 at 10.99% APR can expect a fixed monthly payment of $407. Your monthly payment might differ depending on the amount of money you borrow, your term length and your APR.

Who can qualify

Payoff considers two major factors – credit score and credit delinquency – before deciding who qualifies for a Payoff loan. If you want your loan application to be approved, it’s a good idea to have a FICO credit score over 640 with no delinquencies on your credit report.

If you have missed payments or other types of delinquencies on your credit report, Payoff suggests resolving those issues before applying for a Payoff loan.

That said, just because you have a FICO score of 640 or higher with no delinquencies doesn’t necessarily mean you’ll qualify for a Payoff loan. Although credit score and credit delinquency are the two big factors Payoff uses to make its approval decisions, the company also takes your debt-to-income ratio, your credit utilization ratio, your payment history and the length of your credit history into account.

How it affects your credit score

Checking Payoff loan rates or prequalifying for a Payoff loan will not hurt your credit score, since the company will only do a soft inquiry on your credit. But if you decide to apply for a Payoff loan, expect a hard inquiry into your credit history. Hard credit inquiries, often known as “hard pulls,” can lower your credit score by a few points.

But as you use your Payoff loan to pay down your credit card debt, expect your credit utilization ratio to drop, which can significantly improve your credit score. And adding an installment loan to your credit report can also help you under the “credit mix” scoring factor, especially if you’ve only used credit cards in the past.

According to Payoff, most people who receive a Payoff loan add roughly 40 points to their FICO credit score.

Comparing Payoff to other debt repayment solutions

Payoff can help you consolidate your credit card balances into a single monthly payment – but so can other loan companies and services. If you’re thinking about consolidating your debt, it’s worth comparing the various debt consolidation methods available to you, including balance transfer credit cards.

Here’s how Payoff stacks up against other debt repayment solutions:

Payoff vs. balance transfer cards

If you want to consolidate your credit card balances, a balance transfer credit card might be the easiest way to get the job done. The best balance transfer credit cards offer a 0% introductory APR on transferred balances for between 15 and 18 months, so you might have over a year to pay off your balances while avoiding interest charges.

Most of these cards charge balance transfer fees, which generally range between 3% and 5% of your transferred balance. This is in line with Payoff’s origination fee, which can be as high as 5% of your loan amount.

The real difference here is that Payoff will start charging interest on your loan as soon as it is issued – which means a balance transfer credit card with a 0% intro APR offer could be a more affordable way of paying off your debt. Learn how balance transfers work, then ask yourself if a balance transfer credit card is right for you.

Payoff vs. debt consolidation loan

There are many types of debt consolidation loans out there, from peer-to-peer lending services to personal loans offered through your own bank or credit union. If you are trying to decide between Payoff and another type of debt consolidation loan, compare all of the variables: interest rates, loan amounts, loan terms and fees.

Don’t forget to look for other factors that might be important to you, such as the ability to pay off your loan early without penalty.

Payoff vs. Tally

Tally is a debt consolidation service with a twist – instead of giving you money that you use to pay off your credit card balances, Tally extends you a line of credit and then begins paying off your credit cards for you.

Tally makes payments on your credit card balances using an algorithm designed to help you save money on interest charges and pay down your debt as quickly as possible. These payments come out of your Tally line of credit, and every month you’ll receive a statement that includes the amount of money Tally put toward your credit card debt as well as any interest you owe against your Tally line of credit.

Is Payoff a good deal?

If you want to consolidate and pay off your credit card debt, Payoff is one of the many options available to you. But is Payoff a good deal? It all depends on what kind of deal you’re able to get from other lenders.

If you are able to qualify for a balance transfer credit card with a 0% intro APR, for example, you might save money by avoiding interest charges for an extended period.

If your credit score isn’t good enough to qualify for a top balance transfer credit card – or if your debt is likely to be higher than a balance transfer card’s credit limit – you might want to look into different types of personal loans and debt consolidation loans, including Payoff. Payoff’s interest rates range between 5.65% (5.99% APR) and 22.59% (24.99% APR), but other loans might offer lower interest rates and fees.

If you plan to take out a Payoff loan, make sure you have compared all of your options and are ready to manage your loan money responsibly. That’s the way to make sure Payoff is a good deal for you.