Using income tax to pay down CC debt?

[efranklin23]

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@SunriseEarth wrote:

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@WallyxD wrote:

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@efranklin23 wrote:

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@WallyxD wrote:

Hey guys, I'm currently in the process of filing my taxes, and so far I'll be getting around 1.5k back.  I have about 4.5k in credit card debt (helping people out and going crazy when the cards were first opened), and my savings account is also depleted.  I figured it'd be a no brainer to use all of my income tax to pay down my debt, but I have absolutely no type of cushion due to me having pretty much nothing in my savings account, which has been making me uncomfortable.  What would you guys suggest I do?  If need be, I can provide my CC balances and interest rates so that you guys can give suggestions as to what exactly to pay off.  Also, how do you guys feel about me taking out a personal loan as a way to consolidate my remaining debt?

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You need to provide more info like the Util for each card. But to get started, I would start by saying you need to have some money in your savings account. We can't help until we have more info. At this moment, I would avoid type of loan until you paid your debt down to a comfortable level (under 10%)

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Here are my balances (odd interest rates, I know):

AE Visa: $1780/2300 23.99%

AE Store Card: $23/700 24.99%

Chase Amazon: $470/500 22.24%

Citi: $1335/1500 13.74%

CapOne: $630/1200 19.80%

Walmart: $360/1350 22.90%

Paypal SC: $180/300 26.99%

And I only considered taking out a loan so that I'll only have one payment per month to make instead of making 7 individual payments per month, I thought it was a good idea lol.

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Looking into a consolidation loan isn't a bad idea if you can get a favorable rate.   However, given that so many of your CCs are practially maxed out, you might only be able to get one of those high APR loans.  I'd say it will also be difficult at this point to get CLIs or any good BT offers.  So the best plan would be just to pay on the debt and not accumulate more. 

I'm also going to disagree with those who say you need savings as a buffer.  You could use your CCs as an emergency buffer, instead of having the CCs eat up your money in interest.  So my advice would be to pay down the major CCs.  If I were you, I'd pay off the Chase Amazon and then put the rest on AE Visa, and then SD those CCs, unless you have an emergency.   Then work on a plan that would allow you to pay more on your debt (cutting expenses, increasing income, etc).

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+1 This is the reason why I don't recommend the loan. Based on the Credit portfolio, you have CCs maxed out and they're more likely to give you a loan with much higher interest than your CCs. 

Here's an proposal on my end:

Put 840 on AE Visa

Put 200 on Chase Amazon

Put 370 on Citi

Put 90 on Paypal

You should put your whole 1500 on your credit cards to get them all under 60% as soon as you can. And also, stop spending money!! Based on your income, your spending doesn't support and I would recommend getting another job or find another source of income as the interest will start to accrue on these accounts. Also, make more than the minimal payment, you need to pay these balances to the point you have 10% of UTIL so you can be ont he safe zone. I would also recommend getting an summer job and/ or paid internship.  

[All4One]

Yeah, savings is good, but the interest will be eating up your savings.  If you pay the cards down now and ended up needing an emergency fund, you could just use the cards again or a personal loan.

[Chris679]

Personally I would not worry about savings, utilization, credit scores or any AA from creditors if I was paying 25% interest on any card. Your focus should be paying as little interest as possible by paying the minimum on all cards and every penny left over to the highest interest rates.

Lending club or other types of consolidation loans are a great idea and assuming you are current on everything you can do better than the rates you are currently paying.

[toppers555]

I would put most of it towards bill maybe save   200 or so for saving, 

[compassion101]

What money do you spend per month?

Do you need an emergency fund or will your parents or someone bail you out if you can't afford food?

I think you need to budget first, then decide where to pay and how long it will take you.

[WallyxD]

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@notfancy wrote:

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@WallyxD wrote:

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@efranklin23 wrote:

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@WallyxD wrote:

Hey guys, I'm currently in the process of filing my taxes, and so far I'll be getting around 1.5k back.  I have about 4.5k in credit card debt (helping people out and going crazy when the cards were first opened), and my savings account is also depleted.  I figured it'd be a no brainer to use all of my income tax to pay down my debt, but I have absolutely no type of cushion due to me having pretty much nothing in my savings account, which has been making me uncomfortable.  What would you guys suggest I do?  If need be, I can provide my CC balances and interest rates so that you guys can give suggestions as to what exactly to pay off.  Also, how do you guys feel about me taking out a personal loan as a way to consolidate my remaining debt?

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You need to provide more info like the Util for each card. But to get started, I would start by saying you need to have some money in your savings account. We can't help until we have more info. At this moment, I would avoid type of loan until you paid your debt down to a comfortable level (under 10%)

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Here are my balances (odd interest rates, I know):

AE Visa: $1780/2300 23.99% 77% UTL

AE Store Card: $23/700 24.99%  3% UTL

Chase Amazon: $470/500 22.24%  94% UTL

Citi: $1335/1500 13.74%  89% UTL

CapOne: $630/1200 19.80% 53% UTL

Walmart: $360/1350 22.90% 27% UTL

Paypal SC: $180/300 26.99% 60% UTL

TOTAL: 4778/7850 61% UTL

And I only considered taking out a loan so that I'll only have one payment per month to make instead of making 7 individual payments per month, I thought it was a good idea lol.

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I would at least pay off the small charge on the AE card, and try to get all of your balances under 60% UTL.

A lender looking at your report seeing 80-90% UTL will consider those accounts maxed and you as a credit risk, which could possibly lead to adverse actions, such as account closure (rare), credit limit decreases, higher aprs, denial of credit, etc. With having a balance on every card you have, and many of them close to their limits, you  will probably get denied if you apply for a loan, even if it is to consolidate your debt.

Spend the $203 to pay off the AE and Paypal accounts.  You could potentially pay off your Paypal, Chase,  Walmart and Cap 1 accounts, but that would still leave you near maxed out on your AE visa and Citi... so either way that isn't going to help you out a ton, which is why I suggested at least getting your balances down to at least 60% or lower.

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notfancy and efranklin23, is 60% utilization a threshold when it comes to scores?

[WallyxD]

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@compassion101 wrote:

What money do you spend per month?

Do you need an emergency fund or will your parents or someone bail you out if you can't afford food?

I think you need to budget first, then decide where to pay and how long it will take you.

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For those asking about my budgeting and spending, budget-wise, I don't really spend a lot of money at all.  There are the occasional weeks where I spend much more on food than I need to/should be (that only happens when I don't get a chance to go food shopping on the weekends). Sticking to a strict diet, about $200 a month or so for food is enough, train tickets back and forth from my apartment to home once a week is about $60/month, and other necessities.  My rent is taken care of, but I do have utilities (15 for Comcast, and about 100 for electric/gas). 

Aside from this week (where I spent a ton of money ordering out), I've been doing pretty well with budgeting.  I only have a 'paper budget' for right now, but am considering making a spreadsheet as a way for me to take my budgeting more seriously.  .

[notfancy]

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@WallyxD wrote:

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@notfancy wrote:

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@WallyxD wrote:

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@efranklin23 wrote:

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@WallyxD wrote:

Hey guys, I'm currently in the process of filing my taxes, and so far I'll be getting around 1.5k back.  I have about 4.5k in credit card debt (helping people out and going crazy when the cards were first opened), and my savings account is also depleted.  I figured it'd be a no brainer to use all of my income tax to pay down my debt, but I have absolutely no type of cushion due to me having pretty much nothing in my savings account, which has been making me uncomfortable.  What would you guys suggest I do?  If need be, I can provide my CC balances and interest rates so that you guys can give suggestions as to what exactly to pay off.  Also, how do you guys feel about me taking out a personal loan as a way to consolidate my remaining debt?

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You need to provide more info like the Util for each card. But to get started, I would start by saying you need to have some money in your savings account. We can't help until we have more info. At this moment, I would avoid type of loan until you paid your debt down to a comfortable level (under 10%)

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Here are my balances (odd interest rates, I know):

AE Visa: $1780/2300 23.99% 77% UTL

AE Store Card: $23/700 24.99%  3% UTL

Chase Amazon: $470/500 22.24%  94% UTL

Citi: $1335/1500 13.74%  89% UTL

CapOne: $630/1200 19.80% 53% UTL

Walmart: $360/1350 22.90% 27% UTL

Paypal SC: $180/300 26.99% 60% UTL

TOTAL: 4778/7850 61% UTL

And I only considered taking out a loan so that I'll only have one payment per month to make instead of making 7 individual payments per month, I thought it was a good idea lol.

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I would at least pay off the small charge on the AE card, and try to get all of your balances under 60% UTL.

A lender looking at your report seeing 80-90% UTL will consider those accounts maxed and you as a credit risk, which could possibly lead to adverse actions, such as account closure (rare), credit limit decreases, higher APRs, denial of credit, etc. With having a balance on every card you have, and many of them close to their limits, you  will probably get denied if you apply for a loan, even if it is to consolidate your debt.

Spend the $203 to pay off the AE and Paypal accounts.  You could potentially pay off your Paypal, Chase,  Walmart and Cap 1 accounts, but that would still leave you near maxed out on your AE visa and Citi... so either way that isn't going to help you out a ton, which is why I suggested at least getting your balances down to at least 60% or lower.

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notfancy and efranklin23, is 60% utilization a threshold when it comes to scores?

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It's enough that you won't be considered "maxed out" and as much of a risk to your lenders. Every 10% you can lower your debt, you should receive a score bump as well.  I'm sure someone with more expertise can add to this and give you a more detailed explanation.

I saw your second post about your expenses, and I'm glad that they are not too out of hand for you.

If you can pay off your Cap One account, try to get it converted to Quicksilver. I don't know what, if any, rewards you have on your other cards, but if you're going to make purchases on them, it would be nice if you could get something back for it. Also, this way- once your debt is lower you can buy your groceries and train tickets on a card that gives you cash back and then if you immediately pay those purchases off (using your CC like a debit card: spend them immediate pay off even if it means you pay one bill several times in one month) you could get about $4 back every month. It isn't much but it's better than spending the $200 on groceries and 60 on train tickets and getting nothing back at all AND possibly paying interest. There are other cards that are better reward wise for groceries and travel tickets but I don't know if you have one of those yet. Make your credit and your money work for you!

Sign up on Quizzle, Credit Karma, Credit Seseme, credit.com... the scores are junk but at least it would give you sort of a guideline, and you can see things like your balances, total UTL, age of accounts, etc... all the things that can help you with credit decisions and understanding in the future!

[ForMyBiz]

I wish you luck OP, I got into trouble in college  with credit cards (was in a pretty similar position) and it took me years to bounce back.

Personally (and knowing what I know now), I would not only pay off as much of the debt as possible with your tax return, but also consider selling any of the extras that you may have bought that still have value and can be resold via craigslist, ebay, flyers on campus etc. or even returned.   A stereo (example of course) is worth far less now than your credit rating will be in the future.

Also, someone else mentioned it and It's probably not a terrible idea, see if you can borrow (more if you already have student loans) as a stafford loan, especially if the interest is subsidized.  That would at least buy you some time.

[SunriseEarth]

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@Chris679 wrote:
Personally I would not worry about savings, utilization, credit scores or any AA from creditors if I was paying 25% interest on any card. Your focus should be paying as little interest as possible by paying the minimum on all cards and every penny left over to the highest interest rates.

Lending club or other types of consolidation loans are a great idea and assuming you are current on everything you can do better than the rates you are currently paying.

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+1.  This plan would get you out of debt the fastest.