$32K in debt between two people. $2600 in payments every month. best plan of action?

[Anonymous]

Hi everybody,

My husband and I are in quite a bit of credit card debt, and we are looking for the most efficient way (in terms of reducing interest, raising credit scores) to get out of it!

Here's a breakdown...

Me:

Best Buy - $875 @ 0% until 2/2013

Chase Freedom 1- $0/$5400 (balance/limit) with 0% APR BT offer til 9/2013

Chase Freedom 2- $3500/$8000 @ 10% with 0% APR BT offer til 9/2013

Citi Simplicity - $0/$3000 with 0% APR BT offer til 6/2014

Discover More - $4200/4500 @ 0% til 8/2013

(I also have a few other balance-less cards that currently do not have offers, totalling my total credit limit to around $30K)

Husband:

BoA - $1800/$4500 @ 9%

USC - $6700/$10000 @ 10%

First Financial - $14800/15000 @ 29% (ouch!)

(Husband also has a few more, totalling his credit limit to $35,000)

Whew! Okay, starting this month, we will be able to designate $2600 every month to our debt.

We originally thought about transferring $2000 every month from my husband's three accounts into my 0% accounts with a BT fee of 3%. We would be able to do this for the next four months. We would then pay $2600 from my various accounts, essentially paying off $600 from my total balance every month. The original thought process for this solution was that there would be more activity in my accounts, so the ability to pay off $2600 every month would be viewed positively and thus raise my credit score.

But I've been thinking...would this hold actually true? Or would it be smarter to simply pay off $2000 directly from my husband's account and $600 from mine every month? (This would, of course, save the $60 transfer fees...)

I'm interested in reducing the total interest we will have to pay but also in maximizing our credit scores. Please let me know your thoughts. Thank you.

[Anonymous]

I would hit that 14800/15000 and your Discover first. That's gotta be killing utilization. I don't think how much you pay a month matters, as long as you're on time. Knock out or down those two big ones and work on the smaller balances, and you should see some improvement.

[Uborrow-Upay]

Ditto!  Those are the two biggies, and think with your wallet first. 

That 29% is killing you both.  Kill it first.

And, BTW, ...welcome to the community ! 

[Excelsior]

In terms of minimizing interest I would suggest the following:

1) Transfer a chunk of the First Financial balance to your 0% BT 0 bal Freedom and your 0% BT Simplicity accounts.

2) Start paying down the First Financial balance on your husband's account to something reasonable.

3) Then I'd start splitting payments between your various accounts, maybe hitting your 10% Freedom.

That 29% is pretty rough so I'd try to get that account down as quickly as you can.

[LS2982]

I agree the First Financial and Discover need to be hit 1st. Rest of $$ to others.

[Anonymous]

Thanks for the responses (and the welcome). 

I did not know utilization was taken into account for individual credit cards. I was always under the notion that total utilization took precedence. Now I know!

[trumpet-205]

I disagree with paying down 29% at first, people seems to forgot we have things called minimum interest charge and minimum payment.

My suggestion is snow ball method. You pay down the card with the least amount of balance first, then the next smallest, etc. This method allows you to free up more minimum payments as you pay down your debt, and you do not have to overpay your interest from minimum interest charge. Hence the word snowball, as later on your payment grows.

Another method would be to open up a personal loan and consolidate all your CC debts.

[FrugalRican]

This one is a toughie, because of the much larger amounts, albeit with the nice payment opportunity per month.

Usually I'd say attack the 29% first, because interest over time is going to be ridiculous.

But here's my problem, you're going to have to put "FICO scores" aside. Forget that. You need to go for financial sense first, because any way you cut it, you're not going to do better score-wise until most of these credit cards have MUCH lower balances.

And the number $2,600 looks pretty, but that's getting split over 5 cards.

So even if you're paying minimums on 4 of them, you're not getting the full effect of using the whole $2,600 each month until you have one card remaining.

I bet that the maxed out card alone is paying at least $200 a month. The allocated money will always be $2,600 but you get more bang for your buck as you reduce a card one by one.

Personally, I'd attack the husbands debt first, because it seems that she has 0% offers that will last another 14 months. If the husband's debt gets to 0 within the next few months, her debt is a little more easier attacked by next summer. I'd hit the BoA first, USC second, then the biggie last while paying the minimums on all of the cards, but that's just me.

@trumpet, it's not that people forget about minimum interest charge and minimum payment, it's just that there is never a clear cut way to attack debt.

[Anonymous]

Would transferring about 6000 dollars of debt from my husband's acct to mine be a bad idea (assuming of course that we do not divorce in the next year or so, haha)? My overall utilization would jump up to 50% and my score would take a hit. But we'd certainly save more by doing this...

[Quips]

Put improving the FICO score aside - i would do whatever you can to minimize the interest you are paying on your husbands debt. I would BT as much of the First Financial debt to your Chase and Citi 0% BT offers. Then I would use the $2,600 a month to pay off the debt - paying the highest interest cards fist (obviously getting the First Financial to $0 balance is the first priority). Since all of your BT offers are 0% until at least 8/13 - that gives you over a year to pay it off/down.