Best debt consolidation/reduction strategy?

[salsa34]

I am looking for a strategy to get out of credit card debt.  

Husband and I have 4 cards with balances totalling about $9,500.  I'd like to consolidate/refinance this debt and then knock it out by making payments over 36 months or so.  Not sure of exact interest rates, but my guess is 18% - 20%+ right now.  we make more than minimum payments, but the amount owed never seems to decrease by much.  The high utilization has not been kind to my credit score, which is currently around 725 or so, but used to be much higher.

We just re-financed and had enough equity for that to go through, but there's not enough equity left for a HELOC (at least according to my bank, which wanted 20% LTV)

I have 70k in a 401k account I could borrow from at 5% interest (paid back to myself), but worry about the opportunity cost of having my money out of the market.

Is a personal loan the answer?  consolidate all debt onto one low interest card?  debt management plan?  

I'm trying to research and weigh all the options, but no clear answer is emerging!

Thoughts?

[HoldingOntoHope]

If you can really pay back the money in 36 months then I think it's a no brainer to borrow it from your 401K. You said that the interest on the 401K is 5%. I know for mine anyway the YTD yield is about 7%. So you are "losing about 2% there. And I know that you would really need to factor it out until the point where you are drawing money out for a real "opportunity cost" but if you are averaging 18% on your current payments then to me that is reducing the payback by enough to forego the calculations. If you really want to make it up then just increase your contribution to the 401K by the difference in the credit card payments and the loan repayment.

[salsa34]

Good advice, thank you!

Also, once the utilization is 0 on the cards, my scores will rise, yes?  I would not want to use the cards at all once they are paid off and I am paying my 401k loan instead.  The 401k payments don't report, so what is the best strategy to keep my score up and show good payment history?  Could we just buy a tank of gas on one of the four cards per month, pay off 100% each month and rotate the cards so the accounts don't close?  Is that enough to keep good paymet history on the report?

We do pay on mortgage and car loans every month like clockwork, but would like to just stop dealing with credit cards very much.

[HoldingOntoHope]

Using each of the cards once a month should keep them from being closed for inactivity. Just use the cards for a purchase you were going to make with debit or cash anyway. The amount is not important. Then pay off most of the cards before the statement cut date. Let one card report a small balance on the statement date and then pay in full before the due date. That way you don't pay any interest.

FICO scoring does not like to see ALL cards reporting a zero balance. Your best score is when one reports a small balance.

[SpideySense]

Hi Salsa34,

I think you're right-on wrt the missed 401k opportunity (don't do it)

I was in your exact position a couple of years ago.   My strategy was to move as much of my credit card debt to 0% interest for as long as I could.  At the same time I  focused on paying off the highest % cards first (regardless of the balance).  This way my payments were maximized.   In fact, I still have $7700 on two cards, both at 0%.   Now I'm in a pretty good position.. and can pay off the 7700.. but I don't/won't need to until the 0% period runs out.

You mention you have 4 cards with balances.  Do you have any other cards that are clear?  If so, check if they've got a 0% balance transfer special.  Meanwhile, (with your 725),  research a new card with a zero-interest-balance-transfer promotion (possibly even zero-transfer fee like chase slate).  

Is your new mortage holder a bank?  See if they've got any CC products that offer a 0% balance transfer special.

Assuming a 4% or 3% or 0% fee (the current bal-xfer-fee standards) -- all are less than pulling from your 401k at 5%

good luck!

ss

[SpideySense]

almost forgot... if, when you say 'debt management' you mean a debt settlement plan.... make sure you do your research. 

I did -- and decided I couldn't live with the ramifications

ss