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Senior Contributor
fishbjc
Posts: 3,360
Registered: ‎11-30-2007
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Re: CC Payoff Tactics

Thank you Noah for this post!  I'll re-read it again and again until it's all *sunk* into that cavity I call a brain.
Senior Contributor
Noah_Bodie
Posts: 4,635
Registered: ‎03-11-2007
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Re: CC Payoff Tactics



fishbjc wrote:
Thank you Noah for this post!  I'll re-read it again and again until it's all *sunk* into that cavity I call a brain.


Feel free to post a thread with your CC situation and draw my attention to it with a PM. This stuff is far more art than science. Whole lotta folks with opinions and good ideas, and every situation is different.
 
New Member
riva
Posts: 3
Registered: ‎01-12-2008
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Re: CC Payoff Tactics

hi i need advice
if i have 2 cc's with a debt collection agency shoud i pay both down equally and then close or the smallest first. would anyone know if my credit rating would improve much when payed off ?
thanks
Senior Contributor
Noah_Bodie
Posts: 4,635
Registered: ‎03-11-2007
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Re: CC Payoff Tactics

I will concede a portion of Dave Ramsey's advice being sound, on the issue of paying off small debts first regardless of the interest. I can at times go along with the first part of that advice, but not the second part entirely.

If one is looking at several debts to be paid off, divide them up into groups. Let's say there's 5 CCs with APRs of 22.4, 18.3, 18.15, 14.9 and 8.9

Group 1: 22.4
Group 2: 18.3 and 18.15
Group 3: 14.9
Group 4: 8.9

Notice how I lumped together 18.3 and 18.15 into one group because it just ain't gonna matter a whole heck of a lot while gets paid. Close enough for horseshoes, hand grenades and CC APRs. Besides you'll waste more time stressing over which end is up.

In my example, PIF Group 1 CCs first because they are hurting the most. When ya get to Group 2, PIF the smaller one first. Can't say that I buy into Ramsey's view entirely, but life's too short to stress over .15% APR. Also, by PIF the smaller one first, there's less chance once a CC is PIF that you can accidentally forget to make the monthly payment.

Ramsey would have one PIF the smallest debt first even if it were 8.9 APR, and that's just plain dumb.

Senior Contributor
Noah_Bodie
Posts: 4,635
Registered: ‎03-11-2007
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Re: CC Payoff Tactics



riva wrote:
if i have 2 cc's with a debt collection agency shoud i pay both down equally and then close or the smallest first. would anyone know if my credit rating would improve much when payed off ?

We're talking collection agency not debt management agency, right?
 
Do you have anything in writing from them agreeing to update CRA reporting once it's paid?
 
Are you making payments currently?
 
How old are the accounts, approximately? And by that I mean do you know the approximate date when they went 120 days late?
 
Regular Contributor
tryingtogetitrightnow
Posts: 201
Registered: ‎01-30-2008
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Re: CC Payoff Tactics

Hey Noah,

I'd agree that paying down the highest interest rate cards first will save you money and allow you to get your cards paid off the fastest, and that's what I have been doing with mine. However, I do see credence in Dave's advice. The reason is psychological. Most of us haven't been the most responsible in the past, so establishing good habits and sticking with them is very important. When you pay a CC off, it gives you a good feeling. So, I'd say if you're only a couple hundred dollars from paying off a credit card, then it might make sense to pay that one off regardless of the rate just to keep you "on track".

Just my thoughts, though. :-)

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Regular Contributor
tryingtogetitrightnow
Posts: 201
Registered: ‎01-30-2008
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Re: CC Payoff Tactics


Noah_Bodie wrote:

Whenever one is paying down CCs and/or trying to get their CC util down, always consider your overall CC util.

If for example the util on one CC is 84%, but one's overall util is 45%, then a couple of BTs could bring everything under 50% util--within a couple of days, then probably one billing cycle of the CCs for the CCCs to report.




I have 2 remaining revolving credit accounts with the same apr (a LOC and a CC). I have paid off all the other CC's with high APRs. Here are the current balances:

Credit Card: $600 ($4,500 limit)
Line of Credit: $5,600 ($6,000 limit)

And the remaining revolving credit I have with 0 balances have a total limit of about $5,000. Until I can get these last two paid down to 0, is it better to keep them both with lower balances or pay one off entirely? For example, would it be better for me to keep the balances like this:

Credit Card: $3,000 ($4,500 limit)
Line of Credit: $3,200 ($6,000 limit)

Then I would have no cards with very high utilization, but two with about 55% utilization. Of course my overall utilization would be the same in either case.

Thanks!

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Regular Contributor
tryingtogetitrightnow
Posts: 201
Registered: ‎01-30-2008
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Re: CC Payoff Tactics

Hey Noah,

Five of my credit cards that I recently PIF have very high APR's (25 - 29%). The remaining 2 that have balances have relatively low APR's (10.9%). Your post was very informative about requesting APR's to be lowered and I'm planning on calling to do that. I was wondering about the increased CLI request, though. Wouldn't they do a hard pull on my credit and cause my score to drop for that, though?

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Established Member
reformedfamilyman
Posts: 51
Registered: ‎02-04-2008
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Re: CC Payoff Tactics

To a financially savvy person, it is certainly dumb... but most people don't get into debt by doing smart things. You can hardly expect them to suddenly be smart about it. Rather than doing the most mathematically sound thing (something they have obviously failed at in every way already), Ramsey encourages them to trick themselves into paying off debts. A quick success has the potential to fuel many more, and larger, successes.
 
 
Regular Contributor
tryingtogetitrightnow
Posts: 201
Registered: ‎01-30-2008
0

Re: CC Payoff Tactics

I guess a lot of people who get themselves into debt might not be super smart mathematically. However, I minored in Math and still got myself into debt and I don't know if all in all I'd consider myself smarter than someone who knows nothing about Math but managed to keep their credit perfect all their life. Guess it depends on how you define "smart". :-)

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