Need advice on paying down CC's

[Anonymous]

Hello, I am trying to figure out what to do with my CC situation. Everyone’s situation seems different so I am looking for some relevant opinions on mine. I have had people give me varying advice from filing bankruptcy, debt negotiation, debt management program and credit card counseling. Ok, here is my sob story. I acquired approx $20k in credit card debt from a divorce proceeding about 3 years ago. I am still kinda bitter since most of this CC debt is not mine, I had the higher income so I am stuck with the bill. The balance is carried on 4 separate CC’s with varying interest rates. Until recently I haven’t been ready to make a commitment to tackling this debt and have just been paying the minimum due each month. It seemed easier to usually pay the minimum and put it out of mind with everything else I had going on and wanted to do being FREE to roam as I wanted! I am current on everything never missing payments on car, mortgage but have been a few days late on CC but not because I couldn’t pay, I simply forgot to send the payment. Things have calmed down, so now I am ready to concentrate on making this debt go away and stop paying interest! I struggle with the fact that I have this debt, since I did not make many of the purchases nor do I have anything to show for it. Sometimes I feel I would rather declare bankruptcy or do debt settlement so I wouldn’t have to pay it. But after researching, I know it would wreck my credit for a long time, right? Looks like I wouldn’t even qualify. I don’t feel I need credit counseling because I know how to make a budget and stick to it. I haven’t used a CC in over 18mo.  That leaves me with a DMP. What is the benefit of using a DMP? From what I see is they help you get back on track with making regular payments and can help to eliminate late fees and reduce interest rates. But this comes with a setup fee and a monthly service charge. The part that I could use is the ability to usually reduce interest rates. Does that happen right away or does it usually take approx 6 months? I feel like I am on track making regular on time payments but what are my chances of getting a lower rate on my own? Don’t really feel like paying someone to make my payments.

Current stats:

Card 1 $5800 14.24%

Card 2 $3480 13.24% (late on this acct twice last 6mo, so they are raising rate unless I reject, but they will then close the acct)

Card 3 $4810 15.24% (acct is closed)

Card 4 $3040 19.24%

So my CC debt is now approx $17K and my utl on the ones that are open is about 89%. I have been able to build up to about $12,500 in savings over the past 2 years. I bought a house last year and my car is decent so I have no big purchases planned in the immediate future. I struggle coming to the conclusion that I need to part with some savings to make some headway since I am paying more interest on CC than earning in savings. Will someone please just give me a swift kick of reassurance that this is the right thing?

Overall Questions:

Should I do a DMP or handle it myself?

Recommendations on how much savings I should use?

Can I call the CCC and ask for a rate reduction if I pay $XXXX amount? Does that help?

Does it help that all four cards are from same CCC?

One account is closed, I should probably pay that one off first?

One account is threatening a rate increase due to two late payments in last 6 months, should I accept or close the account to keep the lower rate?

Hopefully that all makes sense and wasn’t too whiny. Thanks in advance!

[Anonymous]

datch,

Sounds like a quite unfortunately situation, so accept my sympathies.

Don't do debt management program, it will worsen your credit profile and will cost you arm and a leg. From what you wrote, you should be able to navigate your way out on your own and with some friendly advice.

1) Can you take out home equity line of credit on your house/second mortgage? Given the historically low rates, whatever rate you will get from it will be lower than interest rate on credit cards.

2) Call your bank(s) and explain the situation. Explain that you are dedicated to paying off the debt, but any concession on their part will be appreciated. I've had some banks lowering APR as long as I promised not to charge new purchases (the account stayed open). 

3) Can you get any balance transfers to other cards with lower APR?

2) Pay the highest APR CC first. 

3) Close CC that is threatening rate jacking. Don't worry about losing a trade line now.

4) Have at least 6-9 months worth of expenses in savings, maybe even more given the economy. If you have anything over that amount consider paying the fraction towards highest APR card.

Good luck.

[MarineVietVet]

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@maks1806 wrote:

datch,

Sounds like a quite unfortunately situation, so accept my sympathies.

Don't do debt management program, it will worsen your credit profile and will cost you arm and a leg. From what you wrote, you should be able to navigate your way out on your own and with some friendly advice.

1) Can you take out home equity line of credit on your house/second mortgage? Given the historically low rates, whatever rate you will get from it will be lower than interest rate on credit cards.

2) Call your bank(s) and explain the situation. Explain that you are dedicated to paying off the debt, but any concession on their part will be appreciated. I've had some banks lowering APR as long as I promised not to charge new purchases (the account stayed open). 

3) Can you get any balance transfers to other cards with lower APR?

2) Pay the highest APR CC first. 

3) Close CC that is threatening rate jacking. Don't worry about losing a trade line now.

4) Have at least 6-9 months worth of expenses in savings, maybe even more given the economy. If you have anything over that amount consider paying the fraction towards highest APR card.

Good luck.

---

You may be confusing a Debt Management Program and a Debt Settlement Program. A DMP can help and one of the regular posters marty56 has written several times about the process. Hopefully he will read this and respond with more details.

From a BK years ago to:
8/09 TU-765 EQ- 783
9/09 EX pulled by lender 802
3/10 EQ- 800

You can do the same thing with hard work

Credit Scoring 101
Common Abbreviations
Frequently Requested Threads
Credit Problems Which Is Worse?
Whats In Your FICO Score

[Anonymous]

I am NOT confusing anything. 

[Wolf3]

Swift Kick!  Needlessly screwing up your credit because you bitter about divorce only hurts you!

Just take the $!2.5K and pay off most of your CC debt.  Pay the rest off as quick as you can.   Shop around for good balance transfer deals.

[guiness56]

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@Anonymous wrote:

Hello, I am trying to figure out what to do with my CC situation. Everyone’s situation seems different so I am looking for some relevant opinions on mine. I have had people give me varying advice from filing bankruptcy, debt negotiation, debt management program and credit card counseling. Ok, here is my sob story. I acquired approx $20k in credit card debt from a divorce proceeding about 3 years ago. I am still kinda bitter since most of this CC debt is not mine, I had the higher income so I am stuck with the bill. The balance is carried on 4 separate CC’s with varying interest rates. Until recently I haven’t been ready to make a commitment to tackling this debt and have just been paying the minimum due each month. It seemed easier to usually pay the minimum and put it out of mind with everything else I had going on and wanted to do being FREE to roam as I wanted! I am current on everything never missing payments on car, mortgage but have been a few days late on CC but not because I couldn’t pay, I simply forgot to send the payment. Things have calmed down, so now I am ready to concentrate on making this debt go away and stop paying interest! I struggle with the fact that I have this debt, since I did not make many of the purchases nor do I have anything to show for it. Sometimes I feel I would rather declare bankruptcy or do debt settlement so I wouldn’t have to pay it. But after researching, I know it would wreck my credit for a long time, right? Looks like I wouldn’t even qualify. I don’t feel I need credit counseling because I know how to make a budget and stick to it. I haven’t used a CC in over 18mo.  That leaves me with a DMP. What is the benefit of using a DMP? From what I see is they help you get back on track with making regular payments and can help to eliminate late fees and reduce interest rates. But this comes with a setup fee and a monthly service charge. The part that I could use is the ability to usually reduce interest rates. Does that happen right away or does it usually take approx 6 months? I feel like I am on track making regular on time payments but what are my chances of getting a lower rate on my own? Don’t really feel like paying someone to make my payments.

Current stats:

Card 1 $5800 14.24%

Card 2 $3480 13.24% (late on this acct twice last 6mo, so they are raising rate unless I reject, but they will then close the acct)

Card 3 $4810 15.24% (acct is closed)

Card 4 $3040 19.24%

So my CC debt is now approx $17K and my utl on the ones that are open is about 89%. I have been able to build up to about $12,500 in savings over the past 2 years. I bought a house last year and my car is decent so I have no big purchases planned in the immediate future. I struggle coming to the conclusion that I need to part with some savings to make some headway since I am paying more interest on CC than earning in savings. Will someone please just give me a swift kick of reassurance that this is the right thing?

Overall Questions:

Should I do a DMP or handle it myself?

Recommendations on how much savings I should use?

Can I call the CCC and ask for a rate reduction if I pay $XXXX amount? Does that help?

Does it help that all four cards are from same CCC?

One account is closed, I should probably pay that one off first?

One account is threatening a rate increase due to two late payments in last 6 months, should I accept or close the account to keep the lower rate?

Hopefully that all makes sense and wasn’t too whiny. Thanks in advance!

---

Hi and welcome to the forums.

Any closed CC account with a balance is hurting your score as it counts toward your utilization.  Paying that off first would be the place to start.

You never want to close a CC that has a balance.  Be careful when asking for a rate reduction, it may end up being a payment plan.  You do not want that.  They will give you a late every month.

There are several ways to go with paying down the CCs.  I would start with the one with the lowest balance.  Pay more on that one while maintaining your minimum payments on the others.  When that is paid off, take the money you used for payments and start on the next lowest balance.  Keep it up until they are paid down to at least 10%.

Whether you want to use your savings to do this is up to you.  I would consider using it to pay off the closed account to get it out of the utilization equation.

[Jazzzy]

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@Anonymous wrote:

Overall Questions:

Should I do a DMP or handle it myself? Handle it yourself.

Recommendations on how much savings I should use? Make sure you have enough to survive for 6 to 8 mos if you lose your job. If there is excess above that, throw it towards this debt.

Can I call the CCC and ask for a rate reduction if I pay $XXXX amount? Does that help? You can call. You may have luck, or it may backfire. When folks call cc companies and go through a litany of their money woes, they often end up with thier account closed. If you call, don't give them any negatives.

Does it help that all four cards are from same CCC? Not really

One account is closed, I should probably pay that one off first? Depends upon whether you are looking for dollar savings or FICO maximization. To save dollars, pay the one with the highest interest rate first. To maximize FICO, it still depends upon how this closed account is reporting. Does your credit report give a credit limit, and are you given credit for that credit limit in your utilization calculations? If so, you're not being hurt by it, and some people would suggest paying this one off last in order to keep the credit line showing. It all depends on how it is reported for you.

One account is threatening a rate increase due to two late payments in last 6 months, should I accept or close the account to keep the lower rate? I'd close the account to keep the lower rate.

Hopefully that all makes sense and wasn’t too whiny. Thanks in advance!

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I know it's frustrating to have to pay this off. But, as said above, you are only hurting yourself by fighting it. As my son always says, "It is what it is." Get it gone ASAP.

[RobertEG]

Let's do a rough estimate.

You say you have $17K of debt.  Lets assume that is a low, 12% apr on each account.  That is 1% interest out of pocket each month.

That equates to $170 a month just in interest on existing CC debt.  Money out of pocket, with no reduction on next month's principal unless it is above $170.

I doubt that interest on savings is $170 a month.

Aside from the financial bucks, high % util history is red flag for reduction of your CLs.

As you pay, you may see your CLs reduced down to your current balance,, and thus your % util and FICO score show little improvement.

[Anonymous]

Datch, I was in a similar situation to you......had about 5X the debt you had, no job, credit score was almost falling into the 500's.

(1)  Make sure you pay at least the minimums EVERY MONTH.   Either have them suck it out of your checking account a few days before the due date or do it yourself but set your CC preferences to give you an E-Mail Alert a few days before or a week before.

(2)  If your cash flow can handle it, pay off a bit more than the minimum each month.  If you can pay a total of $300-$500 a month you will make a dent in the CC debt after a year, your FICO score WILL go up, and you don't have to touch your savings.

(3)  I am sympathetic to not wanting to touch the savings.  Psycholoogically, it felt 'good' to have something that was mine even though a case could be made to use it to pay off high-rate CC's.  In my profession, being a financial services professional, I was actually confident that I could earn MORE than the rate charged by the CC so I had an extra incentive to not use my savings to pay off the CC's.

(4)  I lean AGAINST touching the savings to pay down the CC debt but only if you earn enough and have enough cash flow to 'make a dent' in the principal on the CC's.  Can you pay off $300 a month?  If so, that would be great.....if you can do $500/month, you can almost cut the debt in half in 18 months.  No need to hit your savings, then. 

(5)  Look into the HELOC as a lower-rate way to pay off the CC's.   Better to pay off $12,500 at 7% than 14-15%.

Report back, let us know what you're doing.  Oh yeah, it took me 4+ years, but I got my credit score up from the low-600's to just short of 800 and I've been out of work since last June !

[Anonymous]

To all the other opinions, I would add:

- Can you:

- Borrow against home equity?

- Borrow against 401(k)

- Borrow from friend or relative

- Do a balance transfer to a lower rate (do the math to see if it actually saves you money)

- Sell something

- Generate extra income

Look at your savings and see how much to can devote to debt reduction without sacrificing whatever cushion you need for peace-of-mind.

Get medieval on yourself about scheduling your payments.  Make a calendar, set up a spreadsheet, carve notches on your cell wall, whatever it takes to never be late again.

Pay off the exact minimum on every card except the highest APR.  Pay that one down as fast as you can.

I played this game a few years ago.  It sucks because so much goes to the interest.  You can be dumb like I was and add the occasional late payment to it for extra fun, and then they raise the interest rate to soul-draining levels.

But once you get some traction on it, it starts snowballing in your favor.