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Friend needs help on how to pay off debts with a loan

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AeroKrix
Frequent Contributor

Friend needs help on how to pay off debts with a loan

My friends dad loaned him $8000, god bless his soul, to pay off as much cc debt as possible. As generous as the gesture is, it isnt enough to cover all, but will cover most, of his debt. Here is a list of all his CC debt..

 

CC1 - Balance: 5800/6000 - age: 13mo - Interest: 18%

 

CC2 - Balance: 2300/2500 - age: 14mo - Interest: 17.25%

 

CC3 - Balance: 1200/1500 - age: 2yrs - Interest: 22%

 

CC4 - Balance: 1500/1700 - age: 2.5yrs - Interest: 24%

 

CC5 - Balance: 800/1000 - age: 6mo - Interest 24%

 

CC6 - Balance: 600/1000 - age: 8mo - Interest 19%

 

Whats the best way to pay these debts to maximize his score? We figured he'd pay off CC5 and CC6 off to zero balance and then lower all the balances of the remaining cards to below 30% utilization. Does anyone have a better idea or way to get the most out of the loan? Any input would be great! Thanks!

Current 09/01/2021 EQ - 515 FAKO ; EX - 591 FICO ; TU - 598 FICO

Venmo CC $5.0K || Paypal Cashback CC $2.0K || Walmart CC $3.0K || CapOne QS1 $700 || CapOne QS $800 || Mission Lane $1.5K || Merrick $1.0K || AMEX Optima $500
Message 1 of 4
3 REPLIES 3
Anonymous
Not applicable

Re: Friend needs help on how to pay off debts with a loan

Why did your friend rack up such debt?  Without knowing that, it's difficult to know how to best answer. Sure, your friend could simply pay the cards down in some varying order, but that won't do any good, if they're going to run them back up again.

 

Without knowing more detail, I'm going to put out some some possible hypothetical scenerios that may fit your friend's situation:

 

* Irresponsible card usage: Pay off CC1 and CC2 (adds up slightly over $8K, but lets assume he could get a bit more to cover the gap) and close those cards. Yes, that will hurt his utilization, aaoa, credit profile, etc. But will help in the longrun to avoid a repeat. To reiterate, this is a hypothetical scenerio, and may not apply to your friend's situation.

 

* Temporary lack of income (and/or now earns more) / a one-time emergency: Simply pay down the cards: CC1 to $2900, CC2 to $1300, CC3 to $0, CC4 to $0, CC5 to $0, CC6 to $0. There's no one right answer, but my rationale is knock out the small high rate cards and concentrate the debt to the lower rate, higher balance cards. Not ideal in regards to utilization, but that's a temporary condition, and will rapidly improve as those remaining cards get paid down.

 

* Friend has other debt / needs funds for large purchase: Put half towards the CCs and the other towards the other debt / expense. Pay CC1 to $4800, CC2 to $1500, CC3 to $0, CC4 to $900, CC to $500, CC6 to $500. Not ideal for utility and the numbers can be adjusted better, but gives an idea of how to put $4K towards the debt with the remainder going towards some other non CC debt / large expense (ie. deposit on car, medical procedure, etc).

 

Hope this gives you some good ideas to pass on to your friend.

Message 2 of 4
AeroKrix
Frequent Contributor

Re: Friend needs help on how to pay off debts with a loan


@Anonymous wrote:

Why did your friend rack up such debt?  Without knowing that, it's difficult to know how to best answer. Sure, your friend could simply pay the cards down in some varying order, but that won't do any good, if they're going to run them back up again.

 

Without knowing more detail, I'm going to put out some some possible hypothetical scenerios that may fit your friend's situation:

 

* Irresponsible card usage: Pay off CC1 and CC2 (adds up slightly over $8K, but lets assume he could get a bit more to cover the gap) and close those cards. Yes, that will hurt his utilization, aaoa, credit profile, etc. But will help in the longrun to avoid a repeat. To reiterate, this is a hypothetical scenerio, and may not apply to your friend's situation.

 

* Temporary lack of income (and/or now earns more) / a one-time emergency: Simply pay down the cards: CC1 to $2900, CC2 to $1300, CC3 to $0, CC4 to $0, CC5 to $0, CC6 to $0. There's no one right answer, but my rationale is knock out the small high rate cards and concentrate the debt to the lower rate, higher balance cards. Not ideal in regards to utilization, but that's a temporary condition, and will rapidly improve as those remaining cards get paid down.

 

* Friend has other debt / needs funds for large purchase: Put half towards the CCs and the other towards the other debt / expense. Pay CC1 to $4800, CC2 to $1500, CC3 to $0, CC4 to $900, CC to $500, CC6 to $500. Not ideal for utility and the numbers can be adjusted better, but gives an idea of how to put $4K towards the debt with the remainder going towards some other non CC debt / large expense (ie. deposit on car, medical procedure, etc).

 

Hope this gives you some good ideas to pass on to your friend.


Thanks for the input ronpa. From what I gather, he was never irresponsible with debt, just fell onto hard, financial times and been trying to catch up. Going over his report, he has zero negatives in the past 7 years. Over the last 12 months since losing his job, his score has taken a huge hit from the high utilization. Instead of using a vast majority of his savings, he opted for the loan from his father...interest free.

 

Option #2 seems like the most viable option and in line with what we were initially thinking. Before we start paying off the debts, we are still exploring other options. Thanks again.

Current 09/01/2021 EQ - 515 FAKO ; EX - 591 FICO ; TU - 598 FICO

Venmo CC $5.0K || Paypal Cashback CC $2.0K || Walmart CC $3.0K || CapOne QS1 $700 || CapOne QS $800 || Mission Lane $1.5K || Merrick $1.0K || AMEX Optima $500
Message 3 of 4
Anonymous
Not applicable

Re: Friend needs help on how to pay off debts with a loan


@AeroKrix wrote:

My friends dad loaned him $8000, god bless his soul, to pay off as much cc debt as possible. As generous as the gesture is, it isnt enough to cover all, but will cover most, of his debt. Here is a list of all his CC debt..

 

CC1 - Balance: 5800/6000 - age: 13mo - Interest: 18%

 

CC2 - Balance: 2300/2500 - age: 14mo - Interest: 17.25%

 

CC3 - Balance: 1200/1500 - age: 2yrs - Interest: 22%

 

CC4 - Balance: 1500/1700 - age: 2.5yrs - Interest: 24%

 

CC5 - Balance: 800/1000 - age: 6mo - Interest 24%

 

CC6 - Balance: 600/1000 - age: 8mo - Interest 19%

 

Whats the best way to pay these debts to maximize his score? We figured he'd pay off CC5 and CC6 off to zero balance and then lower all the balances of the remaining cards to below 30% utilization. Does anyone have a better idea or way to get the most out of the loan? Any input would be great! Thanks!


I would pay off the four smallest balances entirely, and get the two big ones to just under 50% each. Then throw everything but the kitchen sink at the smaller one to get it paid off first, while doing minimum payments on the largest one. I take it he is in a position now where he does not need to use the credit cards any longer?

Message 4 of 4
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