rebuilding credit -- what to pay first

[jgATL]

I am trying to determine what to pay first after obtaining a large amount of cash.

Overview.  I have been unemployed since December 08 and obtained employment December.  My score has dropped from 720 in December last year to 540.  There are 3 items driving my current score:

Delinquent/on payment plan with primary mortgage:  Will be current by March 2010 -- amount to get current today is $10,000

Large credit debt with low credit availability.  $49,000 debt on $58,000 -- across 6 credit cards.  

Several late payments.  On time for past 90 days.   

I recently sold several assets and now have $27,000 to apply to my debt. I believe that getting my mortgage current is step one, but wanted to validate that this would be the best place to jumpstart my credit score.  

That being the case, should I take the remaining $17,000 and put it toward the highest interest rates, or simply prorate it across the 6 cards?  This amount could clear out 3 of the 6 completely, but would leave the 2 with the highest interest rate.  If applied by the highest interest rate, it would only clear out one credit card.   

Second question, I have about $250k in IRAs/401ks.  I have heard that I can appeal to the IRS to claim hardship on an IRA withdrawal with no penalty. Should I attempt this process to eradicate my current debt? 

Thanks in advance 

[LIGHTNIN]

Welcome to the forums,

congrats on the job!!!  Can you list the 6 CC, balances, credit limits and interest rate?

That will help with answering your questions. Good luck to you. 

[Anonymous]

I agree give us a break down on the cards / balances / credit limits / current interest rates so we can help further

[jgATL]

As requested: 

Sears:  $1,000 @ 25%

            $700 @ 0% (must be paid by may 10)

Wachovia (mine): $14,000 @ 30%

Chase:  $8,800 @ 19%

Amex:  $5,000 @ 27%

Wachovia (spouse): $6,700 @ 27%

FIA:  $12,800 @27% 

Also, is there any strategies I can use with these banks to get these rates lowered? Right now the minimum is staggering and I'd like to make a larger dent in the principal each month.

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[Anonymous]

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@jgATL wrote:

As requested: 

@Sears:  $1,000 @ 25%

@            $700 @ 0% (must be paid by may 10)

@Wachovia (mine): $14,000 @ 30%

@Anonymous:  $8,800 @ 19%

@Anonymous:  $5,000 @ 27%

@Wachovia (spouse): $6,700 @ 27%

@FIA:  $12,800 @Anonymous% 

Also, is there any strategies I can use with these banks to get these rates lowered? Right now the minimum is staggering and I'd like to make a larger dent in the principal each month.

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Personally I would immediately put the $10K needed to catch the house up to use and get it caught up. That will leave you $17K. I would then knock out the $14K Wachovia because it has the highest interest rate. That leaves you with $3K. Now this is where I may differ from some others but I would pay the $1700 on the Sears card. The $1000 is a high 25% even though not the highest you could pay this $1700 and have that card out of the way completely. This will just give you less to keep up with. That will leave you with

@Anonymous $8800 @ 19%

@Anonymous $5000 @ 27%

@Wachovia (spouse) $6700 @ 27%

@FIA $12800 @ 27%

and $1300 you could apply to any of the three 27% cards. This still leaves you with $32000 in credit card debt all at at least 19%. I would not normally recommend taking out of 401K or IRA but if you can do it under the hardship and not pay the penalty in this situation I would do it. It will actually save you money in the long run because you will pay a lot more interest on this $32K in credit card debt than you will make sitting in your 401K. But do that and pay these off and then start putting the money you were paying monthly on the cards into your 401K and boost your deposits to help regain the money you pulled out.

Like I said this is my opinion and I am sure others will vary but I think these cards are going to cost you more than you are going to make off the money in investments so I think it is worth it in this situation.

My only warning would be get the 401K hardship BEFORE paying the $10K on the house because I think that may be one way to get the harship. If you are caught up on your house they may not grant you the hardship waiver I am pretty sure credit card debt doesnt qualify for a hardship waiver but am no expert so check into the hardship terms before paying the mortgage.