topic Re: Help! $3k in cc debt, need to reduce interest and need a new car! in Personal Finance

Help! $3k in cc debt, need to reduce interest and need a new car!

Anonymous — Thu, 08 Oct 2020 23:36:30 GMT

Hey guys, I'm turning 27 in a few weeks and I'm in a bit of a bind. I could use some input from people other than my parents (who haven't done great on their own credit journeys..).

I applied for my first CC in 2018 (Cap1 Platinum), after about a year my credit limit was increased to $3500. The credit limit increase happened at a time when I lost my job and was financially struck -- I very quickly maxed out my card. Fast forward a few months to about this time in 2019 and I started to pay off my debt (min. payment $100, paying $150/mo with an interest rate of 25%!!). Right now my balance is about $2900, my credit score is sitting at around 708 according to several sources (cap1 and chase, where I have my regular checking account).

I'm looking for help building a strategy to pay off my debt. To make things complicated, I also need to put myself in a position where I can be approved for an auto loan by next summer if possible. I got a new job in July and I've managed to save about $2k in cash, but the problem is my current car -- it's a 2011 Chevy Malibu and these were built with faulty transmissions. My transmission went out at 80k miles and was rebuilt, the current mileage is at 130k and the car is running great...for now. The transmission is almost sure to fail again, and it's at the mileage where things are going to go downhill in no time. My goal is to sell the car while it still has value, after one more midwestern winter. kbb and my own market research tells me the car can sell for ~$3500.

So I have this credit card debt, my current interest rate hemorraging money, and I need a car.. my thinking is that I need to find a way to reduce my interest rate either through a personal loan with a lower rate, or opening a second credit card to reduce my CU (and ideally balance transfer). So, keeping in mind that I want to build a healthier credit history moving foward, along with needing to reduce my interest rate to avoid wasting more money, what should I do? Is a second credit card a good option (thinking more credit history& lower CU percentage, lower interest etc..), if so what companies/cards should I be looking into? Should I be looking for a personal loan? Should I pay off a chunk of my debt as well, or would it serve me better to hang on to the 2k and continue saving (and keep my financial safety net!). Feel free to school me, I need it!

Thanks for reading

Re: Help! $3k in cc debt, need to reduce interest and need a new car!

tcbofade — Thu, 08 Oct 2020 23:37:24 GMT

You might check the prequalify link at Discover. They might have a zero percent intro rate/BT available for you and you can find out without taking an inquiry.

Don't wish death on your car, that is a self fulfilling prophecy. Change the oil, rotate the tires, tend to the brakes. Fix problems as they arise, but don't go looking for them.

If it were me, I'd apply $1k to the credit card balance and keep $1k in cash.

Good luck!

Re: Help! $3k in cc debt, need to reduce interest and need a new car!

Anonymous — Thu, 08 Oct 2020 23:43:59 GMT

Thanks for your response @tcbofade , no wishing death here! Just trying to think about maximising the value of my assets while I have them!

I'll definitely take a look at discover's website, thanks for the tip.

Re: Help! $3k in cc debt, need to reduce interest and need a new car!

CYBERSAM — Fri, 09 Oct 2020 00:01:43 GMT

Look in to Credit Unions locally or some bigger ones. Having a job should lend you 3K personal loan with not much of issue.

Service Credit Union is easy one to get, DCU is good but they looking for under 40% DTI.

Balance transfer credit card is good idea, but you may not get decent SL on a new card and the time for BT offer is usually 12-18mo.

Depending on your financial situation with new job, PL probably be more flexible and would improve your score for the long run.

Re: Help! $3k in cc debt, need to reduce interest and need a new car!

CreditCuriosity — Fri, 09 Oct 2020 00:06:12 GMT

Discover is a good bet.. On the bright side 2900 in CC debt isnt alot regardless of income or shouldnt be that bad and can be easily knocked out with a 2nd job if needed. Best of luck to you.

Re: Help! $3k in cc debt, need to reduce interest and need a new car!

fatcomic — Fri, 09 Oct 2020 00:13:20 GMT

I second the recomondenation of joining a credit union, they will work with you on refinancing the $3,000 at a lower rate. Or depending on the credit union, they may balance transfer your $3,000 to a lower rate credit card instead, which would be a double win. You would have a lower rate to pay down the $3,000 and then a lower % option credit card to use in the future if you did have to carry a balance again.

Then when you are ready to buy a car, they will give you more favorable terms than a dealer in most cases.

Either way, I would wait unitl you get the $3,000 @ 25% paid off before I would look to get an auto loan. Take the amount you would pay each month for a car payment and apply it to the $3,000 for the time being.

Re: Help! $3k in cc debt, need to reduce interest and need a new car!

Remedios — Fri, 09 Oct 2020 00:15:42 GMT

Chase and Capital one provide Vantage score. Those aren't really used by lenders, so you'd want to find out what your Fico scores are.

If that card is your only card, and your credit history is only two years, it really doesn't look you're going to have an easy time getting approved at this time, because your only account is almost maxed out.

I would suggest you take a look at credit unions and see if you can get a credit card through one.

As far as personal loan goes, with only two years history, unless you can get one through a CU, you're looking at APRs not that far below your card APR.

The simplest solution here is to use the money you saved to pay off credit card debt, then save the amounts you'd be putting towards minimum payment.

That way you'd stop the bleeding, and by next summer with a little extra effort, your savings should accumulate right back where they were.

Re: Help! $3k in cc debt, need to reduce interest and need a new car!

K-in-Boston — Fri, 09 Oct 2020 00:43:16 GMT

Definitely agree with throwing what you have saved for the down payment on the car on the credit card instead. Right now you're bleeding over $60 a month in interest alone on that card. Without a maxed out credit card, you're likely to have much better terms on an auto loan with a smaller down payment or even no down payment, which could potentially save you thousands over the life of the auto loan.

Re: Help! $3k in cc debt, need to reduce interest and need a new car!

NRB525 — Fri, 09 Oct 2020 00:44:53 GMT

Before making any adjustments I'd suggest looking at a few angles.

How confident are you that your job and earnings will continue? If very confident, then that makes the entire situation much better. If not so confident then you need a true buffer in savings.

The savings amount you note, is that completely separate from your cash flow to pay the bills, and pay this card? Your cash flow needs to be well understood.

Next, look at how much you are paying each month in CC interest, and how much you have in savings. Basically your savings may be costing you that much each month in interest cash flow. If you apply some of the savings to the CC, cash flow improves immediately. The rest of the CC bill goes down faster.

Get in touch with a local CU, or a National CU like PenFed. Building the relationship now will set you up for success with borrowing, particularly for a car loan next year.

Good luck!

Re: Help! $3k in cc debt, need to reduce interest and need a new car!

Anonymous — Fri, 09 Oct 2020 01:46:15 GMT

Thanks everyone, these responses are super informative and helpful. Credit Unions were not on my radar at all, but the more I'm looking into them it's definitely a route that sounds right to me.

@NRB525, let me respond to every point you brought up..

The savings amount I have is entirely from cash tips I've received. I use my paycheck from my hourly wage for daily expenses and bills and I don't need to touch the money I make from tips to get by. I keep a record of my tips and I've actually made $4000 in tips alone; however, my parents loaned me money a while ago and I used some of my savings to pay them back and have also bought new clothes & other essential items I've needed for a while. So now I have $2100 in cash.

Also, I'm working as a valet at a hotel, business has been slowing down in the last week as the weather has been changing and it will continue to slow as winter approaches, so this is my answer to your first question -- When I said I got a new job, I really just meant I'm working at a new location, and at this new location my income in tips has substantially increased. I've been working for my current boss for 4 years now, and I'm very confident I will hold this job, but I'm also confident my tips will decrease this winter as less customers will be traveling. There is another factor to consider here, and that's what effect the cooling weather will have on COVID-19 cases in my area. The hotel I work at opened it's doors in February of this year, my boss and the GM at the hotel have both told me they intend to stay open if another round of business closures take place, however it is a wild card factor to consider. There's always a possibility that they're forced to shut down and I could be subsequently forced to go on unemployment at some point this winter.

So, I am a little hesitant to just throw all/half of my savings into my credit card bill. I think putting $800-1000 towards it sounds realistic and beneficial, but I haven't made that decision yet.

Edit: I was also able to check my Fico scores, Exp: 712, Eq: 702, and TU 701. In 2014 I wanted to start building credit and I got a car loan ($3k) from a local Credit Union, but my Dad was paranoid about me being younger and in debt and had me pay it off in just 4 months. So my credit history technically goes a little farther back than just 2 years.

Edit Edit: I'm mostly typing this out because it's helping me map out my situation a little more clearly, if anyone has any more tips with this new info I'm still listening!

Re: Help! $3k in cc debt, need to reduce interest and need a new car!

NRB525 — Fri, 09 Oct 2020 06:36:12 GMT

Thanks for sharing, that's important details that you seem fully aware of.

Still, go meet with a local CU, they may be able to help with a lower APR on your current CC balance.

A rebuilt transmission may last longer than you expect. As noted by others, keep up with the maintenance and see how it goes.

Re: Help! $3k in cc debt, need to reduce interest and need a new car!

CreditBones — Fri, 09 Oct 2020 07:37:21 GMT

I would suggest you to Google the Discover Pre-Qual website link, and see if you get an offer with a solid APR % rate (instead of a range of APR%) If so, apply for it.
If approved, you can then balance xfer at 0% for 12 months.

Pay for the tranny repair with your savings.

In the course of the 12 mo., realocate the $150 pymt towards the bal xfer, join a cred union, add your direct deposit with them, deposit you tips, and add them as income on next year's taxes (do the same for 2021. It will help you down the road with DTI% when req'ing the car loan).

As soon as direct dep processes, ask about a 1 yr small secured personal loan ($250 -$500) to establish a good cred relationship with them.

As soon as your bal xfer gets close to the 12 mo, pay off the remaining of your small secured pers loan, and request a 2 to 5 yrs. unsecured pers loan for the remaining of the bal xfer, and pay off the Discover.

At that time, you can also req a cred limit increase on both, Discover and Cap1.

You will end up with 2 unsecured CCs in good standing, 1 closed secured pers loan paid as agreed, and 1 open personal loan being paid as agreed. Those are 4 accounts in good standing at the end of 12 months.

6 months down the road you can req auto loan pre-qual with the cred union. Now you have cred hist with them, steady income, and tax documents to support a better DTI%. If approved, sell your car, use the money as dwn pymt, and jump into a better ride.

Re: Help! $3k in cc debt, need to reduce interest and need a new car!

Shooting-For-800 — Sat, 10 Oct 2020 13:25:05 GMT

Reward yourself with a car AFTER you pay off all your credit cards.

Re: Help! $3k in cc debt, need to reduce interest and need a new car!

Anonymous — Sat, 10 Oct 2020 19:39:56 GMT

I agree with others about paying down/off this debt before worrying about replacing your car, don't put the cart before the horse. Tackle those problems as they arrise and hope that they don't until much later when your situation improves.

Aside from the Credit Union advice, another option might be to look into banking SUBS. That's more of an out of the box solution that may or may not be for you. However, if you have access to direct deposit through your Employer and can meet the minimum requirements I think it's something to look into. That's the quickest way to raise Money aside from a second job, which you may have to get given the industry you're in and teh uncertainty of it. An extra $200-300 is nothing to sneaze at if you can reasonably meet the SUB requirements specified.

Re: Help! $3k in cc debt, need to reduce interest and need a new car!

satio — Sun, 11 Oct 2020 02:19:15 GMT

I am unsure what you do for a living, you overall income/living expense scenario, and what spare time you have but 3k debt is not too great of a hurdle.

As some before me have suggested, I would probably maintain the 2k savings buffer if that is all you have, maybe toss 500-1000 at Cap1 balance but maintain the rest.

Are there extra shifts you can take on at work or perhaps a second part time gig you might undertake to boost income to tackle this?

In my own personal recovery, my path to success included doing odd handyman jobs which now has developed into an extra 30-40k per annum in side jobs. I cleared 3k alone in the last few months just in mowing 5 lawns on regular basis though we are about to enter winter.

"handyman" may not be your cup of tea but there are other part time gigs.

Where are you located?