topic Re: Credit help needed in Personal Finance

Credit help needed

Anonymous — Thu, 25 Oct 2018 17:00:53 GMT

I have 15+ years of credit history. I moved here in USA at the age of 25. I have gone from being excellent credit history to OK credit history during this time frame. I ended up having around 50K in debt, I never had late payments or any bad mark on my credit file but stuck in these vicious cycle of paying interest where my per month interest is more than 500 and principal barely goes down. I have few credit cards who stuck with me and didn't change my APR or credit limit over time while others increased interest rates or decreased my credit limit. I still have credit cards with APR as low as 7.99 APR.

Fortunately I have got into situation where I can pay of 1/3rd of the debt, and I am earning decent enough to pay off the rest in around 2-3 years. I am also looking into a debt consolidation loan but after I pay off 1/3rd of the major balance interest rate on the ones left would be less than 10% in APR, so not sure if consolidation is even worth it.

Is there any way I Could call back those who increased my interest rates to drop it down to what it used to be. We are also looking into buying a house and should I look into paying down the debt or saving for 20% down payment for mortgage. Some sort of strategy would be of great help. Thanks in advance.

Re: Credit help needed

Anonymous — Thu, 25 Oct 2018 17:08:35 GMT

You mention that you are 50k in debt. Can you clarify that this is all credit card debt? The word "debt" taken by itself could mean loans as well as CC debt.

People will be able to help you best if you list all your cards, their balances, and their limits, like this:

Card 1. Balance = ____ Limit = ____

Card 2. Balance = ____ Limit = ____

Card 3. Balance = ____ Limit = ____

etc.

Do this for all open cards and also closed cards with a balance. Let us know if a card is closed.

Likewise for your loans:

Loan 1. Balance = ____ Original Amount = ____

Loan 2. Balance = ____ Original Amount = ____

Loan 3. Balance = ____ Original Amount = ____

etc.

I will be interested in hearing whether anyone knows strategies for getting CC interest rates lowered.

You may not be in a position to (prudently) make a home purchase in the next few years. A person should be free of almost all CC debt and have saved a good deal toward a downpayment before looking for a home. It is possible to buy before then, but it puts you at risk of losing the house later when you run into money trouble (and it is certain that any person will have money trouble of some kind). The home loss will be bad for you of course but it also hurts other people. Lenders don't care: they just want to get you to sign and then they sell the loan to someone else.

Re: Credit help needed

Anonymous — Thu, 25 Oct 2018 17:59:53 GMT

@Anonymous wrote:
You mention that you are 50k in debt. Can you clarify that this is all credit card debt? The word "debt" taken by itself could mean loans as well as CC debt.

People will be able to help you best if you list all your cards, their balances, and their limits, like this:

Card 1. Balance = ____   Limit = ____
Card 2. Balance = ____   Limit = ____
Card 3. Balance = ____   Limit = ____
etc.

Do this for all open cards and also closed cards with a balance. Let us know if a card is closed.

Likewise for your loans:

Loan 1. Balance = ____    Original Amount = ____
Loan 2. Balance = ____    Original Amount = ____
Loan 3. Balance = ____    Original Amount = ____
etc.

I will be interested in hearing whether anyone knows strategies for getting CC interest rates lowered.

You may not be in a position to (prudently) make a home purchase in the next few years. A person should be free of almost all CC debt and have saved a good deal toward a downpayment before looking for a home. It is possible to buy before then, but it puts you at risk of losing the house later when you run into money trouble (and it is certain that any person will have money trouble of some kind). The home loss will be bad for you of course but it also hurts other people. Lenders don't care: they just want to get you to sign and then they sell the loan to someone else.

I should have been more specific, 50K is in credit card debt. I do have around 18K (loan was for 26K) in car loan, I had 2 installment loan just closed one last month (I had closed 3 more before that all paid and closed), still have one with around 480 per month payment. For cc's I have my card with highest usage at 80% and lowest at 0, I have kept higher utilization for the ones that has APR less than 10%, At an average I am utilizing 40% of my credit limit, I still haven't made payement of 22K(I was thinking of having 6K in savings leaving 16K to pay off CC) that I have available in bank to pay, still trying to figure out the strategy.

My family monthly gross is about 85K while I get around little more than 5K per month as take home in hand now after deducting retirement savings, taxes and medical. My monthly expenses apart from paying CC debt runs around 2.5-3k, overall I feel like I can take this and turn things around, but looking for a strategy on how to proceed and be debt free.

Some more info I got 15 CC including 2 store cards, last one opened in December of 2016 to do a balance transfer from higer APR card.

Re: Credit help needed

Anonymous — Thu, 25 Oct 2018 18:17:01 GMT

Here's how I would prioritize the 16k that you wish to use to pay down your CC debt.

(1) Pay down all cards to 67%.

(2) Pay down all cards to 47%.

(3) Pay down the remainder on the highest interest cards (if there is a significant difference in APR).

Then moving forward be certain that you are paying at least $2 more than the minimum payment on every card.

You may be able to get a debt consolidation loan at an attractive rate when your individual utilization (each card considered by itself) is much lower. Getting all cards to under 47% will be a very helpful step forward, partly because it will also lower your total utilization (all credit limits combined).

How many cards total do you have? Of these, how many have a zero or near-zero balance?

Re: Credit help needed

Anonymous — Thu, 25 Oct 2018 19:02:10 GMT

@Anonymous wrote:
Here's how I would prioritize the 16k that you wish to use to pay down your CC debt.

(1) Pay down all cards to 67%.
(2) Pay down all cards to 47%.
(3) Pay down the remainder on the highest interest cards (if there is a significant difference in APR).

Then moving forward be certain that you are paying at least $2 more than the minimum payment on every card.

You may be able to get a debt consolidation loan at an attractive rate when your individual utilization (each card considered by itself) is much lower. Getting all cards to under 47% will be a very helpful step forward, partly because it will also lower your total utilization (all credit limits combined).

How many cards total do you have? Of these, how many have a zero or near-zero balance?

Thanks CreditGuyInDixie appreciate your reply. Here is some additional info on the balances and cards I have

I have total of 15 credit cards. Of which 5 are 0 to near zero or something I can take care of in couple months. Most of the balance is concetrated among 5 cards around 7 to 8 K on each card. Here is some rough breakdown of the 5 cards with most balance, limit and their APR.
Card 1. Balance = 8000 Limit = 15000 APR 16.99
Card 2. Balance = 8500 Limit = 17500 APR 16.74 (2.99% APR on 4000 in BT ending in Mid 2019)
Card 3. Balance = 6500 Limit = 7500 APR 11.24 APR
Card 4. Balance = 6300 Limit = 11000 APR 8.24 APR
Card 5. Balance = 8500 Limit = 19100 APR 7.99 APR

Re: Credit help needed

Anonymous — Thu, 25 Oct 2018 19:40:45 GMT

It looks to me like the following could be achieved very easily, and still have at least a few thousand of that 16k left over:

* All cards at under 47% (card's utilization considered by itself)

* All cards with small balances paid to zero

* Total utilization at under 28%

If you achieved that much you'd see some substantial score improvement. FICO likes seeing all three of those things. So just use the money to do that right away.

Then look to see what happens to your scores. (You will need to wait until your three reports show that all the CC balances have updated with the new lower balances -- then pull your FICO 8 scores after that. The $1 trial offer at Credit Check Total is a nice tool for that.).

If you find that your three scores are much better, you'll need to decide whether you want to go with a debt consolidation loan. If you decide you want to look into that, make sure that prospective lenders are not doing hard inquries when they give you a quote.

Whether you go with the loan or not, you will want to use all loan money and any extra cash to payoff the cards with the highest interest rates, since they differ widely. (Some cards you are paying 17% and on others you are paying 8%.) This is after you accomplish the goal of gettoing all cards at under 47% (etc.).

Then continue to hammer away at your CC debt with the focus continuing to be on paying off high interest debt first and the ultimate goal of paying off all CC debt.

Re: Credit help needed

Anonymous — Thu, 25 Oct 2018 19:56:47 GMT

@Anonymous wrote:
It looks to me like the following could be achieved very easily, and still have at least a few thousand of that 16k left over:
      * All cards at under 47% (card's utilization considered by itself)
      * All cards with small balances paid to zero
      * Total utilization at under 28%

If you achieved that much you'd see some substantial score improvement. FICO likes seeing all three of those things. So just use the money to do that right away.

Then look to see what happens to your scores. (You will need to wait until your three reports show that all the CC balances have updated with the new lower balances -- then pull your FICO 8 scores after that. The $1 trial offer at Credit Check Total is a nice tool for that.).

If you find that your three scores are much better, you'll need to decide whether you want to go with a debt consolidation loan. If you decide you want to look into that, make sure that prospective lenders are not doing hard inquries when they give you a quote.

Whether you go with the loan or not, you will want to use all loan money and any extra cash to payoff the cards with the highest interest rates, since they differ widely. (Some cards you are paying 17% and on others you are paying 8%.) This is after you accomplish the goal of gettoing all cards at under 47% (etc.).

Then continue to hammer away at your CC debt with the focus continuing to be on paying off high interest debt first and the ultimate goal of paying off all CC debt.

I calculated based on what you said and to get below 47% for all cards, I just need 5K, which leaves me with around 11K to pay off higher APR cards from there. It looks like it's managable and I should see some significant improvements.

My current Fico 8 are 728/Equifax, 709/Transunion and 709/Experian, hopefully with those payments I could push myself into 740+ range. Appreciate your input on the strategy.

Re: Credit help needed

Anonymous — Mon, 29 Oct 2018 14:41:40 GMT

I do have one more question and this is strictly based on how much of a difference in credit score one scenario makes compared to other for knowledge purpose. Personally I rather save real dollars compared to what I could save in if else scenario. The only thing that I forsee in near future I would want to do that would require having good credit is buying a house, I had been renting up until now and do not mind renting for another year or two if it makes financial sense.

Current plan: Pay all the accounts below 47% and Use the rest to pay off high APR credit cards, based on balances I mentioned earlier. Which would bring down overall revolving utilization below 27% but certain accounts would have higher utilization than 27-30%.

New Scenario for knowledge purpose: Pay all accounts below 27% keeping some balance in high APR credit cards, which could cost me in interest rate but may put me in better credit score category.

Re: Credit help needed

Asilomar — Wed, 31 Oct 2018 08:44:53 GMT

@Anonymous wrote:

Then moving forward be certain that you are paying at least $2 more than the minimum payment on every card.

Why just 2 dollars? What's the significance there?

Re: Credit help needed

Thomas_Thumb — Wed, 31 Oct 2018 12:17:44 GMT

There is no significance associated with $2. CGID believes paying more than the minimum reduces risk of a creditor taking adverse action in the form of a credit line decrease (CLD) or balance chasing. If I were to pay slightly more than the minimum, I might go $5. Of course, Fico only looks at balances and utilization for scoring purposes. The amount of payment over minimum is not a consideration.

Re: Credit help needed

Anonymous — Wed, 31 Oct 2018 15:26:43 GMT

TT is right. The "$2 more" strategy is intended to reduce the chance of adverse action taken by the CC issuer, specifically balance chasing. Nobody knows how much extra one would have to pay to get the optimum reduction in the probability of BC and it would likely vary from CC issuer to CC issuer. As TT explains it has nothing to do with the FICO model.

I chose $2 because a lot of people who are trying to pay off cards have many cards with a balance and also do not have that much extra money to play around with. What I'd love to advise is paying double the minimum payment plus $2, but that puts too much of a burden in practical terms -- the person might in that event have very little extra money (if any) to pay off high interest balances or high util cards.

So I have had to make a guess, based on how I would guess the programmers at the individual CC issuers would most likely work. My guess is that they look at the minimum payment rounded up to the next dollar. That would capture almost all of the high risk people they are looking for (people who only pay the MP). $2 extra would take you out of that high risk mini-algorithm. (Whereas paying exactly 2 cents more would not.)

Is that $2 sufficient? Who knows? Maybe for some issuers $3 or $5 is better. Maybe some issuers want someone who pays more than double the MP. But as a simple rule, $2 is probably a good balance between giving you some protection against BC vs. still giving you extra money to attack your highest util balances, highest APR cards, or tiniest balances (depending on what paydown strategy you are using).

What seems certain to me is that the traditional advice given in the "snowball" strategy, which involves paying only the bare MP on every card except the one you are attacking, puts you at too much risk of BC. Thus the $2 extra tweak to that approach.

Bear in mind too that the "pay more than the minimum payment" strategy reduces but doesn't eliminate your chance of BC. The following are also associated with BC:

* Having borderline FICO scores

* Having that particular card at over 88.9% util

* Having that particular card at over 68.9% util

* Having any other card at over 88.9%

* Having any other card at over 68.9%

* Having recent derogs

Re: Credit help needed

Anonymous — Wed, 31 Oct 2018 16:45:49 GMT

I did wonder about $2 but assumed that would avoid bots looking at payment == to minimum due. Or like CreditguyInDixie mentioned rounded up the the dollar. Makes sense, if someone manually audits you are going nowhere they will see it no time, but nowadays everything is program and this might be the easiest bet to avoid getting on the list.

Re: Credit help needed

Asilomar — Wed, 31 Oct 2018 23:59:00 GMT

Thanks CGiD, excellent explanation. And it certainly makes sense from an internal algorithm point of view.

Re: Credit help needed

SouthJamaica — Sat, 03 Nov 2018 18:50:14 GMT

@Anonymous wrote:
I do have one more question and this is strictly based on how much of a difference in credit score one scenario makes compared to other for knowledge purpose. Personally I rather save real dollars compared to what I could save in if else scenario. The only thing that I forsee in near future I would want to do that would require having good credit is buying a house, I had been renting up until now and do not mind renting for another year or two if it makes financial sense.

Current plan: Pay all the accounts below 47% and Use the rest to pay off high APR credit cards, based on balances I mentioned earlier. Which would bring down overall revolving utilization below 27% but certain accounts would have higher utilization than 27-30%.

New Scenario for knowledge purpose: Pay all accounts below 27% keeping some balance in high APR credit cards, which could cost me in interest rate but may put me in better credit score category.

Getting below 30% on individual account utilization is another major score-booster, so by all means do try to pay them down to the point where no revolving account is at more than 28%. In my profile, getting the highest utilization card down from 31% to 29% is worth around 10 points.

Re: Credit help needed

tayloreat713 — Mon, 05 Nov 2018 00:33:29 GMT

@CreditGuyInDixie why pay at least $2 more than min on the cards? Is that some credit score trick I'm not aware of?

Re: @CreditGuyInDixie why pay at least $2 more than min on th...

Anonymous — Mon, 05 Nov 2018 05:08:23 GMT

Posts 10 (by TT) and 11 (by me) explain the reason for the $2 more strategy.

Re: @CreditGuyInDixie why pay at least $2 more than min on th...

tayloreat713 — Mon, 05 Nov 2018 15:40:43 GMT

Sorry, I read your response AFTER I sent the message. I appreciate the help!! 😁

Re: Credit help needed

Anonymous — Fri, 30 Nov 2018 17:12:00 GMT

@CreditGuyInDixie I followed your suggestions and paid of things like you suggested, I really appreciate all the help here, I moved from 670-690 score range when I initially asked for help to EQ- 779, TU-765 and EX-777. all cards are under 47% now and overall I am under 27% CC debt. Thanks for your advice.

Re: Credit help needed

Anonymous — Fri, 30 Nov 2018 19:28:34 GMT

You are very welcome!