topic Re: Best course of action in paying down multiple large balances in Credit Cards

Best course of action in paying down multiple large balances

IWOL — Wed, 29 Jul 2015 22:51:47 GMT

Over the last year and a half I have amassed quite a lot of credit card debt due to some large medical bills, some IRS back taxes, having to replace a broken air unit, and a young dog with cancer.

Right now I have a total debt of $54,300 spread over these cards on available credit of $350K, so my overall util is still fairly low at around 15%.

AMEX ED - 0% until Feb 2016 - 5150 balance

SPG - - 8265 balance

CSP - 8100

Ritz - 6200

Freedom 5800 - 0% till 3/2016

Prestige 5462

Arrival 4740

Venture 10,670

I have 20K cash that Im taking out of my 401K to pay toward these balances right away. Im only 40 and I have a good amount in my 401K, so not too concerened about this. I also just got a hefty increase in my salary that will cover the deficit in my monthly living expnses and allow me to pay these down at $2500 a month.

After the 20K I will have balances around $34K so at $2500 a month I should be able to get this paid off in 14 to 16 months which is not too bad.

What would be the best way to pay these down? I would like to try avoid any AA but I have more than enough available credit form a slew of lenders, so its not a big concern. My scores are all around 710 to 720 with my current util and 8 cards reporting balances out of 26. Im not going to be aplying for anything so maximizing scores is not a concern.

Keeping the interest I will pay to a minimum is the most important thing. So Im wondering, do I pay the 2 balances that are at 0% at close to the min until the 0% runs out?

Should I spread the 20K over several cards, or pay off 2 or 3 to 0 so that I can put more towards each card every month?

Most of my interest rates are at about 15% except for Arrival which is 18%.I plan to make a round of calls this week to request further APR reductions. I have 6 cards to pay outside of the 2 with 0%, so on a monthly basis should I pay $400 to each for the $2500 or like $2000 to one till paid to 0 and min to others.

As much as I hate to even be in this position, its shows how having a large amount of available credit can be usefull when carrying a much larger than normal balance. Despite these large balances reporting my scores have not dropped alot nor has anyone taken any AA yet. Ofcourse in teh best scenario I would never have accumulated this much debt but life happens.

Re: Best course of action in paying down multiple large balances

Anonymous — Wed, 29 Jul 2015 23:39:03 GMT

Pay the minimum on all cards. Throw all the rest of your disposal income into the highest APR card you have. Tighten the belt a little more and try to squeeze out another $500 per month to help you get it all paid off a couple months.

Re: Best course of action in paying down multiple large balances

trumpet-205 — Wed, 29 Jul 2015 23:45:40 GMT

I actually suggest the alternative. Pay off the account with least amount of balance first. The idea here is that you can free up the minimum payment on that account and speed up your payment process. This is called snowball payment.

Re: Best course of action in paying down multiple large balances

Callandra — Thu, 30 Jul 2015 00:05:56 GMT

Poor doggie.

This sort of depends on the person; I'm on the practical money side so I agree with tackling the highest APR first (of course make minimums on all cards first!) and then work your way down to the lowest APR. The 0% cards still have some time left on them so I would leave those until later and enjoy the 0%.

Others do like the psychological aspect of paying down the card with the smallest balance to show accomplishment. It's up to you! Would you mind posting the APRs of your cards?

Re: Best course of action in paying down multiple large balances

Anonymous — Thu, 30 Jul 2015 00:10:17 GMT

If you are not too concerned by possible AA (in the sense that it would not hurt you too much), then I would just go for the standard highest APR first and mins on the rest( as earlier suggested). This reduces the total interest cost.

The idea to pay off the lowest balance is usually suggested so that people can feel they are making visible progress (rather than only one balance going down). Isn't freeing up the minimum payment better done by reducing the interest load?

Re: Best course of action in paying down multiple large balances

Anonymous — Thu, 30 Jul 2015 00:19:35 GMT

I'd pay something over the min to all. I've heard paying min can flag you for potential AA if the overall picture is questionable.

There's always the debate about highest interest rate first or lower balance first. The first is always the best financial decision, the later is good for emotional wins.

I'll add a couple other variables to consider, while not giving any answers.

Are there cards you'd like to be putting current spend on? You should only be spending on cards where the balance has been PIF (not in the pay-to$0 myfico way to max scores, but in the pay-the-last-statement-balance way to avoid interest and get to keep your grace period). I'd not worry about rotating categories etc., but I'd pay down Arrival and/or Venture first. Then I'd decide what to pay down based on a combination of which cards I might like to free up first and which lenders I'd like best to stay in good graces with (assuming the interest rates on the non 0% cards are mostly the same). AmEx has been sort of twitchy lately for some. Years ago I was balance chased by Citi and Chase. I'd think that Cap One is the least averse to the balance stretching out, so maybe that's a big one to leave to the end?

Sorry to hear about all you've been through. I've had two dogs with different cancers this year and am down to one dog now. Thankfully I, like you, had positioned myself to weather it financially. Maybe not in the most optimal way, but being able to make choices where the finacial concern wasn't the deciding factor.

Re: Best course of action in paying down multiple large balances

IWOL — Thu, 30 Jul 2015 01:15:01 GMT

Thanks all for the insighftul replies.

Im greatful that I will be able to manage this debt and get it off my back in a relatively short period of time.

The crazy thing with my dog is that I spent around $15K to basically have a vet tell me has has cancer and there wasnt much that could be done.

Befor I even knew he had cancer he had to have xrays, medicine to control naseau and vomiting, then ultrasounds, then open stomach surgery and then finally an endoscopy which was the only procedure that could actually confirm the cancer.

Before I knew it I had run up vet bills over $15k, put the dog through much more than I would like to have had I known what was going on. Before we knew what it was the Vet put him on Prednisone which made him feel better for about 2 weeks and then he crashed hard. The Prednisones drastically decreased the likelyhood of chemo therapy working(which all vets failed to mention), so after all that I had no choice but stop his suffering.

And then when it came to my own medical bills, I have what I thought was a very good PPO policy with Blue Shield. Well it turns out that one of the most important factors on a health insuance policy to look at is "OUT OF POCKET/OUT OF NETWORK MAXIMUM"

On most policies this number is essentially unlimited but most peaople probably wouldnt know that. If you have something like Kaiser you dont have to worry about this as anything doen at Kaiser is in there network.

So I was in the hospital for a stomach blockage that was caused by a poorly done surgery I had 12 years ago for appendecites that caused major scar tissue. I went to the emergency room with excrutiating pain in my stomach and I had to have emergency surgery to open up the blockage in my stomach before my intestines could burst....I know it sounds nasyt, sorry.

Anyways, It seems that one is expected to ask each and every person at the hospital that treats you if they are in your network. The hospital was in my network but it turns out they subcontract for ultrasounds, xrays and other varoius procedures. SO basically when the technician came to do my ultrasound I should have told him to get the F out of here and get me an ultrasound tech in my network, nevermind that my stomach might explode in the 20 minutes...lol.

When all was said and done my 10 day stay cost $167,000 and even though I had insurance I was responsible for $26K of that. I was able to negotiate some of it down but only to around $20K.

Re: Best course of action in paying down multiple large balances

Creditaddict — Thu, 30 Jul 2015 01:22:44 GMT

Don't do the 401K!!!! Just don't do it!!!~

Have you checked with Sofi.com

You can get your rate and amount you qualify to borrow with just a sp... My partner was able to a $50k personal loan out at 6% basically... BY FAR cheaper than any other personal loan I have ever found... They offer up to $100k but when he did the pre-qual it came back with max of $50k and that's what he applied for... it did take a few weeks for it to be completed and send a couple other docs but in the end it went through and cash deposited into checking account.

401k are just doing too well right now to pull from and paying taxes twice on that money just means that everything gained by paying off that little bit of debt has been lost 10 fold in other ways. If the payments are manageable i would not take the loan from 401k period... take a couple personal loans or continue to move the debt around on 0%

but I would also suggest paying more cards off than smaller cards to larger cards... consolidate down more so more debt is in 1 place even if that makes util. on a couple cards 100%

Re: Best course of action in paying down multiple large balances

Callandra — Thu, 30 Jul 2015 01:24:07 GMT

@ IWOL - I'm so sorry to hear of your hardships.

Docs being subcontracted out is pretty typical in hospitals; the one I used to work in pretty much contracted all the doctors out. The radiology techs were all hospital employees though. However, with the way they do billing, they break it all down and bill separately for each and every little thing so you wind up paying a lot of money. Then each doctor you used (radiologist, surgeon, ER doc) will all also bill you separately. It's ridiculous! At least you were able to negotiate some of it down. Have you talked to the hospital's billing department about a payment plan? -Most- people can't just fork over $20k right away.

Re: Best course of action in paying down multiple large balances

Anonymous — Thu, 30 Jul 2015 01:33:45 GMT

I would let that 20k go to collection. No way I would pay them.

Re: Best course of action in paying down multiple large balances

IWOL — Thu, 30 Jul 2015 01:43:28 GMT

@Callandra wrote:
@ IWOL - I'm so sorry to hear of your hardships.

Docs being subcontracted out is pretty typical in hospitals; the one I used to work in pretty much contracted all the doctors out. The radiology techs were all hospital employees though. However, with the way they do billing, they break it all down and bill separately for each and every little thing so you wind up paying a lot of money. Then each doctor you used (radiologist, surgeon, ER doc) will all also bill you separately. It's ridiculous! At least you were able to negotiate some of it down. Have you talked to the hospital's billing department about a payment plan? -Most- people can't just fork over $20k right away.

I was able to get a payment plan with the hospital but not the surgeon, radiologist etc. . I have been paying the plan on a credit card every month. Since my current livng expenses were leaving me with a small deficit every month I obviosuly didnt have any disposable income to put towards that debt and all I did essentially was transfer the hospital debt to my credit cards.

The $6K amount I was able to negotiate came from Blue Shield. I got them to pay $6k more than they originally agreed to . The hospital refused to negotiate the debt.

The msot infuriating thing is that, had my insurance covered the $26K amount, they woudl have probbaly only paid the hospital around $12K bsed on their "negotiated rates" but since im respisible for that portion I have to pay 100%. The hospital obviously overbill knowing they will only collect 50% but do not offe rthe same courtesy when its billed directly to the patient.

Re: Best course of action in paying down multiple large balances

IWOL — Thu, 30 Jul 2015 01:47:33 GMT

@Anonymous wrote:
I would let that 20k go to collection. No way I would pay them.

I considered that option for a minute but I just spent 2 years fixing my credit and building a strong portfolio. That couild potentially bring it all down and that would be worse.

Re: Best course of action in paying down multiple large balances

Anonymous — Thu, 30 Jul 2015 02:00:33 GMT

I would try to get a low APR personal loan before touching your 401k, and consolidate all of your cards (except for the 0% APR cards) into one. If that's not an option for you, then I would take the 20k and pay off 2-3 of the largest amount and highest APR cards first (obviously paying at least a little over the minium on everything else). After that, I would focus on the next highest APR card, pay as much as you can towards that each month until you knock it out. Then repeat and rinse with the next card.

Consolidating would be the best option, so that you just have one (or 2-3) payments each month as opposed to 8 payments due. If you can't/don't want to get a personal loan, perhaps a few 0% APR balance transfer cards could help consolidate those interest bearing cards?

Re: Best course of action in paying down multiple large balances

Dw4250 — Thu, 30 Jul 2015 02:03:07 GMT

@Creditaddict wrote:
Don't do the 401K!!!! Just don't do it!!!~

Have you checked with Sofi.com
You can get your rate and amount you qualify to borrow with just a sp... My partner was able to a $50k personal loan out at 6% basically... BY FAR cheaper than any other personal loan I have ever found... They offer up to $100k but when he did the pre-qual it came back with max of $50k and that's what he applied for... it did take a few weeks for it to be completed and send a couple other docs but in the end it went through and cash deposited into checking account.

401k are just doing too well right now to pull from and paying taxes twice on that money just means that everything gained by paying off that little bit of debt has been lost 10 fold in other ways. If the payments are manageable i would not take the loan from 401k period... take a couple personal loans or continue to move the debt around on 0%

but I would also suggest paying more cards off than smaller cards to larger cards... consolidate down more so more debt is in 1 place even if that makes util. on a couple cards 100%

IWOL sorry to hear about your troubles.

As much as I love Creditaddict, I have to respectfully disagree with him on using the 401K/IRA. IMHO $50K in credit card debt is a financial emergency. When the house is burning down, you should not worry about putting in a new gourmet kitchen with granite countertops 20 years from now.

If IWOL was in his/her 50's and retirement was around the corner, yes definitely not a good idea to start dipping into the 401K. But he/she is young enough to recoop most/all of the loses. And once this debt is gone, given his/her income level, IWOL should be able to put a lot away in savings and IRA (instead of paying interest on debt).

I would take $20K (or more) to pay this debt off quickly. You will get slammed by the tax bill at the end of the year. But I think that's better than getting slowly eaten alive with interest payments. That being said, I would definitely look to see if you can qualify for a low interest personal loan (doubtful given the level of CC debt). But it's worth a shot.

IWOL if you havent done so already, I would definitely get out a spreadsheet and figure out the true costs, both of paying this debt down with and without use of the 401K.

Good luck, my friend!

Re: Best course of action in paying down multiple large balances

NRB525 — Thu, 30 Jul 2015 02:04:07 GMT

@IWOL wrote:

I have 20K cash that Im taking out of my 401K to pay toward these balances right away. Im only 40 and I have a good amount in my 401K, so not too concerened about this. I also just got a hefty increase in my salary that will cover the deficit in my monthly living expnses and allow me to pay these down at $2500 a month.

Please clarify this statement.

Are you taking a $20k withdrawal from your 401k? If so I agree 110% with creditaddict: Bad move.

Are you taking a loan of $20k from your 401k? If so, this gets kudos. The interest payments go back to your retirement fund, much better than any money market portion of your 401k plan.

Re: Best course of action in paying down multiple large balances

Anonymous — Thu, 30 Jul 2015 02:13:43 GMT

I would keep your money. Use BT's or open another card with 0% for 21 months and BT to that, pay it off, rinse & repeat. Might take a while but, you can do it if you stay focused. Keep your money. Always a good idea imo.

Re: Best course of action in paying down multiple large balances

kdm31091 — Thu, 30 Jul 2015 02:29:13 GMT

The "open a new card to BT" seldom works out well because when you need credit, it's very hard to get it. With OP's high util, they aren't gonna get a large, useful limit on a BT card.

I don't think taking money from your 401k is an awful plan. As someone else said, can't worry about granite countertops when the house is burning down. Your first priority is paying the debt. Once your debt is gone, you can rebuild your retirement savings with your new, higher income. But the debt will eat away at everything until then.

Re: Best course of action in paying down multiple large balances

IWOL — Thu, 30 Jul 2015 02:31:36 GMT

Yes, the money from the 401k would be a loan, not a withdrawal. I've already factored the loan payment amount against my income which leaves me the $2500 to pay towards the cards.

Re: Best course of action in paying down multiple large balances

NRB525 — Thu, 30 Jul 2015 02:36:15 GMT

@IWOL wrote:
Yes, the money from the 401k would be a loan, not a withdrawal. I've already factored the loan payment amount against my income which leaves me the $2500 to pay towards the cards.

Have you already taken the loan? Is that the max loan amount you can get from the 401k?

Re: Best course of action in paying down multiple large balances

ddemari — Thu, 30 Jul 2015 03:34:51 GMT

Ive always been told not to do the 401k withdrawl. Isnt there a penalty u have to pay or lose on? Unless its the most practical for u, is try to make the largest payments u can on cards. When i start to rack up some bills, i only use a card with 0 balance and charge what i can pay realistically ( wish i could just follow that logic all the time)