topic Re: Advice on what to do with low limit cards after PIF in Credit Cards

Advice on what to do with low limit cards after PIF

ALLgoodABQ — Fri, 22 Dec 2023 18:36:22 GMT

So its been a while since i've posted on here, and just looking for advised on what to do. So I'm planning on leaving my job in April i've held for 9+ years and will be starting a business doing pretty much the same thing. I've racked up alot of debt over the last few years, and I have 13, yes 13 credit cards with high balances, with a lot of them being at or under $2,000 limits. My plan is to take a withdrawal of my 401k when I leave and pay off all the cards. I feel that taking the early withdrawal hit of 10% is work paying off these cards that are costing me hundreds of dollars of interest each month.

Here are a list of my CCs, their balances and limits..

Capital one Platinum 3239/3300

Capital one Quicksilver 1986/2000

Capital One 278/300

Target Red 783/800

Mercury 985/1000

Avant 1471/1500

Apple Card 1872/1900

Ally Cash 1471/1500

Ally Platinum 1863/1900

Wells Fargo Hotels 972/1000

Sync Venmo 486/500

Sync Sams Club 763/640 (over thanks to the membership autorenewal)

Sync Amazon 1445/1500

Sync Lowes 0/100 (recently nurfed from 1000 down to 100 after I paid my washer off in full)

Total around +/- $17,650

The only ones I'm considering keeping open are the Apple Card, Capital One QS and Platinum (3300 limit), the WF Hotels and Ally cards. All the others are gonna be closed. My AAoA will probably take a hit, but in the long run, I feel like it would help me. Plus I'm also trying to get a business loan/line of credit, and would hope that all accounts paid off will help with that.

Yall are amazing on here, and any advise will be greatly appreciated. (and if you want to tell me how bad this was of me for racking up so much debt, please do. The truth hurts and sometimes we have to get the negative feedback to learn and grow)

Re: Advice on what to do with low limit cards after PIF

SouthJamaica — Fri, 22 Dec 2023 20:05:40 GMT

@ALLgoodABQ wrote:
So its been a while since i've posted on here, and just looking for advised on what to do. So I'm planning on leaving my job in April i've held for 9+ years and will be starting a business doing pretty much the same thing. I've racked up alot of debt over the last few years, and I have 13, yes 13 credit cards with high balances, with a lot of them being at or under $2,000 limits. My plan is to take a withdrawal of my 401k when I leave and pay off all the cards. I feel that taking the early withdrawal hit of 10% is work paying off these cards that are costing me hundreds of dollars of interest each month.
Here are a list of my CCs, their balances and limits..

Capital one Platinum 3239/3300
Capital one Quicksilver 1986/2000
Capital One 278/300
Target Red 783/800
Mercury 985/1000
Avant 1471/1500
Apple Card 1872/1900
Ally Cash 1471/1500
Ally Platinum 1863/1900
Wells Fargo Hotels 972/1000
Sync Venmo 486/500
Sync Sams Club 763/640 (over thanks to the membership autorenewal)
Sync Amazon 1445/1500
Sync Lowes 0/100 (recently nurfed from 1000 down to 100 after I paid my washer off in full)
Total around +/- $17,650

The only ones I'm considering keeping open are the Apple Card, Capital One QS and Platinum (3300 limit), the WF Hotels and Ally cards. All the others are gonna be closed. My AAoA will probably take a hit, but in the long run, I feel like it would help me. Plus I'm also trying to get a business loan/line of credit, and would hope that all accounts paid off will help with that.
Yall are amazing on here, and any advise will be greatly appreciated. (and if you want to tell me how bad this was of me for racking up so much debt, please do. The truth hurts and sometimes we have to get the negative feedback to learn and grow)

1. Congratulations on being in a position to pay them off.

2. Your AAoA would NOT take a hit from closing accounts, because as long as the closed accounts appear in your reports they continue to be factored into AAoA. Most closed accounts will stay in your reports for many years to come.

3. I don't see any reason to close any accounts at this time, except for those which have annual fees. If it has an annual fee, I would close it. If not, I would sock drawer it.

Re: Advice on what to do with low limit cards after PIF

NoMoreE46 — Fri, 22 Dec 2023 22:28:10 GMT

Keep in mind that in addition to the 10% penalty, you may have to pay state and federal taxes on that withdrawal.

Regarding your cards, don't be suprised if Sync AA you further.

I would close the Mercury and Avant.

Re: Advice on what to do with low limit cards after PIF

Kforce — Fri, 22 Dec 2023 22:42:44 GMT

@ALLgoodABQ wrote:

I've racked up alot of debt over the last few years

My plan is to take a withdrawal of my 401k when I leave and pay off all the cards,
I feel that taking the early withdrawal hit of 10% is work paying off these cards.
that are costing me hundreds of dollars of interest each month.

Total around +/- $17,650

1) A lot depends on if you have adequate income and discipline to stay out of further debt.

Many who get a windfall of money or take out a loan continue to put spend on

credit cards and in a year are in the same situation.

2) Loss from taking from a 401K is more complex than the early withdrawal hit of 10%.

You will lose next years earned interest, and every year after until retirement and beyond, compounded.

I just ran 2023 retirement numbers, got over 12% from my IRA.

This would be 10% hit + 12% interest, + ?? years compounding.

A moderate interest loan or eating beans, and cutting expenses for

6-12 months would save a lot of money.

Average CC interest ~18% * 17,700 = $3,186/year or $265/mo

Early fee on IRA + interest for 1yr = $3,894 + additional state, local tax's

$17,700 @12% for 10 years = $58,417 if kept in IRA and similar interest rates

I would not raid my IRA and just learn to live with my current income.

I see this as both dangerous and expensive.

Unless your income, and spending change, this will only compound losses.

Good Luck

Re: Advice on what to do with low limit cards after PIF

expatCanuck — Fri, 22 Dec 2023 22:56:39 GMT

I got hit with a nasty tax bite after making an early 401K withdrawal to pay off card debt some years back. Hadn't factored quarterly installments into the deal.

Fortunately, we were in adequate fiscal shape to weather the storm, but the net cost was about 25% of the amount withdrawn -- not including lost interest.

It still made sense for me, because the debt was beyond my means to pay down in the normal course of things -- and I've been fiscally responsible since then (i.e. - my then mid-600 FICO 8 scores are now comfortably above 800). I no longer charge to cards what I can't pay in full. And I typically PIF before the statement cuts.

Foresight and discipline are critical.

Re: Advice on what to do with low limit cards after PIF

ALLgoodABQ — Sat, 23 Dec 2023 00:10:08 GMT

I understand that its not the best of ideas, but as of right now, I'm living barely paycheck to paycheck, and once I pay my minimum on my cards, I'm having to use them again just to stay ahead. My monthly minimums are just about $700 a month, most of them at 29% or higher. My rent is $1000, my car is $585, and my student loans just started up again at about $100.

The good old days of living off ramen are gone since everything has gone up in price so much. I cannot qualify for a loan as my debt to income is too high, i've already tried. The best offer I got was a $6000 36mo loan at 34% interest.

I know that a withdrawal is not the smartest choice, but I'm just not sure what else is there.

I appreciate everyone's feedback!

Re: Advice on what to do with low limit cards after PIF

Kforce — Sat, 23 Dec 2023 00:43:09 GMT

@ALLgoodABQ wrote:
I understand that its not the best of ideas, but as of right now, I'm living barely paycheck to paycheck, and once I pay my minimum on my cards, I'm having to use them again just to stay ahead. My monthly minimums are just about $700 a month, most of them at 29% or higher. My rent is $1000, my car is $585, and my student loans just started up again at about $100.
The good old days of living off ramen are gone since everything has gone up in price so much. I cannot qualify for a loan as my debt to income is too high, i've already tried. The best offer I got was a $6000 36mo loan at 34% interest.
I know that a withdrawal is not the smartest choice, but I'm just not sure what else is there.

I appreciate everyone's feedback!

With interest rates that high on your cards and no way to pay down in a reasonable time, your

only choice might be the IRA.

If you can stay afloat with the ~$400 interest savings it could work.

If $400/month won't keep you afloat you are in trouble

Re: Advice on what to do with low limit cards after PIF

Traveler101 — Sat, 23 Dec 2023 03:39:28 GMT

@ALLgoodABQ wrote:
So its been a while since i've posted on here, and just looking for advised on what to do. So I'm planning on leaving my job in April i've held for 9+ years and will be starting a business doing pretty much the same thing. I've racked up alot of debt over the last few years, and I have 13, yes 13 credit cards with high balances, with a lot of them being at or under $2,000 limits. My plan is to take a withdrawal of my 401k when I leave and pay off all the cards. I feel that taking the early withdrawal hit of 10% is work paying off these cards that are costing me hundreds of dollars of interest each month.
Here are a list of my CCs, their balances and limits..

Capital one Platinum 3239/3300
Capital one Quicksilver 1986/2000
Capital One 278/300
Target Red 783/800
Mercury 985/1000
Avant 1471/1500
Apple Card 1872/1900
Ally Cash 1471/1500
Ally Platinum 1863/1900
Wells Fargo Hotels 972/1000
Sync Venmo 486/500
Sync Sams Club 763/640 (over thanks to the membership autorenewal)
Sync Amazon 1445/1500
Sync Lowes 0/100 (recently nurfed from 1000 down to 100 after I paid my washer off in full)
Total around +/- $17,650

The only ones I'm considering keeping open are the Apple Card, Capital One QS and Platinum (3300 limit), the WF Hotels and Ally cards. All the others are gonna be closed. My AAoA will probably take a hit, but in the long run, I feel like it would help me. Plus I'm also trying to get a business loan/line of credit, and would hope that all accounts paid off will help with that.
Yall are amazing on here, and any advise will be greatly appreciated. (and if you want to tell me how bad this was of me for racking up so much debt, please do. The truth hurts and sometimes we have to get the negative feedback to learn and grow)

Have you considered staying at your current job while you get your financial life squared away? Is it that bad?

You may be able to do a 401k loan providing you stay with your current employer. Yes, there is a minimal intrest charge involved, but you are paying it to yourself and avoiding taxes.

Perhaps consider sitting tight where you are, say set a goal. I want my own business but when I'm on better footing. A 3 year loan would pay off all your cc and still be cheaper than what you are paying in minimums.

Personally that's what I would do. And the stress of getting out of one financial situation and jump into another would make my stomach churn.

Best of luck to you. One thing I think you are spot on about, I'd be hiding cards or chopping some up to avoid temptation. Take the money that you save from the difference and throw it in a savings account.

Set your goals, Sacrifice and live your dreams.

Re: Advice on what to do with low limit cards after PIF

SouthJamaica — Sat, 23 Dec 2023 04:21:02 GMT

@ALLgoodABQ wrote:
I understand that its not the best of ideas, but as of right now, I'm living barely paycheck to paycheck, and once I pay my minimum on my cards, I'm having to use them again just to stay ahead. My monthly minimums are just about $700 a month, most of them at 29% or higher. My rent is $1000, my car is $585, and my student loans just started up again at about $100.
The good old days of living off ramen are gone since everything has gone up in price so much. I cannot qualify for a loan as my debt to income is too high, i've already tried. The best offer I got was a $6000 36mo loan at 34% interest.
I know that a withdrawal is not the smartest choice, but I'm just not sure what else is there.

I appreciate everyone's feedback!

Don't worry. You're doing the right thing by making the withdrawal and cleaning up the credit card balances. Starting your own business takes guts.

Re: Advice on what to do with low limit cards after PIF

BuckyB — Mon, 25 Dec 2023 17:27:39 GMT

Depending on your possessions, income and expenses, a Chapter 7 bankruptcy could be right up your alley!

Though in all honesty, your debts are not super high. Generally when people come to me with <$20,000 in debt I try to steer them in other directions first. Unless they're facing a lawsuit or garnishment.

Re: Advice on what to do with low limit cards after PIF

xenon3030 — Mon, 25 Dec 2023 19:29:20 GMT

You might be able to take a loan from your 401k (prior leaving your job) to pay your CC debt and there should not be a tax penalty. There can be fee/interest involved and it looks like a loan and it gets paid back from your check from your current employer. I do not know what would happen, if you decide to leave your job. You may dig into the terms and penalties on either hard vs soft withdrawal from 401k.

Closing too many accounts in a short period of time might trigger other lenders. It might create complication if you plan to apply for personal or biz cards. You may close one card e.g. per quarter.

I suggest to keep a few more cards like Target and Lowes.

Re: Advice on what to do with low limit cards after PIF

ThomasJNewton — Tue, 02 Jan 2024 04:28:11 GMT

@ALLgoodABQ wrote:
my student loans just started up again at about $100.

I know it is only $100, but are you currently on an Income Based Repayment Plan? You might also be able to reduce or eliminate that monthly payment.

Re: Advice on what to do with low limit cards after PIF

andrew_1911 — Tue, 02 Jan 2024 09:46:30 GMT

Without knowing your age, your current retirement portfolio or level of job security after leaving your company it's hard for anyone here to give good advise. Generally, it's not a good idea to leave a stable job when you have debt and no savings (retirement doesn't count). Depending on your age (how far away retirement is) it might make more sense to consolidate your debt under a personal loan at a more manageable interest rate. Whether that is an option depends on why you're in debt. If you're just gonna rack it all back up again you should snowball it instead. We also would need to understand the rest of your finances, are you upside down on a car too? If there is any level of risk in starting your own business and leaving your job you should stay until you pay off your debt AND have a funded emergency fund.

Re: Advice on what to do with low limit cards after PIF

ALLgoodABQ — Sat, 20 Jan 2024 06:58:07 GMT

Sorry it's taken me so long to respond guys. So after further research, the company I work for has a noncompete agreement that is included in the contract when I got hired. I know some people have told me that these things rarely hold up in court, but I'd rather avoid all that. So unfortunately, my business will have to wait until I make sure they can't do anything to me once I've opened it. And to answer the question, No, my job is not that bad, I was just trying to do something new, since I've been doing this for the last 9 1/2 years.

The good news is that I've inquired about taking a loan from my 401(k), and I'm in the process of doing that right now. With this loan, I should be able to pay off about 70% of what I owe. And hopefully my scores will shoot up like crazy from this, since right now they are below 600 since everything is maxed out.

Again thanks for all the input.

Re: Advice on what to do with low limit cards after PIF

youngandcreditwrthy — Sat, 20 Jan 2024 17:55:54 GMT

what bout a 401k LOAN? where you pay interest back to yourself?

Re: Advice on what to do with low limit cards after PIF

ALLgoodABQ — Sat, 10 Feb 2024 02:47:47 GMT

Hey all! Just wanted to give an update and a thank you to everyone who commented. I went ahead and took out an $11,000 loan from my 401K, which ends up costing me $106 a paycheck. The day it hit my account I PIF the following cards...

Capital One PL 278/300

Target Red 783/800

Mercury 985/1000

Avant 1471/1500

Ally Cash 1471/1500

Wells Fargo Hotels 972/1000

Sync Venmo 486/500

Sync Sams Club 763/640

Sync Amazon 1445/1500

Most of these statements close within the next week or so, while the Sams and Amazon are at the end of the month. I'm hoping Sync dosen't cut my limits again, but i'm prepared for whatever comes.

My FICOs as of today are Eq 588 and Trans 583 (creditkarma vantage), and Exp 656 (Exp app).

As far as my business plans, i've placed those on hold. I want to be in a more stable financial position, and I need to inquire on whether I can actually do what I want to do, in terms of non-compete agreements and such.

So again, thanks for all who contributed. I'm already breathing easier today, having knocked out 9 monthly payments and the god knows how much interests i've been donating these guys. I know i'm not out of the woods yet, but the light at the end of the tunnel just got a whole lot brighter...