topic Re: paying off high usage in Credit Cards

paying off high usage

rideco — Thu, 16 May 2024 19:36:58 GMT

OK so I have perfect payment history, high total age of accounts, 0 hard pulls but my CC usage has sky rockected. Yes I know I was dumb to get back in that situation but I have decided to bite the bullet and have figured out a way to pay back about 2/3's of my total usage. My credit score was 800 and now its much lower even with perfect payments. What I would really like to do is payoff the accounts without having my credit limits lowered after paying them back. I cant decide if I should tackle them from highest intrest to lowest or from highest balance to lowest. I have the usual suspects Citi, AMEX, Discover, CapOne, Chase. Part two of my plan for the remaing 1/3 is to get my credit score back to 750+ after lowing my usage and then see if I can get a balance transfer card and then attack that at low intrest. No other credit requests until the low intrest period runs out. Rince and repete. Thoughs...

Re: paying off high usage

Horseshoez — Thu, 16 May 2024 19:48:10 GMT

@rideco wrote:
OK so I have perfect payment history, high total age of accounts, 0 hard pulls but my CC usage has sky rockected. Yes I know I was dumb to get back in that situation but I have decided to bite the bullet and have figured out a way to pay back about 2/3's of my total usage. My credit score was 800 and now its much lower even with perfect payments. What I would really like to do is payoff the accounts without having my credit limits lowered after paying them back. I cant decide if I should tackle them from highest intrest to lowest or from highest balance to lowest. I have the usual suspects Citi, AMEX, Discover, CapOne, Chase. Part two of my plan for the remaing 1/3 is to get my credit score back to 750+ after lowing my usage and then see if I can get a balance transfer card and then attack that at low intrest. No other credit requests until the low intrest period runs out. Rince and repete. Thoughs...

The common adage around here is "Finances over FICO", and by that we mean, do what means the best financial sense, and let your FICO scores do what they will. Once you've gotten your finances in order, high scores will quickly follow.

Assuming you follow that plan, pay down your highest interest cards to zero, one by each, and when you get to the last one, pay it down to say, $25 and then let it report a small balance each month. Doing this will give you maximum scores.

Regarding balance chasing/adverse actions, if one of your creditors does that, shove the card in a sock drawer and apply for something better.

Re: paying off high usage

SouthJamaica — Thu, 16 May 2024 19:52:50 GMT

@rideco wrote:
OK so I have perfect payment history, high total age of accounts, 0 hard pulls but my CC usage has sky rockected. Yes I know I was dumb to get back in that situation but I have decided to bite the bullet and have figured out a way to pay back about 2/3's of my total usage. My credit score was 800 and now its much lower even with perfect payments. What I would really like to do is payoff the accounts without having my credit limits lowered after paying them back. I cant decide if I should tackle them from highest intrest to lowest or from highest balance to lowest. I have the usual suspects Citi, AMEX, Discover, CapOne, Chase. Part two of my plan for the remaing 1/3 is to get my credit score back to 750+ after lowing my usage and then see if I can get a balance transfer card and then attack that at low intrest. No other credit requests until the low intrest period runs out. Rince and repete. Thoughs...

In my opinion the best way is to (a) make sure everything is down to 78% or less, and then (b) go from lowest balance to highest balance... i.e. the "snowball" method.

Snowball method.
1. Stop using cards.
2. Pay off smallest balance first, then next smallest, and so on.
3. On other cards pay minimum + something each month.
As each balance turns to zero, that will free up your remaining monthly cash to apply to the next smallest balance.

Re: paying off high usage

ptatohed — Thu, 16 May 2024 20:44:24 GMT

We need a sticky on this topic. @Horseshoez is exactly right. At this point, don't worry about your credit scores. Focus on paying that debt off quickly and less costly. This will always be directing the majority of your payment(s) to the highest interest rate(s). This will pay of your debt in a shorter time and cost you less money.

But that's step 3. Step 1 is stop using your cards. Step 2 is doing what you can to reduce your interest rates.

Re: paying off high usage

JoeRockhead — Thu, 16 May 2024 21:48:13 GMT

I'd agree that the first thing you should focus on, to help avoid adverse action, would be to get any accounts that are maxed out to under 78% UTI. From there, I'm more in favor of going after the accounts that are costing the most in interest first, and work from there. BUT, only if you can throw significant funds at wiping the debt out, fast (otherwise, by extending the payoff of the smaller accounts too long, the interest can start adding up big). If not, I'd recommend the snowball method and wipe out the smaller debts, then taking the extra money and applying it to the next biggest, and so on, as described up thread.

I'd also agree to stop worrying about your scores right now. Utilization has no memory, so as your balances come down, your score will go up again.

Re: paying off high usage

rideco — Fri, 17 May 2024 12:37:10 GMT

Yep I get it. I am not too stressed about my score to be honest. I just need to get this debit paid down and things will work themselves out.

Thanks for the advice!!

Re: paying off high usage

rideco — Fri, 17 May 2024 12:38:14 GMT

78% usage great to know that number. Thanks

Re: paying off high usage

rideco — Fri, 17 May 2024 12:39:04 GMT

Yep Thanks!!!

@ptatohed wrote:
We need a sticky on this topic. @Horseshoez is exactly right. At this point, don't worry about your credit scores. Focus on paying that debt off quickly and less costly. This will always be directing the majority of your payment(s) to the highest interest rate(s). This will pay of your debt in a shorter time and cost you less money.

But that's step 3. Step 1 is stop using your cards. Step 2 is doing what you can to reduce your interest rates.

Re: paying off high usage

FicoMike0 — Fri, 17 May 2024 13:22:41 GMT

Good luck!

Re: paying off high usage

Anonymous — Fri, 17 May 2024 16:30:48 GMT

@JoeRockhead wrote:
I'd agree that the first thing you should focus on, to help avoid adverse action, would be to get any accounts that are maxed out to under 78% UTI. From there, I'm more in favor of going after the accounts that are costing the most in interest first, and work from there. BUT, only if you can throw significant funds at wiping the debt out, fast (otherwise, by extending the payoff of the smaller accounts too long, the interest can start adding up big). If not, I'd recommend the snowball method and wipe out the smaller debts, then taking the extra money and applying it to the next biggest, and so on, as described up thread.

I'd also agree to stop worrying about your scores right now. Utilization has no memory, so as your balances come down, your score will go up again.

I don't understand the motivation here: why use avalanche only if you can make a big dent fast? You say that extending the payoff of smaller accounts will cause extra interest, but not paying off higher interest accounts can also cost more

Re: paying off high usage

ptatohed — Fri, 17 May 2024 16:49:35 GMT

@Anonymous wrote:
@JoeRockhead wrote:
I'd agree that the first thing you should focus on, to help avoid adverse action, would be to get any accounts that are maxed out to under 78% UTI. From there, I'm more in favor of going after the accounts that are costing the most in interest first, and work from there. BUT, only if you can throw significant funds at wiping the debt out, fast (otherwise, by extending the payoff of the smaller accounts too long, the interest can start adding up big). If not, I'd recommend the snowball method and wipe out the smaller debts, then taking the extra money and applying it to the next biggest, and so on, as described up thread.

I'd also agree to stop worrying about your scores right now. Utilization has no memory, so as your balances come down, your score will go up again.
I don't understand the motivation here: why use avalanche only if you can make a big dent fast? You say that extending the payoff of smaller accounts will cause extra interest, but not paying off higher interest accounts can also cost more

I scratched my head on that one too. No offense JR!

Avalanche is always, and I mean always, the better move financially. No matter how big or small your balances are on your high(er) or low(er) interest rate cards. Snowball helps psychologically. So, if Snowball is what it takes to keep you motivated to keep going and pay off all the debt, ok, then that's the method to use. But it will cost you more and will take you longer.

GL OP!

Re: paying off high usage

Horseshoez — Fri, 17 May 2024 17:17:41 GMT

Simple concept, Avalanche > Snowball.

Re: paying off high usage

JoeRockhead — Sat, 18 May 2024 14:16:56 GMT

@Anonymous wrote:
@JoeRockhead wrote:
I'd agree that the first thing you should focus on, to help avoid adverse action, would be to get any accounts that are maxed out to under 78% UTI. From there, I'm more in favor of going after the accounts that are costing the most in interest first, and work from there. BUT, only if you can throw significant funds at wiping the debt out, fast (otherwise, by extending the payoff of the smaller accounts too long, the interest can start adding up big). If not, I'd recommend the snowball method and wipe out the smaller debts, then taking the extra money and applying it to the next biggest, and so on, as described up thread.

I'd also agree to stop worrying about your scores right now. Utilization has no memory, so as your balances come down, your score will go up again.
I don't understand the motivation here: why use avalanche only if you can make a big dent fast? You say that extending the payoff of smaller accounts will cause extra interest, but not paying off higher interest accounts can also cost more

My thinking (which admittedly may be flawed at times), avalanche only makes sense if you can afford to wipe out the larger balances, with high interest, quicker by making significant payments well above the minimum (10x or more above minimum due). To me, slowly paying (little more than minimum payment due) down larger balance accounts allows all account balances to linger for a longer period of time, and costs more money across the board in the end.

The argument could be made, probably because it's a more feasible approach for the majority of people, to just do the snowball method, obviously growing the amount of extra money for pay down as you go.

With all that said, the truth is that without knowing specifics of each account balance, the corresponding interest on those accounts, and most importantly, how much extra money there is to tackle the debt, it's all just speculation on the best method to attack it.

Re: paying off high usage

JoeRockhead — Sat, 18 May 2024 14:39:26 GMT

@ptatohed wrote:
I scratched my head on that one too. No offense JR!

Avalanche is always, and I mean always, the better move financially. No matter how big or small your balances are on your high(er) or low(er) interest rate cards. Snowball helps psychologically. So, if Snowball is what it takes to keep you motivated to keep going and pay off all the debt, ok, then that's the method to use. But it will cost you more and will take you longer.

GL OP!

Truly no offense taken @ptatohed and I agree that Avalanche is better than Snowball. My point, although regrettably not conveyed in a better way, was that if you're only making slightly more than minimum payment due, you're still swimming against the current, with all of it working in unison against you.

Re: paying off high usage

Anonymous — Sat, 18 May 2024 15:15:15 GMT

@JoeRockhead wrote:
My thinking (which admittedly may be flawed at times), avalanche only makes sense if you can afford to wipe out the larger balances, with high interest, quicker by making significant payments well above the minimum (10x or more above minimum due). To me, slowly paying (little more than minimum payment due) down larger balance accounts allows all account balances to linger for a longer period of time, and costs more money across the board in the end.

The argument could be made, probably because it's a more feasible approach for the majority of people, to just do the snowball method, obviously growing the amount of extra money for pay down as you go.

With all that said, the truth is that without knowing specifics of each account balance, the corresponding interest on those accounts, and most importantly, how much extra money there is to tackle the debt, it's all just speculation on the best method to attack it.

I don't think specifics are needed! We just need to be sure we are talking about the same thing. In my model, in either snowball or avalanche, the rules are

1) We have a constant amount of money, $X, to apply to the debt each month

2) Ensure that minimums are paid on all accounts (so all balances decrease)

Then the methods differ only in where the extra money, X - all the minimums, say $Y, goes.

And then financially the question is what gives the biggest bang for the buck for that $Y payment. Now imagine if instead of a debt we were considering the reverse situation, you have an number of safe savings accounts to put more money in. You wouldnt worry about the size of existing balances (assuming no cap!), just the APR on the account, and you put it all in the one paying the largest APR. The same applies to the debt situation, you minimize cost by paying off the largest APR. The actual amounts, APR etc do not matter at all. There is no way this causes biggest costs "across the board in the end"

The only advantage of snowball is psychological, which can be critical...

Re: paying off high usage

rideco — Wed, 22 May 2024 16:41:01 GMT

OK update here for those intrested. So this is what I did so far.

First I got all of my account info and got the latest APR and balance levels for every account. Ironicly some of the lower balance ones where the highest APRs. Right away paid off the top APR accounts Shell Gas (citi), Kohls (Cap One), and Chase Freedom Unmilted since my kids are AU's on that card. The great news here is the highest balance cards seem to also be the lowest APR. Next I paid down the rest of the cards to below 75% usage. I am going to let all of that shake down over the next few days and then start attacking the next highest APR accounts. On going process but trying to make sure I am in the best place at the end here.

Here are a couple of things I have learned in this process:

1. Check your APR's people. I had not really looked deeply into my accounts in years and was shocked to find several APR's over 30% currently. No lates just high balances. I have known intrest rates were going up from the FED to fight inflation but I had no idea what was really going on with the intrest rates on my cards.

2. Props to DIscover. Out of all my accounts it appears that Discover is the only one that has decided not to screw me with intrest. It was my lowest APR account reflecting from what I remember of the terms being when I got my card years ago.

3. Even though I am early in the process of fixing this I feel like I can breath again. I was at the point of no wiggle room at all. If my dog had gotten sick or my car had broken I would have been screwed. I guess the moral here is dont wait and let things continue to get out of control address things as soon as you can.

4. A quick side point. Some people might ask why I have my kids as AU's on my chase card and why I paided that one off earlier then others. Well the long story short is I have two teenagers. Chase allows AU's at 15 if I remember correctly and if you have kids you know they sometimes need money to do stuff. This allows me to first and formost allow them to start a relationship with a good bank early and if they need money for lunch or something when they are away from home its simple. I leave the card locked unless it is needed so no one goes wild with it. I am the big dummy ofender here not the kids. SO I paied that off in full so I am not going to screw them in this process.

Next big targest I am looking at is you AMEX Blue and Citi reward+ world MC... I will keep updating this post if you guys are intrested in seeing the come back.

Re: paying off high usage

Gregory1776 — Wed, 22 May 2024 17:24:24 GMT

i am basically going to be doing the same thing this year. I have a 13.5K balance i want to pay off in 3-4 months which is very ambitious for my income, and will completely depend on rain. my expenses are going to be very low however. that balance is going to be at 25% APR or whatever, so time is of an essence. I dont want another hard pull / Account.

my ramaining balaces are at 0% or 2% so im going easy on them.

just what i am doing, might be helpful ?