topic Re: paying off cards using auto loan in Credit Cards

paying off cards using auto loan

Anonymous — Sat, 07 May 2011 08:00:20 GMT

background:

I have a 2003 economy car with over 140K miles on it. I financed it through the manufacturer initially and have refinanced with Wells Fargo Auto Finance twice, extending another five years each time. My monthly payments are $250, and I finally have the payoff in sight ($400 balance, planning to pay it off next month). The current loan is at 16.9%.

Here are my credit cards:

Account Balance Limit APR
Bank of America 2000 2500 23.24

BoA (MBNA) 3400 3800 27.99
Capital One 2200 3000 3.99
Citi 4000 4590 29.99
HSBC (HP Store) 0 805 17.65
Chase (WaMu) 600 800 29.99
Wells Fargo 2600 4000 19.55

My current scores are in the 650-660 range. My gross income is about $34K.

question:

I got a call from Wells Fargo offering to refinance the loan and roll other debt in, so I called them to go over the details. They somehow came up with a value of $5900 for the car (I guess that's dealer retail, but it still seems high), and offered to loan me $8000 at 18.9% for 48 months. The monthly payment would be $241.52.

This seems like an attractive offer to pay off my two high-balance, high-interest cards (Citi and MBNA). The minimum payment for these two cards this month totals 263.91, and I generally pay about $50 more than the minimum monthly on each. My general understanding is that an $8000 installment auto loan is a lot better on my report than credit cards. My main concern is refinancing the car yet again. I was not planning to buy a new car any sooner than a year from now, so I think the concern is more psychological than practical.

Any analysis of my situation and advice as to whether accepting the Wells Fargo offer is a good idea (and payoff strategies for the credit cards, if so)? Any intricacies I should be aware of with regard to my credit card issuers closing accounts or lowering credit limits when paying off cards? I paid down the MBNA card significantly a couple years and and they lowered the limit to right above the new balance.

Thanks for any help and analysis you can provide!

Re: paying off cards using auto loan

aftermath — Sat, 07 May 2011 08:12:42 GMT

Regardless of any Adverse Action that your CC company would take against you for paying off your balance, you have to eventually pay them off anyways right? Might as well do it now and get it over with.

Slowly paying down a balance wont prevent you from receiving a CLD. If they have already flagged your account for a CLD, it will stay until it hits the lower limit that they programmed into their system.

Trust me, I had an Amex that they kept CLD'ing me on. I kept the balance on there as I was afraid they were going to decrease me even further. I just paid the minimum for 2 years straight thinking that would give them enough time to cool down. I was wrong. I paid the balance in full and they dropped me instantly down to $2k from $4k.

Re: paying off cards using auto loan

Tazman81 — Sat, 07 May 2011 11:28:42 GMT

Prior to doing this, you may want to consider why the balances on ALL of your credit cards are so high. So many people "consolidate" their credit card debt and then end up charging their cards back up, so there was no gain. If you have a problem spending too much on your credit cards, then I would NOT recommend you do this as you will just be adding to your debt.

If you are planning to cut up the cards so that you can no longer use them until you get the other cards paid off, then it will work out as a good way to save some money in interest based on your current card rates. YOU are the only one that can make this decision, just realize the consequences if you charge your cards back up. Just being frank as we see it a lot on the boards.

Re: paying off cards using auto loan

Anonymous — Sat, 07 May 2011 11:47:33 GMT

You're paying close to $200/mo in interest on the MBNA, Citi, and Chase cards. If you have options to move that debt to somewhere else at a lower rate, you absolutely should take advantage of that. Pay off Citi, Chase, and MBNA, and then lock those cards away where you won't charge them right back up. Cut them up if necessary.

CLD's should be the least of your concerns. You shouldn't be carrying balances on cards with ridiculous 30% interest rates. And you need to pay down these debts before using your cards again. When you are in debt like this, the main concern should be the debt...not your credit.

Will you get CLD'd? Probably...heck, I know if I was your lender, I'd CLD you. Sorry, just being honest. Your utilization is sky high. But carrying a nearly maxed out balance you pay 30% interest on just to keep a high credit line does only one thing...cost you money. If you want to use money to secure a credit line...well, that's what secured cards are for. Not maxed out balances at 30% interest.

Re: paying off cards using auto loan

MarineVietVet — Sat, 07 May 2011 14:27:57 GMT

Hi jeremylv and welcome to the forums.

At first glance this seems like something that would help you but I have the same concern that Tazman81 has expressed. If you use this refi to pay down some CC debt you must have the self discipline not to once again max these cards out. Then you will be worse off than before. I understand how quickly this can happen because I've done it more than once in my life.

I also agree that you need to examine why all these cards are maxed out. I realize that there are often circumstances beyond our control (large medical bills, long term unemployment, etc.) that force us to use CC's to survive. That is completely understandable but I know in my personal experience it was simply a matter of overextending myself without realizing ahead of time the possible consequences. This is another area where self discipline is so very important.

I suggest that if you do this refi, and even if you decide not to, that you put all the cards away and not use any of them for any purpose until you get them paid off. Put every extra dollar you can find to aggressively paying down debt. If this means putting off vacations or eating out less or no more movies for a year or two you will have to commit to short term sacrifice for long term security.

As far as any possible future CLD's or other such matters that can't be your main concern right now. Getting out of debt has to be your #1 priority.

In any case I wish you well. Let us know what you decide to do and give us updates on your progress.

From a BK years ago to:
EX - 3/11 pulled by lender- 835, EQ - 2/11-816, TU - 2/11-782

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

Re: paying off cards using auto loan

Anonymous — Sat, 07 May 2011 15:41:03 GMT

+1 to Marinevietvet and the other posters regarding controlling your spending.

IMO, do NOT take the refi deal, regardless of any perceived savings in interest. That car of yours is not worth anywhere near what WF is willing to loan to you. It's 8 years old, with 140K. Think about what happens in a year or two. You do not want to be upside down on a car loan on top of the other CC debt you're carrying.

Take the money you used to pay for that car loan and apply it to your other bills. Others here can help you figure out a snowball plan on paying these off to save money in interest and get a bit of personal satisfaction in clearing these debts over time.

If done the right way, you'll get a bit of a boost in scores, too, when these lowered balances report.

Don't concern yourself with the scores so much. Your personal solvency is much more important. When that car craps out (and it will...they all do), you don't want to still owe on it, especially more than the thing is worth to the junkman.

Good luck with everything, it'll all work out if you put your mind to it!

Re: paying off cards using auto loan

DI — Sat, 07 May 2011 16:59:41 GMT

You are unofficially bankrupt. Stop spending. Borrowing more money only going to create more problems. Stay on a budget until you're credit card debt free. Beans and rice for the next 2-3 years.

Re: paying off cards using auto loan

marty56 — Sat, 07 May 2011 17:39:59 GMT

I would look into a DMP. If you can afford the payments, you will be CC debt free in 5 years or less and they can lower your CC interest rates to 10% or less.

Re: paying off cards using auto loan

Anonymous — Sat, 07 May 2011 20:37:11 GMT

Re: paying off cards using auto loan

andre181 — Sat, 07 May 2011 21:45:37 GMT

I don't care what the interest savings is, using a secured loan to pay off unsecured debt is just [Edited} Especially since you car is basically paid off.

At this point if you lose your job and stop paying your credit cards, and you would at least still have a car. Refi on your car and stop making payment on your car loan, and you lose your car and wouldnt be able to get a new car in the near future with having a recent repo.

Pay off your car, and then take that car payment money every month and get those cards paid off!

Hi andre181,

I don't believe your response can be considered friendly, supportive, or respectful. We can disagree with someone and what they propose to do without getting personal.

-Marinevietvet,myFICO moderator

Re: paying off cards using auto loan

andre181 — Sun, 08 May 2011 02:58:42 GMT

My apologies to the OP and the rest of the board if anybody interpreted that previous post as offensive or disrespectful.

My intentions were not to insult the OP at all, but just to express how unwise the method of debt consolidation the OP proposed is IMO.

Again, I'm sorry and I wish you the best of luck!

Re: paying off cards using auto loan

Anonymous — Sun, 08 May 2011 03:07:46 GMT

Thanks to everyone for the advice on both sides of the aisle. I really appreciate the time you've all taken to help me.

I have not made a decision yet, but I'm leaning towards accepting the offer, as I believe I can pay down the Wells Fargo loan very aggressively ($600 per month at the very least, as that's what I currently pay between the auto loan and payments on the three cards I'd be paying off). WF online banking also allows you to specify that a payment be applied to principal only. I do understand the risk I'm taking with regard to being very upside-down on a very old car, but it has been extremely reliable. I'm not too worried about losing my job or a repo, as I think that risk is much lower than the reward of paying off the cards and lowering my revolving debt. I'm healthy and have never been fired or laid off from a job in my nine years in the workforce.

Would anyone be able to assist me with the best payoff strategy/timetable for the balances if I do not end up going with the refi?

As far as how I got into this situation and controlling spending, I did have a couple of short periods years ago where I had to "live off of" cards due to unplanned expenses and no savings, as well as some significant cash advances to assist immediate family in emergency situations (I know that's a bad idea, but I couldn't refuse to help family). I haven't made any purchases on any card in the last six months, and very few in about a year. I am serious about getting the debt paid off and do not plan to charge them back up again once I pay them down. My only major weakness is eating out a lot, and I've already begun to curtail that. I haven't even bought new clothes, shoes, or any electronics/luxury purchases in as long as I can remember. My question about CLDs was strictly from a credit score perspective - I'm not interested in having the credit available so I can use it, just so I can lower my utilization.

I hope this information gives you more insight into my situation, and I'd appreciate hearing if it changes any of your opinions and advice

shadow2k: I am definitely not carrying the balances just so I don't get CLD'd. I understand that would be a ridiculous strategy. It's simply a matter of not being able to pay much more than the minimums with my current income and interest rates.

Thanks!

Re: paying off cards using auto loan

andre181 — Sun, 08 May 2011 03:14:43 GMT

Also one last bit of advice:

If you do this, you may want to look into GAP insurance for your car since you will likely be upside down by a decent amount. That will prevent you from having to payout the difference immediately to WF in the event you are involved in a car accident. I have Allstate and GAP insurance for me is only about $4 extra dollars per month. Very much worth it!

Re: paying off cards using auto loan

Anonymous — Sun, 08 May 2011 03:28:00 GMT

Thank you, Andre. BTW, I did not take offense at your previous message I understand I'm in a pretty horrible situation and I'm not looking for anyone to sugarcoat it for me; just trying to understand my options on how to get out of it.

I was under the impression that gap insurance was only available at the time of purchase - it's something that can be added to a policy for a vehicle I've had since 2003? I'm with State Farm.

Re: paying off cards using auto loan

Anonymous — Sun, 08 May 2011 04:57:07 GMT

GAP insurance would be from Wells Fargo. It protects your loan, not your vehicle. If you total the vehicle and insurance only pays a partial amount of the remainder of the loan, GAP covers the rest. That's the most basic explanation. If you are going to be upside down on your loan, this is an option you definitely should ask about.

As far as being upside down in the car...I don't know why it matters. The money is owed, one way or another. You either owe it on a car, or a piece of plastic. I'd chose the one with the lower interest rate every single time.

Basically the two sides you're getting are the financial side, and the psychological side. On the financial side you always pay off higher interest first, it saves you the most money and gets you out of debt quicker. On the psychological side, they want you to see visible progress. You own your car free and clear, but pay 30% interest on $8k instead of the 20% refi...but hey, you own your car!

Yeah, I'd rather save money. That's just me though. Dave Ramsey has plenty of followers, I've yet to figure out why.

Re: paying off cards using auto loan

Tazman81 — Sun, 08 May 2011 13:47:24 GMT

Here is another option... Call up each of the credit card companies, and ask them if they can lower your interest rate, even a temporary decrease for 6 months. This way you don't have to take the refi option from wells fargo and could potentially get a rate lower than the 18% on your credit cards that are higher than that. Then like the others said, just apply larger payments (from the money you were spending on your car note) to the credit cards with the higher interest rates and you will be out of debt in no time.

Re: paying off cards using auto loan

Anonymous — Thu, 12 May 2011 20:41:14 GMT

finally talked to the Wells Fargo guy again.. after he took my documentation to the underwriters, they refused to do any refi based on the age of the vehicle and mileage (he claimed that my credit was fine; it was just those factors).

I guess it's the traditional payoff route for me

Re: paying off cards using auto loan

DI — Thu, 12 May 2011 21:01:48 GMT

@Anonymous wrote:
finally talked to the Wells Fargo guy again.. after he took my documentation to the underwriters, they refused to do any refi based on the age of the vehicle and mileage (he claimed that my credit was fine; it was just those factors).

I guess it's the traditional payoff route for me

They saved you from committing financial suicide. Stick with a budget and overtime everything should work out. Maybe take a part-time gig to help pay things off faster.