topic Re: Need advice on paying down CC's in General Credit Topics

Need advice on paying down CC's

Anonymous — Sat, 10 Apr 2010 19:10:09 GMT

Hello, I am trying to figure out what to do with my CC situation. Everyone’s situation seems different so I am looking for some relevant opinions on mine. I have had people give me varying advice from filing bankruptcy, debt negotiation, debt management program and credit card counseling. Ok, here is my sob story. I acquired approx $20k in credit card debt from a divorce proceeding about 3 years ago. I am still kinda bitter since most of this CC debt is not mine, I had the higher income so I am stuck with the bill. The balance is carried on 4 separate CC’s with varying interest rates. Until recently I haven’t been ready to make a commitment to tackling this debt and have just been paying the minimum due each month. It seemed easier to usually pay the minimum and put it out of mind with everything else I had going on and wanted to do being FREE to roam as I wanted! I am current on everything never missing payments on car, mortgage but have been a few days late on CC but not because I couldn’t pay, I simply forgot to send the payment. Things have calmed down, so now I am ready to concentrate on making this debt go away and stop paying interest! I struggle with the fact that I have this debt, since I did not make many of the purchases nor do I have anything to show for it. Sometimes I feel I would rather declare bankruptcy or do debt settlement so I wouldn’t have to pay it. But after researching, I know it would wreck my credit for a long time, right? Looks like I wouldn’t even qualify. I don’t feel I need credit counseling because I know how to make a budget and stick to it. I haven’t used a CC in over 18mo. That leaves me with a DMP. What is the benefit of using a DMP? From what I see is they help you get back on track with making regular payments and can help to eliminate late fees and reduce interest rates. But this comes with a setup fee and a monthly service charge. The part that I could use is the ability to usually reduce interest rates. Does that happen right away or does it usually take approx 6 months? I feel like I am on track making regular on time payments but what are my chances of getting a lower rate on my own? Don’t really feel like paying someone to make my payments.

Current stats:

Card 1 $5800 14.24%

Card 2 $3480 13.24% (late on this acct twice last 6mo, so they are raising rate unless I reject, but they will then close the acct)

Card 3 $4810 15.24% (acct is closed)

Card 4 $3040 19.24%

So my CC debt is now approx $17K and my utl on the ones that are open is about 89%. I have been able to build up to about $12,500 in savings over the past 2 years. I bought a house last year and my car is decent so I have no big purchases planned in the immediate future. I struggle coming to the conclusion that I need to part with some savings to make some headway since I am paying more interest on CC than earning in savings. Will someone please just give me a swift kick of reassurance that this is the right thing?

Overall Questions:

Should I do a DMP or handle it myself?

Recommendations on how much savings I should use?

Can I call the CCC and ask for a rate reduction if I pay $XXXX amount? Does that help?

Does it help that all four cards are from same CCC?

One account is closed, I should probably pay that one off first?

One account is threatening a rate increase due to two late payments in last 6 months, should I accept or close the account to keep the lower rate?

Hopefully that all makes sense and wasn’t too whiny. Thanks in advance!

Re: Need advice on paying down CC's

Anonymous — Sat, 10 Apr 2010 19:57:37 GMT

datch,

Sounds like a quite unfortunately situation, so accept my sympathies.

Don't do debt management program, it will worsen your credit profile and will cost you arm and a leg. From what you wrote, you should be able to navigate your way out on your own and with some friendly advice.

1) Can you take out home equity line of credit on your house/second mortgage? Given the historically low rates, whatever rate you will get from it will be lower than interest rate on credit cards.

2) Call your bank(s) and explain the situation. Explain that you are dedicated to paying off the debt, but any concession on their part will be appreciated. I've had some banks lowering APR as long as I promised not to charge new purchases (the account stayed open).

3) Can you get any balance transfers to other cards with lower APR?

2) Pay the highest APR CC first.

3) Close CC that is threatening rate jacking. Don't worry about losing a trade line now.

4) Have at least 6-9 months worth of expenses in savings, maybe even more given the economy. If you have anything over that amount consider paying the fraction towards highest APR card.

Good luck.

Re: Need advice on paying down CC's

MarineVietVet — Sat, 10 Apr 2010 20:22:22 GMT

@maks1806 wrote:
datch,
Sounds like a quite unfortunately situation, so accept my sympathies.

Don't do debt management program, it will worsen your credit profile and will cost you arm and a leg. From what you wrote, you should be able to navigate your way out on your own and with some friendly advice.

1) Can you take out home equity line of credit on your house/second mortgage? Given the historically low rates, whatever rate you will get from it will be lower than interest rate on credit cards.

2) Call your bank(s) and explain the situation. Explain that you are dedicated to paying off the debt, but any concession on their part will be appreciated. I've had some banks lowering APR as long as I promised not to charge new purchases (the account stayed open).

3) Can you get any balance transfers to other cards with lower APR?

2) Pay the highest APR CC first.

3) Close CC that is threatening rate jacking. Don't worry about losing a trade line now.

4) Have at least 6-9 months worth of expenses in savings, maybe even more given the economy. If you have anything over that amount consider paying the fraction towards highest APR card.

Good luck.

You may be confusing a Debt Management Program and a Debt Settlement Program. A DMP can help and one of the regular posters marty56 has written several times about the process. Hopefully he will read this and respond with more details.

From a BK years ago to:
8/09 TU-765 EQ- 783
9/09 EX pulled by lender 802
3/10 EQ- 800

You can do the same thing with hard work

Credit Scoring 101
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Re: Need advice on paying down CC's

Anonymous — Sat, 10 Apr 2010 20:42:04 GMT

I am NOT confusing anything.

Re: Need advice on paying down CC's

Anonymous — Sat, 10 Apr 2010 21:21:17 GMT

Swift Kick! Needlessly screwing up your credit because you bitter about divorce only hurts you!

Just take the $!2.5K and pay off most of your CC debt. Pay the rest off as quick as you can. Shop around for good balance transfer deals.

Re: Need advice on paying down CC's

Anonymous — Sun, 11 Apr 2010 02:02:21 GMT

@Anonymous wrote:
Hello, I am trying to figure out what to do with my CC situation. Everyone’s situation seems different so I am looking for some relevant opinions on mine. I have had people give me varying advice from filing bankruptcy, debt negotiation, debt management program and credit card counseling. Ok, here is my sob story. I acquired approx $20k in credit card debt from a divorce proceeding about 3 years ago. I am still kinda bitter since most of this CC debt is not mine, I had the higher income so I am stuck with the bill. The balance is carried on 4 separate CC’s with varying interest rates. Until recently I haven’t been ready to make a commitment to tackling this debt and have just been paying the minimum due each month. It seemed easier to usually pay the minimum and put it out of mind with everything else I had going on and wanted to do being FREE to roam as I wanted! I am current on everything never missing payments on car, mortgage but have been a few days late on CC but not because I couldn’t pay, I simply forgot to send the payment. Things have calmed down, so now I am ready to concentrate on making this debt go away and stop paying interest! I struggle with the fact that I have this debt, since I did not make many of the purchases nor do I have anything to show for it. Sometimes I feel I would rather declare bankruptcy or do debt settlement so I wouldn’t have to pay it. But after researching, I know it would wreck my credit for a long time, right? Looks like I wouldn’t even qualify. I don’t feel I need credit counseling because I know how to make a budget and stick to it. I haven’t used a CC in over 18mo. That leaves me with a DMP. What is the benefit of using a DMP? From what I see is they help you get back on track with making regular payments and can help to eliminate late fees and reduce interest rates. But this comes with a setup fee and a monthly service charge. The part that I could use is the ability to usually reduce interest rates. Does that happen right away or does it usually take approx 6 months? I feel like I am on track making regular on time payments but what are my chances of getting a lower rate on my own? Don’t really feel like paying someone to make my payments.
Current stats:
Card 1 $5800 14.24%
Card 2 $3480 13.24% (late on this acct twice last 6mo, so they are raising rate unless I reject, but they will then close the acct)
Card 3 $4810 15.24% (acct is closed)
Card 4 $3040 19.24%

So my CC debt is now approx $17K and my utl on the ones that are open is about 89%. I have been able to build up to about $12,500 in savings over the past 2 years. I bought a house last year and my car is decent so I have no big purchases planned in the immediate future. I struggle coming to the conclusion that I need to part with some savings to make some headway since I am paying more interest on CC than earning in savings. Will someone please just give me a swift kick of reassurance that this is the right thing?

Overall Questions:
Should I do a DMP or handle it myself?
Recommendations on how much savings I should use?
Can I call the CCC and ask for a rate reduction if I pay $XXXX amount? Does that help?
Does it help that all four cards are from same CCC?
One account is closed, I should probably pay that one off first?
One account is threatening a rate increase due to two late payments in last 6 months, should I accept or close the account to keep the lower rate?

Hopefully that all makes sense and wasn’t too whiny. Thanks in advance!

Hi and welcome to the forums.

Any closed CC account with a balance is hurting your score as it counts toward your utilization. Paying that off first would be the place to start.

You never want to close a CC that has a balance. Be careful when asking for a rate reduction, it may end up being a payment plan. You do not want that. They will give you a late every month.

There are several ways to go with paying down the CCs. I would start with the one with the lowest balance. Pay more on that one while maintaining your minimum payments on the others. When that is paid off, take the money you used for payments and start on the next lowest balance. Keep it up until they are paid down to at least 10%.

Whether you want to use your savings to do this is up to you. I would consider using it to pay off the closed account to get it out of the utilization equation.

Re: Need advice on paying down CC's

Jazzzy — Sun, 11 Apr 2010 17:56:20 GMT

@Anonymous wrote:

Overall Questions:
Should I do a DMP or handle it myself? Handle it yourself.
Recommendations on how much savings I should use? Make sure you have enough to survive for 6 to 8 mos if you lose your job. If there is excess above that, throw it towards this debt.
Can I call the CCC and ask for a rate reduction if I pay $XXXX amount? Does that help? You can call. You may have luck, or it may backfire. When folks call cc companies and go through a litany of their money woes, they often end up with thier account closed. If you call, don't give them any negatives.
Does it help that all four cards are from same CCC? Not really
One account is closed, I should probably pay that one off first? Depends upon whether you are looking for dollar savings or FICO maximization. To save dollars, pay the one with the highest interest rate first. To maximize FICO, it still depends upon how this closed account is reporting. Does your credit report give a credit limit, and are you given credit for that credit limit in your utilization calculations? If so, you're not being hurt by it, and some people would suggest paying this one off last in order to keep the credit line showing. It all depends on how it is reported for you.
One account is threatening a rate increase due to two late payments in last 6 months, should I accept or close the account to keep the lower rate? I'd close the account to keep the lower rate.

Hopefully that all makes sense and wasn’t too whiny. Thanks in advance!

I know it's frustrating to have to pay this off. But, as said above, you are only hurting yourself by fighting it. As my son always says, "It is what it is." Get it gone ASAP.

Re: Need advice on paying down CC's

RobertEG — Mon, 12 Apr 2010 05:56:09 GMT

Let's do a rough estimate.

You say you have $17K of debt. Lets assume that is a low, 12% apr on each account. That is 1% interest out of pocket each month.

That equates to $170 a month just in interest on existing CC debt. Money out of pocket, with no reduction on next month's principal unless it is above $170.

I doubt that interest on savings is $170 a month.

Aside from the financial bucks, high % util history is red flag for reduction of your CLs.

As you pay, you may see your CLs reduced down to your current balance,, and thus your % util and FICO score show little improvement.

Re: Need advice on paying down CC's

Anonymous — Mon, 12 Apr 2010 21:24:50 GMT

Datch, I was in a similar situation to you......had about 5X the debt you had, no job, credit score was almost falling into the 500's.

(1) Make sure you pay at least the minimums EVERY MONTH. Either have them suck it out of your checking account a few days before the due date or do it yourself but set your CC preferences to give you an E-Mail Alert a few days before or a week before.

(2) If your cash flow can handle it, pay off a bit more than the minimum each month. If you can pay a total of $300-$500 a month you will make a dent in the CC debt after a year, your FICO score WILL go up, and you don't have to touch your savings.

(3) I am sympathetic to not wanting to touch the savings. Psycholoogically, it felt 'good' to have something that was mine even though a case could be made to use it to pay off high-rate CC's. In my profession, being a financial services professional, I was actually confident that I could earn MORE than the rate charged by the CC so I had an extra incentive to not use my savings to pay off the CC's.

(4) I lean AGAINST touching the savings to pay down the CC debt but only if you earn enough and have enough cash flow to 'make a dent' in the principal on the CC's. Can you pay off $300 a month? If so, that would be great.....if you can do $500/month, you can almost cut the debt in half in 18 months. No need to hit your savings, then.

(5) Look into the HELOC as a lower-rate way to pay off the CC's. Better to pay off $12,500 at 7% than 14-15%.

Report back, let us know what you're doing. Oh yeah, it took me 4+ years, but I got my credit score up from the low-600's to just short of 800 and I've been out of work since last June !

Re: Need advice on paying down CC's

Anonymous — Tue, 13 Apr 2010 03:04:56 GMT

To all the other opinions, I would add:

- Can you:

- Borrow against home equity?

- Borrow against 401(k)

- Borrow from friend or relative

- Do a balance transfer to a lower rate (do the math to see if it actually saves you money)

- Sell something

- Generate extra income

Look at your savings and see how much to can devote to debt reduction without sacrificing whatever cushion you need for peace-of-mind.

Get medieval on yourself about scheduling your payments. Make a calendar, set up a spreadsheet, carve notches on your cell wall, whatever it takes to never be late again.

Pay off the exact minimum on every card except the highest APR. Pay that one down as fast as you can.

I played this game a few years ago. It sucks because so much goes to the interest. You can be dumb like I was and add the occasional late payment to it for extra fun, and then they raise the interest rate to soul-draining levels.

But once you get some traction on it, it starts snowballing in your favor.

Re: Need advice on paying down CC's

Anonymous — Tue, 13 Apr 2010 14:07:31 GMT

One thing not touched on yet...

You say that some of this is from the divorce..are these cards held jointly? Are they only in your name? Are they in his name?

If they are held jointly, that could really get you into trouble later if he runs up more debt, so close them and pay them off...

If they are only in your name, then I would:

Make a budget - track every penny/dollar you spend for 1-2 months (while making on time minimum payments to all CC) and once you have a good idea of cash flow, you can reduce and reallocate to the CC debt - I know it seems like a lot but if you can order them as such:

Card 4

Card 3

Card 1

Card 2

and pay an extra $300 a month on card 4 - you can pay it off in about 9-10 months

Then you can pay that extra $300 + the minium from card 4 on card 3 and get that one also taken care of in another 10 months

So 2 years and 3 months from now, you'll have 3 cards PIF, one card with approximately $2000 - so yeah, it'll be tough but with doing that a bit longer, in 3 years you can have all cards paid off - plus, you'll be used to living on $300 less and then can put that into savings for your next car!

the trick, no matter what you do is this:

Make a budget and stick with it

Do not put any more on the CC - only pay them down and use cash or debit card for everything else

Realize that while it sucks to have to pay this, the faster it goes away, the faster you can move on with your life

(I wouldn't recommend using any "program" for help - if you want an interest rate deduction, call but be aware that they could raise rates instead - just stick with the above and you'll be debt free in 3 years, baring any other issues.)

good luck!

Re: Need advice on paying down CC's

Anonymous — Tue, 13 Apr 2010 14:58:36 GMT

Just wanting to clarify some things. You agreed to accept the debt in the divorce proceeding, right? It's not a case of your EX agreed to pay it in the proceeding, but defaulted, so it fell to you out of the "goodness of your heart" or anything.

Did you get hit with lates on your CRs? If it was just a few days, and the collections department of the CCC called, then probably not. Just checking.

BK versus high UTIL and interest. It's apples and orangutans. Not a case of one being better than the other.

I'd say you're better off fending for yourself that using a DMP. You've come this far. Most of the energy the Space Shuttle consumes is in that first 150 miles of the launch. If the accounts are current, not in collections, definitely you wanna call up the CCC and get things going.

For now, ignore the UTIL and your credit scores. Don't even bother buying your scores.

I think you have an advantage because all four CCs are with the same CCC. Sit down with the cards, a pad of paper, a pen, scribble down the last four numbers of each card, the current balances, current interest rate, threatened new interest rates, and whether closed or open. Then give the CCC a call. Pretend to be confused, lost, and unsure. People have an almost uncontrollable desire to want to help others in need. I think we all have descendents who were Samaritans--and lemurs.

"Hi, umm, I'm a card holder, and, ah, I need to talk to someone. I need to see about getting some help, er, with my credit card accounts."

They'll probably try to reassure you, tell you they are there to help you, whatever. They'll ask for your name, SSN, account number, whatever. If they ask for the account number, respond almost like a kid in school who knows the answer.

"Yes, I do. I have it here."

They'll go through reviewing your accounts, and they may ask permission to review the account. Once they do, they ask how they can help you.

Tell them you wanted to find out whether there's any sort of help they can offer you, either temporary or permanent, in reducing your interest rates on some or all of the cards. Just ask, flat out, and don't set a limit by asking something like "Can you reduce the rate by 1% on all the cards?" Just ask the open ended question. They might say, well, we close an account and drop the rate down to 8%. Or maybe they can temporarily suspend an account and drop the rate down to 6%, for 6 months. Or whatever. Every CCC is different.

The key to negotiation is NOT saying a number. You ask and try to get them to say a number.

If you can get the maximum drop by closing an account, it may be worthwhile to close Card 4 with the 19.24% rate.

On Card 2, because they are threatening a rate hike, I would ask specifically about that account.

"I know that I was recently late a couple of times on Card 2, and I apologize for that. I know that doesn't excuse it. I agreed to the terms and all; however, I was hoping there was some sort of arrangement we could make with that card, other than closing it. I understand you don't make the policies, so if you tell me the rate on that card will rise unless I close it, I understand and I don't blame you."

Then let them respond. Maybe they can work something. Maybe not. You confess your sins, you plead for mercy, and maybe you get a reprieve. If the only way to prevent a rate hike is to close the card, then I say do it.

Some might say to keep cards open, preserve old accounts, blah, blah, blah. I don't see that as all that big of an issue for you, right now. Putting a dent in your debt, that's the key.

Once you get talking with them about options, then I would offer up something like this.

"Is there any way you could combine all my debt and credit limits together on one card with a better interest rate?"

Let them respond. Then offer this.

"Is there anything you could do in terms of lowering my interest rate and combining or raising my credit limits if I could pay a chunk of the debt down now?"

Keep the questions open ended so they cite numbers. Take notes on what options you have. Ask if you need to decide now or can you wait and sleep on this. Ask if you need to call back and talk to this specific rep or whether any of them can help you. Ask if there's a specific program name or program code for what they have offered you.

If you want to report here what you learn before deciding, that's fine. However, I suspect you'll know in talking to them what is going to reduce your interest rate the most and how much, if anything, you'll need to pay down from savings to get it.

Re: Need advice on paying down CC's

llecs — Tue, 13 Apr 2010 15:02:26 GMT

Great post, Noah.

Re: Need advice on paying down CC's

Anonymous — Thu, 15 Apr 2010 21:13:22 GMT

Thank you all for your reassurance, information and ideas. I decided to bunker down and do this on my own, with no DMP. I gathered all my info and called Chase to discuss my cards especially the one they are threatening a rate hike on to see if there is anything they could do to help. I tried every tactic that was suggested even talking to supervisors and team leaders and they did not budge one bit! I was nice and asked a lot of open ended questions basically putting myself out there asking for help. They simply said there was nothing they could do all rates and rules are system generated and no one can change that. They really didn't leave me much choice but to close the card, this will keep the 13.24% rate instead of it going up to 23.54%! To me that was a no-brainer! I am now going to use some savings and pay off my highest interest card and start the process of snowballing the money from the paid off card onto my next highest interest rate card. The whole phone call with Chase really irks me, the CCC practices do not make sense to me at all. After having 2+ years of on time payments they are going to jack my rate because I was late by one day twice in 6 months!? I am focusing this irritation to motivation, I am going to pay these off as quickly as possible and limit the amount of money I surrender to this unmoral company!

Thanks again everyone!