topic Re: $32K in debt between two people. $2600 in payments every month. best plan of action? in General Credit Topics

$32K in debt between two people. $2600 in payments every month. best plan of action?

Anonymous — Thu, 12 Jul 2012 02:00:17 GMT

Hi everybody,

My husband and I are in quite a bit of credit card debt, and we are looking for the most efficient way (in terms of reducing interest, raising credit scores) to get out of it!

Here's a breakdown...

Me:

Best Buy - $875 @ 0% until 2/2013

Chase Freedom 1- $0/$5400 (balance/limit) with 0% APR BT offer til 9/2013

Chase Freedom 2- $3500/$8000 @ 10% with 0% APR BT offer til 9/2013

Citi Simplicity - $0/$3000 with 0% APR BT offer til 6/2014

Discover More - $4200/4500 @ 0% til 8/2013

(I also have a few other balance-less cards that currently do not have offers, totalling my total credit limit to around $30K)

Husband:

BoA - $1800/$4500 @ 9%

USC - $6700/$10000 @ 10%

First Financial - $14800/15000 @ 29% (ouch!)

(Husband also has a few more, totalling his credit limit to $35,000)

Whew! Okay, starting this month, we will be able to designate $2600 every month to our debt.

We originally thought about transferring $2000 every month from my husband's three accounts into my 0% accounts with a BT fee of 3%. We would be able to do this for the next four months. We would then pay $2600 from my various accounts, essentially paying off $600 from my total balance every month. The original thought process for this solution was that there would be more activity in my accounts, so the ability to pay off $2600 every month would be viewed positively and thus raise my credit score.

But I've been thinking...would this hold actually true? Or would it be smarter to simply pay off $2000 directly from my husband's account and $600 from mine every month? (This would, of course, save the $60 transfer fees...)

I'm interested in reducing the total interest we will have to pay but also in maximizing our credit scores. Please let me know your thoughts. Thank you.

Re: $32K in debt between two people. $2600 in payments every month. best plan of action?

Anonymous — Thu, 12 Jul 2012 02:11:34 GMT

I would hit that 14800/15000 and your Discover first. That's gotta be killing utilization. I don't think how much you pay a month matters, as long as you're on time. Knock out or down those two big ones and work on the smaller balances, and you should see some improvement.

Re: $32K in debt between two people. $2600 in payments every month. best plan of action?

Anonymous — Thu, 12 Jul 2012 02:21:41 GMT

Ditto! Those are the two biggies, and think with your wallet first.

That 29% is killing you both. Kill it first.

And, BTW, ...welcome to the community !

Re: $32K in debt between two people. $2600 in payments every month. best plan of action?

Anonymous — Thu, 12 Jul 2012 02:25:35 GMT

In terms of minimizing interest I would suggest the following:

1) Transfer a chunk of the First Financial balance to your 0% BT 0 bal Freedom and your 0% BT Simplicity accounts.

2) Start paying down the First Financial balance on your husband's account to something reasonable.

3) Then I'd start splitting payments between your various accounts, maybe hitting your 10% Freedom.

That 29% is pretty rough so I'd try to get that account down as quickly as you can.

Re: $32K in debt between two people. $2600 in payments every month. best plan of action?

LS2982 — Thu, 12 Jul 2012 02:26:42 GMT

I agree the First Financial and Discover need to be hit 1st. Rest of $$ to others.

Re: $32K in debt between two people. $2600 in payments every month. best plan of action?

Anonymous — Thu, 12 Jul 2012 03:04:26 GMT

Thanks for the responses (and the welcome).

I did not know utilization was taken into account for individual credit cards. I was always under the notion that total utilization took precedence. Now I know!

Re: $32K in debt between two people. $2600 in payments every month. best plan of action?

trumpet-205 — Thu, 12 Jul 2012 05:28:45 GMT

I disagree with paying down 29% at first, people seems to forgot we have things called minimum interest charge and minimum payment.

My suggestion is snow ball method. You pay down the card with the least amount of balance first, then the next smallest, etc. This method allows you to free up more minimum payments as you pay down your debt, and you do not have to overpay your interest from minimum interest charge. Hence the word snowball, as later on your payment grows.

Another method would be to open up a personal loan and consolidate all your CC debts.

Re: $32K in debt between two people. $2600 in payments every month. best plan of action?

Anonymous — Thu, 12 Jul 2012 13:23:20 GMT

This one is a toughie, because of the much larger amounts, albeit with the nice payment opportunity per month.

Usually I'd say attack the 29% first, because interest over time is going to be ridiculous.

But here's my problem, you're going to have to put "FICO scores" aside. Forget that. You need to go for financial sense first, because any way you cut it, you're not going to do better score-wise until most of these credit cards have MUCH lower balances.

And the number $2,600 looks pretty, but that's getting split over 5 cards.

So even if you're paying minimums on 4 of them, you're not getting the full effect of using the whole $2,600 each month until you have one card remaining.

I bet that the maxed out card alone is paying at least $200 a month. The allocated money will always be $2,600 but you get more bang for your buck as you reduce a card one by one.

Personally, I'd attack the husbands debt first, because it seems that she has 0% offers that will last another 14 months. If the husband's debt gets to 0 within the next few months, her debt is a little more easier attacked by next summer. I'd hit the BoA first, USC second, then the biggie last while paying the minimums on all of the cards, but that's just me.

@trumpet, it's not that people forget about minimum interest charge and minimum payment, it's just that there is never a clear cut way to attack debt.

Re: $32K in debt between two people. $2600 in payments every month. best plan of action?

Anonymous — Thu, 12 Jul 2012 17:15:39 GMT

Would transferring about 6000 dollars of debt from my husband's acct to mine be a bad idea (assuming of course that we do not divorce in the next year or so, haha)? My overall utilization would jump up to 50% and my score would take a hit. But we'd certainly save more by doing this...

Re: $32K in debt between two people. $2600 in payments every month. best plan of action?

Quips — Thu, 12 Jul 2012 17:31:30 GMT

Put improving the FICO score aside - i would do whatever you can to minimize the interest you are paying on your husbands debt. I would BT as much of the First Financial debt to your Chase and Citi 0% BT offers. Then I would use the $2,600 a month to pay off the debt - paying the highest interest cards fist (obviously getting the First Financial to $0 balance is the first priority). Since all of your BT offers are 0% until at least 8/13 - that gives you over a year to pay it off/down.

Re: $32K in debt between two people. $2600 in payments every month. best plan of action?

SpiceIslander — Thu, 12 Jul 2012 17:45:03 GMT

@trumpet-205 wrote:
I disagree with paying down 29% at first, people seems to forgot we have things called minimum interest charge and minimum payment.

My suggestion is snow ball method. You pay down the card with the least amount of balance first, then the next smallest, etc. This method allows you to free up more minimum payments as you pay down your debt, and you do not have to overpay your interest from minimum interest charge. Hence the word snowball, as later on your payment grows.

Another method would be to open up a personal loan and consolidate all your CC debts.

There are many variations on the snowball method. I tend to think in terms of saving interest over other considerations. (Off the top of my head) That 29% interest must be costing close to 300.00 per month! I would pay the minimum on everything that's at 0% except for the smallest amount owed. Double that payment and put the rest on the 29% biggie. When the smallest balance is paid off, you can use the snowball method, applying the payment to the next lowest balance. That way, you get the the gratification from the snowballing and still keep the monster at bay. Also, you may be able to get an APR reduction if you ask. No guarantee but won't hurt to ask. OP, I know you're thinking about your scores but that damage has already been done. It might be wiser to do what will save you money in the long run. As your balances decrease, your scores will bounce back.

Re: $32K in debt between two people. $2600 in payments every month. best plan of action?

jamie123 — Thu, 12 Jul 2012 22:04:48 GMT

You need to get rid of the 29% interest card FIRST!

You are paying almost $5000 interest a year or $100 every WEEK in INTEREST on that card and that's before you touch the principal!

For every $100 you can BT to one of your 0% cards you will save 26% interest. (29% minus 3% transfer fee) THAT IS NOT A BAD DEAL!

That card has loan shark type interest. You really do need to sock drawer that card.

Go down the line, pay minimums on all cards and the rest of the $2600 on the highest interest card that remains.

Sock drawer that 29% card NOW!

Re: $32K in debt between two people. $2600 in payments every month. best plan of action?

jamie123 — Thu, 12 Jul 2012 22:23:00 GMT

Additional thoughts...

I've re-read and studied your initial post.

From what I can tell you and your husband have been living above your means. You have not been totally honest with us about your past credit history. I see you mentioning all your new cards that have 0% offers. You need to STOP carrying balances on your cards!

Have you been living your lifestyle as to how much credit lenders will grant you?

You really need to put ALL the cards away for a year and pay-off your current debt. It won't be easy by no means, but you really need to do it now BEFORE you get in trouble.

If you don't change your behavior now we might be seeing you in the CREDIT REBUILDING FORUM in about 2 years, after you file BK.

Just some advice...I didn't mean to be harsh but you really do need to get out of CC debt now.

Re: $32K in debt between two people. $2600 in payments every month. best plan of action?

Anonymous — Thu, 12 Jul 2012 23:13:19 GMT

@Quips wrote:
Put improving the FICO score aside ...

+1. My question is why the FICO score is important right now, and I suspect it's because you're planning on applying for something... But when considering you have over $50,000 in available credit, many of us are proposing you step back a second, at least until you get things back under control. Just $0.02, not meant to be offensive or anything

As for your question on the balance transfers, that could be a great idea to offload some of the 29% debt into a short-term 0% holding cell. I'm a spreadsheet guy, so fire up Excel and crunch _all_ the numbers to see which snowball/payment method saves you the most money and/or pays off your balances more quickly.

And then, still, you'll have $50,000 in available credit.

Re: $32K in debt between two people. $2600 in payments every month. best plan of action?

Quips — Fri, 13 Jul 2012 02:34:15 GMT

I am also a spreadsheet guy and here is what I came up with:

First - pay the first $2,600 (less any minimums due on the other cards) on First financial (leaves a balance of $12,200)

Then BT the 12,200 to the Citi and 2 chase cards - that will get the First Financial to 0% and save you 29% interest immediately

Then - pay the minimum on all the other cards except the USC until that is paid off - should take 3-4 months

Then pay the BoA and Best Buy off - should happen in Jan 2103

In Feb 2013 - Start paying off the $3,500 balance on Chase 2 that is at 10%

When that $3,500 is paid off - start working on the Discover - you should be able take care of that in 2 months - now it is April 2013

Finish paying off the Chase 2 - done in May 2013

Then pay off the Chase 1 - Done by July 2013

Citi next - paid off by Aug 2013.

If you do it this way you will be out of debt by Aug 2013 - assuming you don't take on any other debt in the interim

By March of 2013 - the only balances you should have remaining will be at 0% - Discover, Chase 1 & 2 and Citi

Good luck

Re: $32K in debt between two people. $2600 in payments every month. best plan of action?

lithium78 — Sat, 14 Jul 2012 21:48:14 GMT

My BoA is currently offering a 12 month 0% BT on my account. Have your husband check if his BoA account is offering the same and you could transfer at least some of the First Financial balance over to it and save yourself some of the interest.