topic Re: How to go about paying off debt in General Credit Topics

How to go about paying off debt

Anonymous — Thu, 27 Dec 2007 15:45:01 GMT

Ok, quick question. My wife and I will be getting a small chunk of money in a few weeks and we'd like to use that to fix our credit as it's kinda jacked up right now. Now, the question I have is which method of debt payment would be better for my credit (not worried about immediate affect, just worried about overall affect). Should we get everything caught up and pay everything down slowly over the next 12-24 months with this cash or should we just go ahead and pay it all of right now and get it out of the way?

I was thinking at first that just paying it all off right away would be better, but after doing some of the simulations on MyFico, I'm kinda confused now, hehe. The other thing I was thinking is that I could pay it off slowly and put half of the money we get into a 6-month or 12-month investment account to get a little more out of the cash to pay off a bit more debt. The amount we're getting won't pay off ALL of the debt, but it'll pay off a good chunk. OVERALL debt including car loans and such (no mortgage) totals about $40,000. about 18k of that is car loans, 7k is college loans, 5k is personal loans (all 3 of these are in good standing), and the bad debt totals about 10k. We're getting about 8k. Let me know what ya'll think. Thanks.

Re: How to go about paying off debt

MidnightVoice — Thu, 27 Dec 2007 15:50:48 GMT

The FICO simulator often says paying it off over 24 months gives better scores, but this is because (I think) the calculation then adds 24 months of age to all your accounts and assumes nothing else happens (no lates, inqs or new accounts and no new balances).

personal opinion - pay off everything that is charging interest, highest interest first.

Others will chime in I am sure

Re: How to go about paying off debt

Anonymous — Thu, 27 Dec 2007 16:40:13 GMT

MidnightVoice wrote:
The FICO simulator often says paying it off over 24 months gives better scores, but this is because (I think) the calculation then adds 24 months of age to all your accounts and assumes nothing else happens (no lates, inqs or new accounts and no new balances).

personal opinion - pay off everything that is charging interest, highest interest first.

Others will chime in I am sure

Agreed. With the FICO simulator, if you pay it right away it only takes the score change into account for the short term. It doesn't simulate paying it off immediately and having good payments for 2 more years.

As to the original question, I would put the $8K towards the highest interest debt right away.

Re: How to go about paying off debt

Anonymous — Thu, 27 Dec 2007 17:28:28 GMT

Awesome, thanks to everyone for clarifying that for me. Much appreciated.

Re: How to go about paying off debt

theduke — Thu, 27 Dec 2007 18:15:28 GMT

I've faced the question regarding 'Do I invest or do I payoff debt first?' in the past and the answer is very logical. If your interest rate of the debt is higher than the return rate of the investment, you will lose money if you invest. Basically, pay off the debt first. Practical example: If I invest 2 grand in a 6 month CD that yields 8% I've made $160 BEFORE I pay any taxes, so it will realistically be less... Now if I pay off my 2 grand balance on my credit card that is charging me 8% interest (realistically speaking my interest rate is nearly double that, as is yours too I'll bet)... it just makes logical sense to pay off the balances charges the highest interest first.

Re: How to go about paying off debt

Anonymous — Thu, 27 Dec 2007 18:34:05 GMT

After years of trying to convince myself that paying stuff off slowly will be better for me, and years of digging myself deeper and then kicking myself for not paying off when I had the money has led me to my approach of PAYING IT OFF WHEN YOU HAVE THE MONEY!!!!!!!!!.

Life is a funny funny thing, it tends to throw curve balls at you when you least expect it and that money that was "supposed" to be used for continuing to pay down debt seems to always be spent on other things besides debt.

Besides paying it off slowly and allowing the interest to accumulate will only result in a higher balance as opposed to paying it off earlier.

Re: How to go about paying off debt

Anonymous — Thu, 27 Dec 2007 19:04:22 GMT

theduke wrote:
Practical example: If I invest 2 grand in a 6 month CD that yields 8% ...

WHERE ARE YOU FINDING CDs THAT HAVE AN 8% YIELD?!

Investing in off-shore accounts are we?
Well, where ever the CD is at, I WANT IN ... let me know! PM me. Man with an 8% return, I could finally get a mortgage and not feel screwed by the fact that over thirty years I will have paid more than double my houses value in interest. With the 8% return, I could get all that money back and then some. Shoot. Give me five years and I could flat out buy the house.

Re: How to go about paying off debt

llecs — Thu, 27 Dec 2007 20:47:36 GMT

Try to, if you can, balance transfer the higher interest CC debt into a lower interest bearing card; e.g. rolling 5k in debt from a 20% interest card to a 10% card.

Re: How to go about paying off debt

theduke — Thu, 27 Dec 2007 21:08:41 GMT

@Anonymous wrote:

@theduke wrote:
Practical example: If I invest 2 grand in a 6 month CD that yields 8% ...
WHERE ARE YOU FINDING CDs THAT HAVE AN 8% YIELD?!

Investing in off-shore accounts are we?
Well, where ever the CD is at, I WANT IN ... let me know! PM me. Man with an 8% return, I could finally get a mortgage and not feel screwed by the fact that over thirty years I will have paid more than double my houses value in interest. With the 8% return, I could get all that money back and then some. Shoot. Give me five years and I could flat out buy the house.

Funny guy.

It was an exaggerated example to try and mesh with the likely credit card interest rate...I don't know of anyone who has a 4.5% interest rate...

And hell man, replace the word 'CD' with a decent performing stock of your choice then and 8 percent gains is likely very realistic.

And i dunno man, an 8 percent return rate really isn't going to make you rich (or even comfortable) unless you're already rich (or comfortable).

Re: How to go about paying off debt

Anonymous — Thu, 27 Dec 2007 21:16:47 GMT

Unfortunately, none of my CC's have that much available credit on them. The bad debt consists of 1 loan (currently in CO status), 4 store cards, and 5 actual credit cards. All of which are either very close to their credit limit or have been closed. So, that isn't quite an option for me. I think we are just going to do the lump sum payments, though...hopefully things on my credit report get much better I like you sig, bro...your 8/1/07 scores are a bit higher than my current But, I'll be working on mine hardcore over the next few months. Thanks, everyone

Re: How to go about paying off debt

Anonymous — Thu, 27 Dec 2007 22:46:20 GMT

One thing to consider as well is to use the money to PFD the bad accounts. This will save money and improve scores, expecially if they are recent. Most likely you can settle them for a little less (as long as they agree to delete in writing of course) and stretch that money out a little further. Just a thought. Congrats on the windfall and good luck with your scores!

Re: How to go about paying off debt

Anonymous — Thu, 27 Dec 2007 23:18:51 GMT

Yeah, I was just messing with you. I have found an almost 8% CD. This bank invests in global markets and offered a 7.5% 5 year CD but I didn't know the bank and was hesitant. Now as far as stocks are concerned, I haven't figured out the trick on how to pick the right ones. Right now my current yield is more like -8%!

Re: How to go about paying off debt

Anonymous — Fri, 28 Dec 2007 13:48:13 GMT

orhippychic wrote:
One thing to consider as well is to use the money to PFD the bad accounts. This will save money and improve scores, expecially if they are recent. Most likely you can settle them for a little less (as long as they agree to delete in writing of course) and stretch that money out a little further. Just a thought. Congrats on the windfall and good luck with your scores!

Sorry, but I'm fairly new to the forums, so not familiar with ALL the acronyms, yet, but what's a PFD? I get what you're saying, but just curious about the acronym. Also, how do I go about doing this? Do I call them and request that they send me a letter stating that with $XX.XX payment received by XX date that the item will be removed from my credit report or do I send them a letter requesting this? Just curious, I've never done this before, so I want to make sure I go about it the right way. Thanks for all the help, everyone. Much appreciated.

Re: How to go about paying off debt

Anonymous — Fri, 28 Dec 2007 16:16:49 GMT

disregard the question about the acronym...I saw the sticky about abbreviations and found it in there...still curious about how to go about doing this, however. Do I call them or do I send them a letter or what not. How do I do this, please let me know. Thanks.

Re: How to go about paying off debt

Anonymous — Fri, 28 Dec 2007 20:14:02 GMT

Absolutely do not call. They will lie and promise and then stab you in the back when they get their money. There are threads that go into this in detail but here's the basics.

1. Send them a letter stating that you will pay X (state a dollar amount that you are comfortable with) under the condition that they remove any and all references to the debt from credit reports and consider the debt PIF.

2. Send this letter to them Cert Mail Return Rcpt Requested.

3. Wait up to a month for an answer.

4. If no answer or denial, then send again and offer a little more money (if you offered less than 100% of what was owed, otherwise just send the offer again.

5. If they accept, only comply if it is in writing and explicitly states that the entry will be removed. If you aren't sure if the letter is explicit enough, post it here and let the guru's read it.

6. If the letter is good, pay them ASAP with a money order or the like. Keep copies of everything, and check your reports to make sure they comply.

Here's the thread that goes into more detail. The letter rocks and I see success stories on here all the time. Good luck.

http://ficoforums.myfico.com/fico/board/message?board.id=generalcredit&message.id=2659

Re: How to go about paying off debt

Anonymous — Wed, 02 Jan 2008 14:27:48 GMT

orhippychic wrote:
Absolutely do not call. They will lie and promise and then stab you in the back when they get their money. There are threads that go into this in detail but here's the basics.

1. Send them a letter stating that you will pay X (state a dollar amount that you are comfortable with) under the condition that they remove any and all references to the debt from credit reports and consider the debt PIF.
2. Send this letter to them Cert Mail Return Rcpt Requested.
3. Wait up to a month for an answer.
4. If no answer or denial, then send again and offer a little more money (if you offered less than 100% of what was owed, otherwise just send the offer again.
5. If they accept, only comply if it is in writing and explicitly states that the entry will be removed. If you aren't sure if the letter is explicit enough, post it here and let the guru's read it.
6. If the letter is good, pay them ASAP with a money order or the like. Keep copies of everything, and check your reports to make sure they comply.

Here's the thread that goes into more detail. The letter rocks and I see success stories on here all the time. Good luck.
http://ficoforums.myfico.com/fico/board/message?board.id=generalcredit&message.id=2659

Awesome. Thank you so much for the assistance. I saw the letter post, but wasn't completely sure on the actual steps involved in it. I'll start working on the letter and as soon as we get the money in a week or two I'll send it out. I'd like to pay for less than full as a good chunk of the total payment is all the service charges and late fees that they charged me and, even though I came across hard times and couldn't pay for it, I don't feel that I should be paying them about $500 of an $1850 debt towards nothing but fees and such.

Do you think an offer of $1300 for an $1850 debt would be accepted? The company is Citifinancial and they seemed to me to be really horrible when it comes to working with the customer to help resolve issues, based on my experience. I CAN pay them in full, would just prefer not to as that $500 can go towards another debt to pay off. Let me know what ya'll think I should offer them and thanks, again, for all the assistance ya'll have provided me. I really appreciate it.