Best course of action in paying down multiple large balances

[Anonymous]

Letting it go to collection and/or filing BK should be your LAST resource!  OP-  it seems daunting to have all this debt after what you went through.  The good news it seems you are in good position to work a good plan to pay this off because 1)you just got a nice salary increas and 2)you have the option to take a small loan against your 401k since you said you have a nice amount in there.  So be patient....if you can, try to workout a budget plan to reduce your cost of living, etc...anyway to cut back on spending so that you get to pay down more of this debt.   Best of luck to you!

[Anonymous]

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@takeshi74 wrote:

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@IWOL wrote:

Right now I have a total debt of $54,300 spread over these cards on available credit of $350K, so my overall util is still fairly low at around 15%.

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How is individual utilization on each?  If there are cards with high utilzation then get them down.  If not, then focus on interest and reducing number of balances.

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The high interest rates should come before the util.  Paying all that interest is a lot worse than taking few points from scoring. 

[Anonymous]

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@MissCredit9 wrote:

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@IWOL wrote:

Over the last year and a half I  have amassed quite a lot of credit card debt due to some large medical bills, some IRS back taxes, having to replace a broken air unit, and a young dog with cancer.

Right now I have a total debt of $54,300 spread over these cards on available credit of $350K, so my overall util is still fairly low at around 15%.

AMEX ED - 0% until Feb 2016 - 5150 balance

SPG - - 8265 balance

CSP - 8100

Ritz - 6200

Freedom 5800 - 0% till 3/2016

Prestige 5462

Arrival 4740

Venture 10,670

I have 20K cash that Im taking out of my 401K to pay  toward these balances right away. Im only 40 and I have a good amount in my 401K, so not too concerened about this. I also just got a hefty increase in my salary that will cover the deficit in my monthly living expnses and allow me to pay these down at $2500 a month.

After the 20K I will have balances around $34K so at $2500 a month I should be able to get this paid off in 14 to 16 months which is not too bad.

What would be the best way to pay these down? I would like to try avoid any AA but I have more than enough available credit form a slew of lenders, so its not a big concern. My scores are all around 710 to 720 with my current util and 8 cards reporting balances out of 26. Im not going to be aplying for anything so maximizing scores is not a concern.

Keeping the interest I will pay to a minimum is the most important thing. So Im wondering, do I pay the 2 balances that are at 0% at close to the min until the 0% runs out?

Should I spread the 20K over several cards, or pay off 2 or 3 to 0 so that I can put more towards each card every month?

Most of my interest rates are at about 15% except for Arrival which is 18%.I plan to make a round of calls this week to request further APR reductions.   I have 6 cards to pay outside of the 2 with 0%, so on a monthly basis should I pay $400 to each for the $2500 or like $2000 to one till paid to 0 and min to others.

As much as I hate to even be in this position, its shows how having a large amount of available credit can be usefull when carrying a much larger than normal balance. Despite these large balances reporting my scores have not dropped alot nor has anyone taken any AA yet. Ofcourse in teh best scenario I would never have accumulated this much debt but life happens.

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Use the 20k to PIF CSP 8100 + Ritz 6200 + SPG 8265 =22,925 so roughly 23k if you can squeeze the extra 3K out of somewhere if not leave 1k on each. For that month pay the minimum on everything else.

My reasoning for this is three things:

1.These cards are all currently accruing interest.

2.your wanting to avoid AA. Chase and AMEX are more likely than Citi or Cap1 to do something like that if a high balance is carried too long. Most people value these relationship more highly than those with other banks as well (I know I do).

3. Chase is the only bank you are carrying 3 balances with, getting it down to one card (especially a 0% one) looks a little better and is less likely to raise any flags.

           After these debts are PIF and you have protected those relationships then pay the other off starting with the snowball method which is throwing the majority of your monthly payment (minimum payment on everything else) towards the card with lowest balance. In your case it would be the Arrival. This is good because Barclay's also gets pissed off easily. Completing the snowball will get you down to 4 cards (much easier to manage than 5). At this time I would calculate through simple division exactly how much you need to pay per month on each of your 0% cards to pay them off before the introductory period ends. If possible I would pay that amount for those 2 cards and split the rest evenly between the other 2 remaining cards til the 0% cards are both paid off and eventually Citi and Cap One. Side note: at some point during this time if you keep a zero balance on CSP and Ritz you may receive a 2% BT offer, I get them all the time from Chase Marriott and CSP you might be able to use these to move things around and save on interest. Most importanly good luck to you. I have some cards of my own to pay down but they are all at 0% and will be paid before this period ends.

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These aren't store cards where you get hit with interest for the promo period if you don't pay it off, so there's not a good reason (IMO) to send money to a 0% card while you have a non-0% card. If you get the remaining cards paid off before the 0% period ends on other cards, great. If not, then they'll just be another card that STARTS earning interest, but hasn't been. 

Also, for the many people advocating BT, remember that a 3% BT fee is a one time 3% hit which at 15%APR you could carry that debt a few months for the same amount, so you need to do the math to see that it's worth it. (That being said, I've personally taken the hit before to consolidate a few things even when it didn't make the best overall $ decision fee-wise.) 

[Anonymous]

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@Anonymous wrote:

This is kinda out of my realm of expertise here so please take this lightly...

But what if the OP did the debt shuffle?

Call each one, get all APRs as low as possible.

Then take 1 card, get it paid off, get a balance transfer on it, move one card to that card.

Then that card you just transfered, get a bt offer with it, and move one card to it.

Do this as much as possible, then you have basically lessened the cost of interest. Pay as much as you can so that all are paid before interest resumes. 

I would immediately begin using the amex charge card whenever possible so you still earn some points but have to PIF.

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@MissCredit9 wrote:

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@Anonymous wrote:

I'd pay something over the min to all. I've heard paying min can flag you for potential AA if the overall picture is questionable. 

There's always the debate about highest interest rate first or lower balance first. The first is always the best financial decision, the later is good for emotional wins. 

I'll add a couple other variables to consider, while not giving any answers.  

Are there cards you'd like to be putting current spend on? You should only be spending on cards where the balance has been PIF (not in the pay-to$0 myfico way to max scores, but in the pay-the-last-statement-balance way to avoid interest and get to keep your grace period). I'd not worry about rotating categories etc., but I'd pay down Arrival and/or Venture first. Then I'd decide what to pay down based on a combination of which cards I might like to free up first and which lenders I'd like best to stay in good graces with (assuming the interest rates on the non 0% cards are mostly the same). AmEx has been sort of twitchy lately for some. Years ago I was balance chased by Citi and Chase. I'd think that Cap One is the least averse to the balance stretching out, so maybe that's a big one to leave to the end? 

Sorry to hear about all you've been through. I've had two dogs with different cancers this year and am down to one dog now. Thankfully I, like you, had positioned myself to weather it financially. Maybe not in the most optimal way, but being able to make choices where the finacial concern wasn't the deciding factor. 

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IMO OP should not be putting spend on any card. OP should rely on liquid until cards are paid off.

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Both of the bolded parts are related to my recommendation to pay off the A+ or Venture, and use them, except by using the A+ or Venture for spend moving forward, they get to earn 2%. Maybe the OP benefits for from MR points, in that case, yes, go with the charge card. But the OP isn't a 20 year old who ran up CC on wine, women and song. It's not that he/she doesn't know how to restrain him/herself. The CC were used as an emergency fund, and while others will make an argument that everyone should have 3 months to 3 years worth of liquid cash, many don't. Given the situation, the OP used what they'd made available. If they choose to continue to use whichever card(s) they choose, they should just make sure it's one where they're getting to use their grace period and not paying interest on the daily gas and groceries they buy. I find many, many, many people outside of this community don't GET the difference between charging your groceries to a card that was PIF at the last statement balance vs. one that was not. I was in that position about 6 years ago, so that's my particular soapbox. Even when you're in a not-so-good financial situation, if you can keep at least one card as a PIF card, it will serve you well. 

[dethkultur]

Check Lending Club, and Avant.com. They both do soft pulls to offer you a rate on an installment loan. The rate will probably be lower than your current rates. Avant does not charge an origination fee, so factor that in. An installment loan will keep you honest and give you a definite horizon (and free up your revolving lines. Scores usually go up.)

Then call Chase, ask to move as much of your CSP CL to your Freedom as possible to take advantage of the 0% intro rate. Same with your SPG to your ED. You'll probably have to pay off the balances on CSP and SPG first.

Then move as much as possible onto those 2 cards to pay no interest. Best way is to buy VGCs with the ED and Freedom, put them on a Target Prepaid, then use the billpay from that to pay down the balance you are moving. Your 3% BT fee just went down to 1% for a few minutes of work. (Or actually for free given that you earn points for the VGC purchases. This only works while you have an intro rate for purchases.)

The interest charges are killing you and you don't even realize it right now. You are paying around $500/mo in interest.... attack that number and your debt will go down much faster, and you'll have much, much more left over at the end of this trial. Just think, sending $400 of that to debt instead of interest will mean you pay off >$2000 more debt just for 2015, much less going forward. So like was recommended earlier, call all the cards also and ask for an APR reduction. You'll be surpried, many will try to accommodate you, not becasue you are desperate, but just because they want to make good customers happy.

[DrZoidberg]

The snowball method is dumb and it's only for people who don't have control. It is used to give the person motivation. The smart way is to pay off the highest APR first. This saves the most money.

[ddemari]

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This is good advice. Withdrawal from the 401k or IRA has penalties, and you usually have to pay income tax on it as well.

What OP is doing, however, is taking a loan out of the 401k, which has a payment plan that takes the funds directly out of your paycheck to pay it back over whatever payment time period you select. These are usually very low interest rate loans, and as CreditCuriosity says, you are paying the interest into your retirement fund, not to a bank. A 401k loan, if one is disciplined to it, is a good option. However, if one takes the 401k loan, pays off credit cards, and then runs up those credit cards again, not a good choice.

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Very interesting, I had no idea you could have a loan out from your 401k. I assume that this is not a universal thing? Like it depends on the type of 401k plan/ who is administrator? For example, I am 30 years old and I have a share plan 401k with Morgan Stanley, there is currently $68,000.00 in there, I am making no interest on that money. $20,000.00 is liquid and the rest is invested in mutual funds, stocks, etc. 

So I could possibly take out a loan from that 401k and pay it back through a payment plan? Sorry to high-jack topic I just find that interesting! 

[CreditCuriosity]

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@ddemari wrote:

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This is good advice. Withdrawal from the 401k or IRA has penalties, and you usually have to pay income tax on it as well.

What OP is doing, however, is taking a loan out of the 401k, which has a payment plan that takes the funds directly out of your paycheck to pay it back over whatever payment time period you select. These are usually very low interest rate loans, and as CreditCuriosity says, you are paying the interest into your retirement fund, not to a bank. A 401k loan, if one is disciplined to it, is a good option. However, if one takes the 401k loan, pays off credit cards, and then runs up those credit cards again, not a good choice.

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Very interesting, I had no idea you could have a loan out from your 401k. I assume that this is not a universal thing? Like it depends on the type of 401k plan/ who is administrator? For example, I am 30 years old and I have a share plan 401k with Morgan Stanley, there is currently $68,000.00 in there, I am making no interest on that money. $20,000.00 is liquid and the rest is invested in mutual funds, stocks, etc. 

So I could possibly take out a loan from that 401k and pay it back through a payment plan? Sorry to high-jack topic I just find that interesting! 

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I think all 401k's allow you to take loans out against them (although usually this isnt a good thing and as stated must pay yourself back interest) and you must have so much already in the 401k prior to being able to do this.  I can't really think of a 401k/403b that won't allow this off hand.. They might not advertise it, but should be doable on all of them assuming you have x amt of money already in it and you can't take over x amt of loan as well.

[ddemari]

Good to know, thank you for sharing.
Im not touching my 401k, was just curious. The last person in my office that did something with taking money from their 401k really regreted it but i think it was one of those situations where there were no othet options.

[Callandra]

My fiance's borrowed from his 401(k) more than once (this was before he met me!); it's never been a huge problem for him (although he's borrowed smaller amounts, like $1k). As long as you pay it back, you're fine and I think it's a better option than just filing BK (I do not judge those who file BK but it should be the last resort option). If the 401(k) is through your employer, you might want to be careful and make sure you will not leave the job as that happened to my fiance and then he was given a strict deadline of having to pay it all back by or face penalty.