Overwhelming Credit Card Debt

[Anonymous]

I'm 61 yrs. old and plan to retire in 3 1/2 yrs. and currently have very high cc debt.  I have about 7 credit cards, 4 of which have high interest.  The total amount outstanding is $53,000.  I'm looking for some advice as to who/where to turn to help me pay down these debts.  I have a 401K with my company, but don't really want to tap into that.  I also have a roll-over IRA with Vanguard, but if I take money out of that, there might be a stiff penalty.  (My tax acct. did recommend I do that when I retire b/c my income would be cut in half.)

So my dilemma is basically do I pay down the larger balances first or the larger interest first?  Do I go to the bank for a personal loan for perhaps 1/2 the amount?  Do I try to enter into a DMP? 

My goal (in 3 1/2 yrs.) is to pay most of my debt and move to California (w/my husband) to be w/our daughter & grandchildren.  If I don't get rid of some of this debt, I'm afraid I won't get approved for an apartment out there nor will I have credit to get new furniture and start my retirement without cc worries.

Any advice will do right now because it's all I think about and it's getting me very depressed.

Thanks, Marianne

[Jazzzy]

Hi Marrianne,

If you list your cards, your balance on each card, and your credit limit on each card, plus the interest rate, the folks here can help you decide on an action plan.

At your age (and I'm close to that, too), I wouldn't touch retirement unless I had to. It may be helpful if you give us totals on your retirement accounts you're thinking of depleting.

Also, I just picked up on one statement you made about buying new furniture on credit at some point. Please...rethink your thoughts on when and how to use credit. You won't be able to get out of this situation unless you're willing to stop charging on those cards.

[Anonymous]

Thanks, Lynette, for getting back to me so swiftly.

To set the record straight, I'm not a frivilous spender.  Most of our credit card debt has come from putting monies owed to the IRS over a period of years.  (My husband is self-employed and never files enough money quarterly, thus we always owe the IRS.)  Also, since my daughter lives in Calif., we travel there about 3x a year and buy the plane tickets on a credit card + the hotel room.

My 401K w/my company has about $63K and the one w/Vanguard has about $53K.  I also will be receiving two pensions when I retire. 

The breakdown of my bills follows:  Sears, 2,300 @ 16%; Citibank, 13,831 @ 13%; Optima (Amex), 10,250 @ 12.22%; Bank of America, 5,260 @ 9%; Amex, 6,770 @ 7.24%; Discover, 8,164 @ 6% and Chase, 6,680 @ 5%. 

I do appreciate you taking the time to hear my credit woes.

Marianne

[GregB]

The Sears is your highest interest rate. It also will probably get ratejacked very soon to 25-28%. They seem to be doing that to everyone. So you need to pay that off soon. If you get the expected ratejack soon, you will still probably have 2-3 months before the rate goes up.

If you actually have no cards with $0 balance, your FICO is being destroyed by that. I don't know if having one report $0 will be a big help. You will get the big benefit from having less than half of your revolving accounts report a balance. That does include CLOSED accounts so any revolving accounts that were closed in the last 10 years should be on there. It is probably worthwhilet to get your credit reports to see what is reporting. If you get your FICO rate high enough, you will probably get a 0% or low interest BT offer that you can use to pay off one of the higher interest cards. Don't forget your balance on that account needs to be ZERO before you use a low interest BT offer.

Citibank is the next likely one for a ratejack and is also high interest so start working on that one after Sears.

The basic rule is interest is wasted money. Minimize it so that you can maximize paying off principal.

Another note: Are any of these used for business so that the interest is deductable?

[Jazzzy]

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@Anonymous wrote:

Thanks, Lynette, for getting back to me so swiftly.

To set the record straight, I'm not a frivilous spender.  Most of our credit card debt has come from putting monies owed to the IRS over a period of years.  (My husband is self-employed and never files enough money quarterly, thus we always owe the IRS.)  Also, since my daughter lives in Calif., we travel there about 3x a year and buy the plane tickets on a credit card + the hotel room.

My 401K w/my company has about $63K and the one w/Vanguard has about $53K.  I also will be receiving two pensions when I retire. 

@Anonymous breakdown of my bills follows:  Sears, 2,300 @ 16%; Citibank, 13,831 @ 13%; Optima (Amex), 10,250 @ 12.22%; Bank of America, 5,260 @ 9%; Amex, 6,770 @ 7.24%; Discover, 8,164 @ 6% and Chase, 6,680 @ 5%. 

I do appreciate you taking the time to hear my credit woes.

Marianne

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Hi again...I would start paying them according to highest interest rate. Pay the minimum due on all cards, but put any extra money you can towards the highest interest rate card. Then, when that one is done, start on the second highest, etc.

I would still try to handle this without taking it from retirement. You're close to retirement and will not have a lot of time to recover that money. I'd urge you not to use retirement funds to solve a short-term problem. This will have lifelong ramifications. If you were close to going under, that scenario might change...but that is not your case.

As to how this debt was accumulated, my husband is self-employed as well. You HAVE to be paying your husband's tax quarterly. You're likely being penalized for not doing so...more money down the drain. Taxes are part of life and part of business. By charging them on a credit card, you are truly living beyond your means. My husband has been self-employed for almost two decades (real estate appraiser), and paying taxes quarterly was not an easy discipline to learn...but it is vital.

You will get more opinions on how to go about this...I hope you don't mind a bit of "preaching" from someone who's been there. I don't mean to offend.

[Anonymous]

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@GregB wrote:

The Sears is your highest interest rate. It also will probably get ratejacked very soon to 25-28%. They seem to be doing that to everyone. So you need to pay that off soon. If you get the expected ratejack soon, you will still probably have 2-3 months before the rate goes up.

If you actually have no cards with $0 balance, your FICO is being destroyed by that. I don't know if having one report $0 will be a big help. You will get the big benefit from having less than half of your revolving accounts report a balance. That does include CLOSED accounts so any revolving accounts that were closed in the last 10 years should be on there. It is probably worthwhilet to get your credit reports to see what is reporting. If you get your FICO rate high enough, you will probably get a 0% or low interest BT offer that you can use to pay off one of the higher interest cards. Don't forget your balance on that account needs to be ZERO before you use a low interest BT offer.

Citibank is the next likely one for a ratejack and is also high interest so start working on that one after Sears.

The basic rule is interest is wasted money. Minimize it so that you can maximize paying off principal.

Another note: Are any of these used for business so that the interest is deductable?

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Closed zero balance accounts are not included in the UTIL calculations. (At all.)

[GregB]

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@Anonymous wrote:

Closed zero balance accounts are not included in the UTIL calculations. (At all.)

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Not included in utilization because there is no CL available.

I was talking about the percentage of accounts with balances.

It seemed like she had all her CC with balances. If she had more acconts that still showed on her credit report then she wouldn't be getting the serious hit for having all account report balances.

I don't actually understand why this would work this way. It isn't like you have the option of charging something on an account that still shows on your report but is closed.

[Anonymous]

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@GregB wrote:

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@Anonymous wrote:

Closed zero balance accounts are not included in the UTIL calculations. (At all.)

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Not included in utilization because there is no CL available.

I was talking about the percentage of accounts with balances.

It seemed like she had all her CC with balances. If she had more acconts that still showed on her credit report then she wouldn't be getting the serious hit for having all account report balances.

I don't actually understand why this would work this way. It isn't like you have the option of charging something on an account that still shows on your report but is closed.

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This is part of the UTIL calc and they don't count there either.

[GregB]

That is strange.

I have had two accounts drop off of one CRA report. That report shows 12 revolving accounts with balances out of 24 accounts. The other reports show 12 out of 26 as they still include the two accounts closed 10 years ago.

The one with 12/24 shows an alert saying "too many accounts with balances".

I will pull the actual saved reports and get the complete details.

[Anonymous]

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@GregB wrote:

That is strange.

I have had two accounts drop off of one CRA report. That report shows 12 revolving accounts with balances out of 24 accounts. The other reports show 12 out of 26 as they still include the two accounts closed 10 years ago.

The one with 12/24 shows an alert saying "too many accounts with balances".

I will pull the actual saved reports and get the complete details.

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 To maximize util the following must occur:

1) Total revolving UTIL > 0% and < 9%, the lower the better, and

2) Reporting balances on less than half of your revolving TL's, and

3) Reporting balances on half or less of all TL's

In order for an account to be included in this computation the account must be either open or closed but still reporting a balance. If closed with a balance the entire CL is still included. Once the balance of a closed account reaches zero it drops out of the calculation.