Paying off credit cards, keeping balances or no?

[Anonymous]

My husband and I were recently given a loan by a family member to help us pay off our credit card debt.  In total, we owe almost $22,000. 

I owe $3350 on 3 cards that have been open for 7, 4, and 5 years.

He owes $18,650 on 6 cards.  I don't know how long they've been open.  All more than 4 years, some as many as 10+.

We are currently 2-3 payments behind on each of them, but our prior history on most of the cards has been stellar.  My husband had a reduction in income in January b/c of the economy, and we could not pay.  We were considering bankruptcy until my mother gave us a loan.

We were hoping to pay all of them off, except maybe keeping a VERY small balance on one card each.  We were also thinking about closing some accounts ourselves, but after reading some posts I think that he has room to do that, and I don't.  I need to keep mine open.

My questions are these - Should we pay them all in one lump sum?  Can the credit card companies close cards on us that don't have a balance on them?  (I've heard that they are doing this lately.)  If they do, will this show negatively on our credit

Any help is appreciated.  We've had this money for a few weeks now and have just been paralized as to how to go about paying them down.  Thank you!

Message Edited by SFShelby on 04-11-2009 04:42 PM

[haulingthescoreup]

Hi, welcome to the forums!

If you haven't already, please read Understanding Your FICO ® Score and Credit Scoring 101 (at least the first post.)

These will give you the background knowledge you need to understand what you read here on the forums.

You might also want to read Closing Card Cards, linked in my siggy, to understand the effect if any do get closed down. Basically, if you've paid off your debt, any scoring effect will be minimal or none.

I don't think that paying off your cards will trigger closure. My view on this is that when it happens, they were getting ready to do it, and so it's a coincidence. Recent lates might well alarm your lenders, so brace yourself --it could still happen.

But if a card gets closed by the lender, it's brutal on your scores to have a balance, so I would pay them now anyway, and cross your fingers. With luck, you're not on their radar yet.

Once you do so, use each card at least once during the month for something you needed to get anyway --a tank of gas, a grocery trip, and then pay it off online as soon as it posts, so that you don't run the risk of getting behind again. You can let one report a balance (show a balance on the statement), but then pay it off immediately. Don't carry balances, and don't let lots of cards show balances, even if you then PIF. Other banks looking at your reports can't tell that you've paid them off; they can only see that you owe.

Good luck, and hugs to the National Bank of Mom.

[Anonymous]

I have a friend with a very similar situation....got behind and his father loaned him enough to pay the debts off.

However, he paid all of the past due amounts plus the accrued interest and late fees plus about 20% of each balance.  He then paid 15-20% of each balance each month and monitored the CCC's reactions for CLD closure or other AA.

The theory was this:  The fact that he got behind showed financial distress.  Paying all balances off in lump could be interpreted as merely "transferring" balances to another loan or obligation and not having solved the original issue, which the CCC's may decide to close the accounts or substantially reduce CL's in order to avoid risk of him running up the balances again.

He ended up paying a little more interest, but he salvaged most of his accounts.  By paying incrementally, but aggressively, he hoped to provide the appearance that his financial issues were resolved and he was able to manage the debt.

I am not advicing either method in this instance.  I am providing FYI of seeing another method used.

Message Edited by txjohn on 04-11-2009 05:58 PM