Credit Card Debt

[donkort]

Hello Everyone.

Here is my situation:

I have about $18,000 in credit card debt.

My scores are all in the 680's (TU - 681; EQ 684 according to MyFico); 681 Experian Plus Score.  I haven't had a late payment since 2004. I have one paid medical collection (TU); otherwise, no baddies.  My problem is my 85% credit card utilization.  I just closed on a co-op with a $95,000 mortgage.

How could I lessen my debt while maintaining both my credit score and my credit cards?  I'm thinking of applying for a debt-consolidation loan.

Thanks for any advice.

[marty56]

A consolidation loan mostly likely wont help here since you would just be moving debt around and unless the loan showed up on your CR as an installment loan (2nd mortage), it won''t help your FICO score.  You could save money on interest if you go a low enough rate which would be the only reason to do this.

The only way to lessen your debt would be to apply more money to the CC balances.  You could gain at least 60 points for paying down your CCs which is good motivation for doing so.

[MarineVietVet]

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@donkort wrote:

Hello Everyone.

Here is my situation:

I have about $18,000 in credit card debt.

My scores are all in the 680's (TU - 681; EQ 684 according to MyFico); 681 Experian Plus Score.  I haven't had a late payment since 2004. I have one paid medical collection (TU); otherwise, no baddies.  My problem is my 85% credit card utilization.  I just closed on a co-op with a $95,000 mortgage.

How could I lessen my debt while maintaining both my credit score and my credit cards?  I'm thinking of applying for a debt-consolidation loan.

Thanks for any advice.

---

Getting that collection removed would probably help you. I'd work on that plus I'd put as much extra money as I could each month toward lowering your CC utilization. In my opinion that would help your scores the fastest.

I woudn't try for another loan at this point. As Marty said all you'd be doing is moving debt from one area to another. Just work on the debt you have and you'll be fine. My thoughts are always geared towards debt reduction before my score but that's just me.

Good luck to you.

From a BK years ago to:
7/09 TU-742 EQ- 779
8/09 TU-765 EQ- 783
9/09 EX pulled by lender 802

You can do the same thing with hard work

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[Anonymous]

with the information you gave, your scores are not that bad all things considered.

[Jazzzy]

donkort, the only way that this would work is if you can get an installment loan at a lower interest rate, pay off the cards, and then put your cards away and not use them. Unfortunately, many people who consolidate credit card debt ultimately charge their credit cards back up again. Then...they have the installment loan plus they are back in credit card debt. The double whammy.

Congratulations on closing on the co-op. I watched some of what you went through in the Mortgage forum. Getting this cc debt under control will give you a freedom that is well worth the effort. But you have to pay it...not just move it.

[bicknar]

Hi Donkort,

I've been paying down my cards and working to build up my credit as well.  I agree,  Must say no to re-using credit once paid down.  I set up a spreadsheet listing all of the limits, balances utilization and fees and interest rates to make decisions on which to pay first and then where to divert money that no longer goes towards the ones with zero balances.  I have found it useful and have realized an 80 point gain since last December.  Not too shabby.

Just some things that helped me.

A

[RobertEG]

I agree with all that has been said, and add a few additional things to chew on.

I suggest you look at your debt from two totally different perspectives, and than decide what is best for you.

The first perspetive is purely financial.  Assume, for financial calculations, that your APR on each of your CCs is 18%.  That is approx 1.2% interst a month.  On a debt of $18,000, that is $270 a month out of pocket just to stay even on the current balance.

That kind of debt, plus a new $95K mortgage, it will probably be very hard to get a "debt consolidation" loan approved at any rate that is substantially below the, for example, assumed 18% CC APR, which migh result in even more money out of pocket.

From a purely FICO perspective, IF you can get a new installment loan approved, of course it is just shifting debt, but it is shifting it from CC to installment debt, and would help your FICO score.  Install % util has far less impact on FICO score than revolving (CC) util.

You are also, as long as you continue to carry high CC % util, risking drop in CL on those cards.  If you apply for a new, installment loan at this time, whether not it is approved (which is doubtful at any reasonable rate), it will add a new inquiry to your CR, and if approved, will lower your average age of accounts.

From all you have said, I dont see the logic of apply for a "debt consolidation" loan. 

You lessen debt by paying down the balance, not by shifting the balance.  And the high interest you are paying each month makes lessening balance on the debt tougher and tougher. 

[donkort]

Thanks for all the well-thought out responses

[Anonymous]

Be aware that consolidating your debt with a FOR profit agency can dig an even deeper hole then you are already in. It is never recommended to contact a for-profit agency considering those agencies do live to make a profit. Instead, contact a NON-PROFIT credit counseling agency. A certified credit counselor will discuss your options with you. It sounds like a Debt Management Plan would be your best option. 

A Debt Mnanagement Plan is when... Consumers with high interest credit cards can contact a non-profit Credit Counseling Agency and enroll in a Debt Management Plan (DMP). A DMP is a program in which a credit counseling agency takes outstanding credit card bills, lowers your interest rates to single digits (or 0%) and consolidates them into a monthly payment issued to the credit counseling agency. The credit counseling agency then disperses these decreased monthly payments to your creditors. Clients receive information on their program through monthly statements, 24-hour online account access, and continued receipt of credit card billing statements.  In this way, a check- and-balance model is provided for the consumer. Some benefits of the program include dramatically reduced interest rates, past due accounts brought current, waived over-limit fees, waived late fees, and in some cases, reduced balances owed to ensure debt liquidation in the shortest possible time frame. 

[SpideySense]

First look for 0% credit card transfers -- preferrably without a balance transfer fee (Chase Slate), but even with a transfer fee (currently 3to4%) because the interest is much lower than you're paying now.    Then maintain the same total paid amounts, and reap the benefits of more debt paid off sooner and reap the benefits of increasing credit limits.    At the same time look at a HELOC or a 2nd mtg, and when you can, move your cc debt -- you may have to wait a bit until you're able to do it, but you'll have a strategy  that will get you out of debt even quicker.

I did this and it worked.   in 2009 I came very close to declaring bankruptcy with 65 grand of cc debt and 2 grand monthly payments with a score much lower than yours.  I had never been late with a payment but to make ends meet, the last month before I turned it around, I had to cash in all my loose change and recycle scrap metal.  big-time wake up call.

Good luck!