Getting the lowest possible min payment on all cards--How to understand CC math?

[Anonymous]

In addition to improve my score, I also want to get my overall monthly minimum payment down as low as I can as quickly as I can so I can qualify for a mortgage sooner than later despite my debt load. Does paying off credit cards according to the "DOLP" formula of David Bach do this best? (See http://www.oprah.com/download/pdfs/money/money_bach_dolp.pdf ) It's quite clear that if I need to lower my minimum payment on my way too many cards with balances that this works on cards with balances of $500 or less, especially those with a high set minimum (like cards which have you pay at least $25 for a balance of $200). But I'm not so sure how this works with cards with higher balances plus fat interest rates.If I pay according to DOLP I'm not paying the cards with highest interest first.

Does someone understand the math involved hear well enough to give me some input?

[Anonymous]

www.bankrate.com is a fantastic resource to map out a debt reduction plan. You can plan by how much you can pay monthly, or how quickly you want to get out of debt. Just have your CC balances and int rates!

[Anonymous]

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sjh wrote:

Does paying off credit cards according to the "DOLP" formula of David Bach do this best?

...

Does someone understand the math involved hear well enough to give me some input?

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I call BS.

First, Bach says PIF your CC. What have we said time and time again? 1 to 9 percent util gives you an optimal FICO score.

Second, this "formula" does not take into account your goals. Max FICO score next month or in 3 months, reducing debt and FICOs be danged for now, get under one's CL and stop overlimit fees, etc.

Third, since Bach doesn't mention FICOs, I'm going to presume we're talking straight debt elimination. The balances don't matter. The minimums don't matter. What matters is how much are you getting charged in interest charges each month. Look at your CC statements. Forget everything else. Just look at the interest charges. The CC that's costing you the most interest is the one you wanna reduce first. Not necessarily eliminate the debt altogether first, just reduce until the amount of debt until the interest they hit you with each month is no longer the highest. Move on to the next highest CC. And so on. It's not a simple thing, you might have to make adjustments to which CCs you pay minimums and which you pay maximums each month.

Fourth, so long as you aren't maxed out or nearly so on every CC you have, try this.

http://ficoforums.myfico.com/fico/board/message?board.id=generalcredit&message.id=4120

If you reduce your APR, you pay less in interest, you pay it off sooner, you win. If you increase you CL, you immediately reduce your util, you get some FICO LUV, maybe get a 0% BT CC approval, you win. If both occur, it's win-win. If neither occurs, you move on to the next CC. But CCCs have a habit of responding to you when you start paying off the balance. They get worried you'll close the account or stop using it altogether. Given a choice between 23% interest on $0, and 9% interest on $5K, most CCCs will choose the later.

Fifth, if you're OK in basic math, good with Excel (or some other spreadsheet), and really analretentive, you can "game" your CCs to pay them off the fastest without resorting to differential equations.

Message Edited by Noah_Bodie on 06-15-2007 02:36 PM

[Anonymous]

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sjh wrote:

In addition to improve my score, I also want to get my overall monthly minimum payment down as low as I can as quickly as I can so I can qualify for a mortgage sooner than later despite my debt load. Does paying off credit cards according to the "DOLP" formula of David Bach do this best? (See http://www.oprah.com/download/pdfs/money/money_bach_dolp.pdf ) It's quite clear that if I need to lower my minimum payment on my way too many cards with balances that this works on cards with balances of $500 or less, especially those with a high set minimum (like cards which have you pay at least $25 for a balance of $200). But I'm not so sure how this works with cards with higher balances plus fat interest rates.If I pay according to DOLP I'm not paying the cards with highest interest first.

Does someone understand the math involved hear well enough to give me some input?

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Hi, sjh.  You probably won't like my answer.  You want a mortgage despite your debt load?  Doesn't that mean you can't afford a mortgage?

This DOLP makes no sense to me.  The last thing you want to do is lower your minimum  payments.  That means you pay more and it takes longer to pay off your debt.

There are 2  popular schools of thought on debt repayment: either pay the smallest balances first, regardless of interest rate, or pay the account with the highest interest rate first.  I agree with Noah that #2 is the way to go. In either case you should try to pay more than the minmum on the remaining cards.

Good luck!

JMHO.

Message Edited by masdeocho on 06-16-2007 12:22 AM

[Anonymous]

Sounds like he is trying to manipulate his Min payment on his CR. He must be really tight in the DTI ratio for his lender.

[Anonymous]

I think I see what you are trying to say. (I might be off) As part of your app they look at monthly payments owed. (At least they have with me) If your minimum payments are (Making them up for discussion) $200, $200, $500, $100. Then your minimum due is $1,000 as a current minimum debt. Since some cards and loans have different amounts you need to pay as a minimum this also is a factor when you can not eliminate current debt when you need more credit. So if you could pay off one to get rid of that minimum payment or move things around to reduce the current minimum debt (with out reducing the debt) you can show a smaller monthly obligation. Am I close?

If this is what you are describing... It's not going to help with a mortgage. They just look at debt when it is revolving I believe. Paying it off is just about the best you can do. Maybe moving it around a little bit so you are not over 90% on any single card and combining to fewer cards to control how many payments you have... I'll stop here in case I am way off topic. :-)

[Anonymous]

It does look like I wasn't clear enough about what I meant--I am trying to get in shape for a mortgage and looking at my total monthly min required debt payment. I have what seems like an ungodly number of 13 cards with balances (and have 4 others with zero balances). I just wasn't paying attention to things because I could always pay! My debt-to-income is at the upper-end, but I think I could qualify even with that. I'm not unconcerned about FICO, but I am trying to get my monthly reported debt down as much as possible. The mortgage calculators do look at monthly payments. I'm planning to talk to a lender soon but haven't yet.

I am income high and can afford a mortgage. I know there are maintenance costs and taxes, etc. but what I have been paying in rent would be the same or more than a mortgage.

Even with that confusion, there are still some good answers here!

Message Edited by sjh on 06-16-2007 07:16 AM

Message Edited by sjh on 06-16-2007 07:18 AM

[MidnightVoice]

My gut feeling is to get your utilzation down as low as possible.

And logically, pay off the highest interest debts first

[Anonymous]

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@Anonymous wrote:

It does look like I wasn't clear enough about what I meant--I am trying to get in shape for a mortgage and looking at my total monthly min required debt payment. I have what seems like an ungodly number of 13 cards with balances (and have 4 others with zero balances). I just wasn't paying attention to things because I could always pay! My debt-to-income is at the upper-end, but I think I could qualify even with that. I'm not unconcerned about FICO, but I am trying to get my monthly reported debt down as much as possible. The mortgage calculators do look at monthly payments. I'm planning to talk to a lender soon but haven't yet.

I am income high and can afford a mortgage. I know there are maintenance costs and taxes, etc. but what I have been paying in rent would be the same or more than a mortgage.

Even with that confusion, there are still some good answers here!

Message Edited by sjh on 06-16-2007 07:16 AM

Message Edited by sjh on 06-16-2007 07:18 AM

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Now that we are all understand what your goal is-
Make VERY calculated decisions.
I don't know what your time line is but.

Put $20 on the unused cards and pay them off after they post to make sure they are not inactive.
There is a break point in utilization at 50% 30% and 10%

I would drop all 13 cards in a spreadsheet and figure out how you will get the most bang for your buck. While keeping 2-3 months in the bank or liquid (keep the lender happy). I put in the Acct, APR, Bal, min payment, with calculations for 3 periods forward, also placed UTL calcs for each account current, next period, and total at the bottom of each period.This makes it easy to figure it all out.
I used this method to get from a 70% UTL to 8% in a 3 month period.

Now the $ allocated to debt in my budget is going towards the DW's debt to get that paid down before I take out a HE loan after my scores are up high enough.