I know! The first card would be 1500+ a month in intrest!! 😲
@Zimmerman wrote:This is my first post but I'm a long time reader and fan of this site. I've been inspired by other members and similar posts but mostly I've come to the conclusion that I will need help in accomplishing my goals. I've been delusional and generally care free with my credit decisions. The more in debt I became the less I payed attention to the hole I was digging. This has been going on for at least 6 years now. My lowest point was a high interest car title loan with OneMain Financial. There's a number of excuses I could make but only I'm to blame. I've tried several times to change course but it seems I lack the dedication to stick with it. My goal is to pay off all my debt and increase my credit scores in the process. I'm hoping that creating this post and sharing my experience publically will give me the purpose to accomplish this goal. I tend to get obsessive about things, and this has surely contributed to my current situation, but I've also found it can be a great asset if I focus myself towards more productive activities.
The good news is I do have a stable job that pays almost $80,000 year and I have good payment history on all my accounts.
My Fico scores listed below (from myFICO).
Equifax - 628
Transunion - 640
Experian - 670
I'll start with the changes I've already made.
- I've learned to hate debt.
- I've started meditating daily which I'm hoping will help with the long term dedication.
- I've opened a second bank account and plan to use a debit card for all purchases until I'm out of debt. I'll use one for all my automatic and fixed monthly payments which total $3,400 (loans, cards, rent, insurance, utilities). This leaves $1,000 - $1,200 going into my second account for the rest of my monthly expenses.
Here's my current situation:
Cards
Chase Sapphire
23.99% APR - $7,019.30 - 88% Utilization
Cap-One Platinum MC
20.80% APR - $5,618.48 - 98% Utilization
Citi AA Platinum
22.49% - $4,136.50 - 98% Utilization
Cap-One Platinum MC
20.99% APR - $826.27 - 83% Utilization
Target Card
22.90% APR - $54.60 - 7% Utilization
Chase Slate
23.99% APR - $1,000.00 Limit - 0% Utilization
BBVA NBA
26.24% APR - $2,000.00 Limit - 0% Utilization
Lowes Card
26.99% APR - $300.00 Limit - 0% Utilization
Home Depot Card
26.99% APR - $500.00 Limit - 0% Utilization
Totals $17,655.15 Balances - 75% Utilization
Installment Loans
OneMain Financial Loan
27.78% APR - $6,843.23 - 3 months old
Prosper Loan
16.73% APR - $3,045.67 - 18 months old
Lending Club Loan
14.31% APR - $2,200.14 - 16 months old
Totals $12,089.04 (loans) + $17,655.14 (cards) = $29,744.19 (total debt)
Here's my plan.
I'll have $3,000 next week that I plan to use on the credit cards. First get everthing under 90% utilization then attack by APR.
Good
In September I'll be able to take a $3,000 401k loan to further pay down the credit cards.
Good
I'm hoping by October/November my utilization will be under 50% and my scores will improve enough to take an additonal loan from Prosper or Lending Club to pay off the OneMain Financial Loan and a good portion of the credit cards.
Make sure you're not jumping from the frying pan into the fire. If you can't get a loan on good terms, don't get the loan. I would suggest trying a credit union instead.
I'd like to move most of my high interest debt to lower interest installment loans. At that point I'll continue using cash/debit until I pay off the installment loans.
Sounds like a plan but be wary of taking on too many new installment loans; if you can get by without them.... get by without them.
Is this a sound plan?
Yes. Congratulations on getting to this point.
Thanks in advance. Cheers,
@Anonymous wrote:I think you have an awesome plan.
The only thing I would add to it personally is to make sure you are always paying > double the minimum payment on all the cards. Paying only the MP is associated with risk (in an issuer's eyes). Because you have so many cards that are at ultra high utilization, you are at risk of AA (Adverse Action) on these, notoably something called "balance chasing" --wherein the issuer keeps lowering your credit limit as you pay down the debt. You need to establish with each card that every month you are paying substantially more than you have to. That reduces your risk profile and therefore reduces the probability of AA.
This is what I have been told -- I have never been BC'd myself.
I say all this because your current plan may call for paying the MP if a card is not the highest APR, and that may put you at greater risk of balance chasing.
I'd also tweak your plan so that it involves paying all cards to under 88.9% rather than 90%. It's fine to think of your milestones as 90%, 70%, 50%, etc. But due to the weird way FICO does rounding of percents, you should subtract 1.1% from each of those and thus aim for 88.9, 68.9%, etc.
+1
@Zimmerman wrote:Thanks for the advice. I'll revise my initial plan to pay my card balances down to 88% instead of 90% utilization.
Would it be better to get them all below 68.9% before attacking one individual account?
I wish more cc companies allowed you to setup automatic payments at specific amounts. I do this with Capital One since it's easy to automate but generally I just pay the minimum payments on the rest of the cards.
I've taken installment loans in the past with the intent of paying down my debt and realize this is a slippery sloap. The difference this time around is that I'm determined to only use cash/debit and not touch the credit cards until I'm 100% out of debt.
I'll check on the credit union but as I understand it Prosper is great for second loans due to their internal scoring system. Would I need to join a credit union prior to applying for a loan? Does this consist of opening a checking account with them? Any recomendations?
You need to open a small savings account to become a credit union member, but many people apply for credit immediately after becoming a member.
You might want to investigate your local credit unions, or credit unions you can join through your job or other affiliation, or your geographical base, or through close family members who are already members.
Some credit unions are more or less open to all (often requiring a nominal donation to a charitable organization). Credit unions I can personally recommend which are more or less open to all are Pentagon FCU, Langley FCU, Alliant CU, and Hanscom FCU.