Plan going forward?

[Anonymous]

Hi all,

I'm trying to pay down my CC debt as fast as possible and at point where I'm unsure of the best approach. I'll spare you the story / excuses, but I'm committed to reducing my debt to 0 as fast as I reasonably can. My breakdown is as follows:

FIA Visa - $9300 / $14000 @ 15.99%

Chase Visa - $1800 / $2500 @ 17.24%

Discover - $0 / $1000

GEMB - $0 / $3200

The obvious thing here is that I'm getting whacked by interest. I've recently restructured my spending so that I am now able to pay at least $500 a month to the cards, maybe up to $750 depending since my monthly income varies a bit.

My FICO is just above 700 for all 3 at the moment (702 EQ, 715 TU, 718 EX) and I have zero late payments or collections, although a short history (26 years old). I rent and the only loan I have is a recently opened (last week) auto loan account with Chase at 0% APR (moved to a much less expensive car).

I've been entertaining either trying to get a loan at a lower interest rate, get a 18-24 month low rate BT card, or using a 401k loan to pay about $5k to try to mitigate the amount of interest I'm paying. Does anyone have any thoughts?

Thanks

[llecs]

Welcome to the forums!

First off, check the source of your scores. If all 3 scores came from the same place, other than from a mortgage lender, then you don't have your FICO scores. You can only get your EQ FICO score from Equifax.com, from myFICO.com, or from your lender. You can only get your TU FICO from transunioncs.com (note the -cs), from myFICO.com, and from your lender. Finally, as of last year, Experian no longer allows consumers to get their own EX FICO score. However, you can get it from your lender or printed on your checking statement if you happen to belong to a small CU in PA called PSECU. Any other score from any other source is not a FICO score, but what we call a FAKO. These scores are never representative of the real thing, and could go up when your FICO goes down and vice-versa. Good news is that your FICO scores could be higher.

The fastest way to improve your FICO score is by paying down CC debt. Being at 56% util and assuming they are all open, I bet your FICO scores would rise by 50-60 points if you paid all of your CCs to $0, with the exception of one card, and you kept that one card at a balance of under 9% of the CL.

I predict a score drop due to the new loan of 10-20 points, but virtually all of these points would return within a year with most returning by 6 months.

IMO, I'd skip any loans, and definitely none on the 401(k), but I'd be very aggressive on paying off those two cards. Rebudget if necessary. I'd pay the lowest balance first. I bet you can knock it out within a year.

[Anonymous]

gt3rs -

If I was in your shoes, I would do the following.

1.)  Completely stop using credit cards.  Go to cash only purchases, otherwise interest charges will rack up on new purchases.  You don't want that.

2.)  Forego any attempts to secure any personal or 401k loans, at least for now. 

3.)  Pay the following.

Largest credit card balance:  $125 weekly

Smaller credit card balance:  $90 monthly, or the minimum due, whichever amount is higher.

On average, your total monthly payments would be abt $631.  (The calc is based on an average of 4.33 weeks per month + the $90 monthly payment)

Results:  Paying down the CC balance will simultaneously lower interest charges, reduce CC utilization and gradually improving FICOs.

In 4 months:  Utili on the CC w/ largest bal drops approx. 11% (from 66.4% now to abt 55.6%), and the CC w/ the smaller bal drops approx. 10.2% (from 72% now to abt 61.6%)

In 6 months:  Util on the CC w/ largest bal drops approx. another 5.6% to abt 50%, and the CC w/ the smaller bal drops approx. another 5.4% to abt 56.2%.

In 8 months:  Util on the CC w/ largest bal drops approx. another 5.8% to abt 44.2%, and the other CC drops approx. another 5.5% to abt 50.7%.

In 10 months:  Util's s/b abt 38.2% and 45%.

In 1 year:  Util's s/b abt 30% and 39.1%.

If payments are routinely made as outlined and the CC aren't used at all, then...

... in 4 months, bal's s/b abt $7,800 and $1,550.

... in 6 months, abt $7,000 and $1,400.

... in 8 months, abt $6,200 and  $1,300.

... in 10 months, abt $5,350 and $1,130.

... in 1 year, abt $4,490 and $990.

Note:  These estimates are based on a 2-year repay schedule.  Making additional payments and or accelerating the repay schedule will benefit you.

Good luck.