Save thousands in interest or worry about higher util

[Anonymous]

I am in the process of trying to pay down cc debt without trashing credit rating on a bunch of debt I agreed to pay off in divorce. Bad move, but now it is mine. I have an offer from the Credit union to give me a new $10,000 cl card at 6.99%, no fee for balance transfer. This will be to used to pay off BOA unsecured CL, $7,000, and 3 smaller credit cards. This will save me around $3k in interest on total of $9200 debt according to the online calculators, as the BOA is at 20%, as are the others. The hitch is that they want me to close the accounts. This will eliminate about $25,000 in credit availability without lowering my overall balances. This will raise my already high util from around 40% to roughly 60%. On one hand I think it is a wise move to do this, as I will save a lot of dollars, but don't want to kill my score as I would like to buy a different house in 2 years. I have no baddies, only 2 late payments the last being in 04. My fico score is 650. My score gets nicked by high amount of credit, high util, and too many accounts. Anyone know how score would react by closing 4 accounts without lowering debt? Most of the accounts they are proposing to close are not old ones.

[haulingthescoreup]

What are the CL's on the smaller cards? Do you have to do this with all the cards? In other words, if only the BofA were transfered, could you pay off the other three and keep them open. (Or just one, or just two?)

Actually, what are the balances and the CL's on all four of the cards?

[Anonymous]

Not an expert but a quick thought just in case... Did you call the credit card companies and ask for a lower rate? If they refuse, ask what needs to happen to get it lowered and call every month until it is lowered.

I'd be reluctant to close accounts because no one has to give you the credit lines back when you ask for them, whether re-opening an old account or getting a new one. Of course they can lower them anytime but still.. Also I believe there's a utilization tier, if you will, at 50% so crossing over may cost some points in addition to the new account ding. Hopefully you can post balances and interest rates so the experts can chime in.

[athensguy]

Don't close the accounts. If you open the card and close the other accounts, you can expect to lose 50 or more points due to % accounts with balance and %util and reduction in average age.

If I was in your position, I would be interested in trying to get in with Navy (need an in) or Penfed (anyone can join) and seeing if they would be willing to give you an unsecured personal loan. Getting an installment loan like that and leaving the other cards open will improve your score instead of destroying it like the other option you've been provided with. Even if the interest rate isn't as low, it can be expensive to trash your credit, especially since you want to buy a house in the near future.

[Anonymous]

Your FICO score is not worth one penny in interest.  Edited: in the short term scheme of things.

Take the offer and save $3 Grand! Also, it will help you pay off your debt faster too so it is worth a minor hit now to get the new card when in the long run you'll get the rewards of being debt free THREE THOUSAND DOLLARS FASTER!

Good Luck...I got myself out of debt by a combination of transferring balances to lower interest cards and paying more than the minimums each month. (back in 2004 and 2005) Now my scores are all extremely high.

Message Edited by 1111mel on 10-01-2008 10:43 PM

[athensguy]

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@Anonymous wrote:
Your FICO score is not worth one penny in interest.

Take the offer and save $3 Grand! Also, it will help you pay off your debt faster too so it is worth a minor hit now to get the new card when in the long run you'll get the rewards of being debt free THREE THOUSAND DOLLARS FASTER!

Good Luck...I got myself out of debt by a combination of transferring balances to lower interest cards and paying more than the minimums each month. (back in 2004 and 2005) Now my scores are all extremely high.

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The lender wants him to close his current accounts. That may make his house more expensive when he buys, which will easily swamp a $3K savings now. My suggestion would include most or all of the savings without as much damage to his CR.

[Anonymous]

It also depends on how old the cards are that you would have to close....If your plan is to buy a different house 2 years from now it is quite possible that the average age you would lose on the 4 cards could be regained because this new card would be two years old by then.

After I paid off all my debts I closed like 3 cards (before I knew that you weren't supposed to) Anyhow my average age currently is only 4 years and my scores are all above 760.... so again if the 4 cards aren't that old I say close them, take the deal and two years from now you should be fine.

Please note I do use the word should...but then again if you get your new mortgage with the same CU then you really should be fine.

[haulingthescoreup]

Closed cards should continue to factor into your average age for 10 years after you close them, unless the CRA is so unkind as to remove them early. EQ is bad about this.

So it's really more a case of checking out what will happen in 10 years.

I'd say that overall, financial benefits should trump scoring considerations; I would just be irked at having to close the cards and eventually replace them. That's when your accounts will get reaged and the inqs will hit.

[Anonymous]

Thanks for the replies== The accounts are as follows: BOA line of credit, 19.99%, only open about 1 month $6970 balance, $18k CL. Chase BP gas card,20.99% $585 balance, $850 CL, about 4 years old. Wells Fargo line of credit about 3 years old, $655 balance, $5500 cl, 20.99%. Menards Charge card, $1059 balance,1250 CL, 20.99% about 8 years old 2 of them are more loan like accounts, 1 is gas card, 1 is store card. I have requested interest rate reductions, not had much luck.

[Anonymous]

TL	Bal	CL	APR	UTL
BodA LOC	6970	18000	19.99%	39%
Chase BP	585	850	20.99	69%
WF LOC	655	5500	20.99	12%
Menards	1059	1250	20.99	85%
	9269	25600		36%