Credit Card Utilization / Pay Down Question

[Anonymous]

Hi Everyone,

First time poster! Looking to get me and my wife's financial house in order. I have $67,800k in outstanding CC debt with 714/716/724 scores with 59% revolving utilization. My wife has 40k with excellent credit. I'm trying to get to 740+across the board so I can get a 100% home equity loan to restructure our debt payments every month so we can get rid of it in the next year or so. I'm pretty sure my wife's income wouldn't qualify so that's why I need to get mine up a good bit. We're just paying out of our nose on credit card minimums right now and not really doing anything against the principal. 

My question: See a below for a rough estimate of my revolving credit utilization spread across my various cards. What's the best way to improve my score? I'll have 30k liquid at the end of June to pay down debt. How do I get the most bang for the buck in terms of improving my credit score? Option 1) Pay off one card or pay down each card so their utilization is below 90/80/70/60/50/40/30% to get to 740+ or Option 2) just pay off the big card - card #1? Or does it even matter? It's based on overall utilization and doesn't really matter about individual card utilization? That's not the approach I'm just not sure of. The credit simulator doesn't allow you to break it down by individual cards so I can't play out those scenarios. 

If Option 1 works and let's say I can spend 12 grand to get the utilizations low enough on each card to get my scores above 740, then I might have some cash leftover to pay off a good chunk of my wife's vehicle so that would free up some additional cash flow per month. 

This is my plan:

1) Get my credit score above 740.

2) Get home equity loan -- From my research, you can get up to 100% of value with certain lenders if you have excellent credit. Get a home equity loan to consolidate our debt. Guestimating I'd say we probably have $130k in equity right now -- assuming home value of $670k and we owe 538k.

3) Get minimum debt payments to manageable level (estimating maybe 700-1000 a month?) and pay at the minimum an extra principal payment of 2 grand a month on the home equity loan. I have student loans that make me want to throw myself in front of a bus every month.  

      Balance Rate Credit Limit Utilization

#1 $28,000.00 15.99% $31,000.00 90.32%

#2 $13,868.69 11.24% $18,000.00 77.05%

#3 $8,042.13 23.74% $21,000.00 38.30%

#4 $750.00 0.00% $5,900.00 12.71%

#5 $4,103.58 23.24% $10,000.00 41.04%

#6 $7,881.36 13.65% $10,000.00 78.81%

#7 $1,878.00 15.65% $12,000.00 15.65%

TOTALS $64,523.76   $107,900.00 59.80%

[Anonymous]

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@Anonymous wrote:

      Balance Rate Credit Limit Utilization

#1 $28,000.00 15.99% $31,000.00 90.32%

#2 $13,868.69 11.24% $18,000.00 77.05%

#3 $8,042.13 23.74% $21,000.00 38.30%

#4 $750.00 0.00% $5,900.00 12.71%

#5 $4,103.58 23.24% $10,000.00 41.04%

#6 $7,881.36 13.65% $10,000.00 78.81%

#7 $1,878.00 15.65% $12,000.00 15.65%

TOTALS $64,523.76   $107,900.00 59.80%

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Get the red ones under 48% and you should see a boost since the Tier cutoffs for optimal points are 9.8% 48.9% or something along those lines.

First thing I would do though in the meantime is see if you can CLI your accounts to artificially bring down the UTIL %'s by increasing the limits.

Alternatively go for the high APR cards to minimize your outflow of $ towards interest and then snowball things to the next highest rates until the loan comes through to restructure.

[Shooting-For-800]

Obviously, paying highest interest rates first saves you the most money.

But, I would pay at least 3x minimum payments on each first.

Then you can either attack individual utilization or interest rate or both.

I would knock down the utilization in order of most to least before you get your HELOC.  

I dont think your interest rates impact you as much in the short run.

Thankfully, you high balances have lower rates.

[coreysw12]

Also I see that you have very low util% on your card that has 0% APR right now. Perhaps a balance transfer is in order.

[Kforce]

With the $30,000,   I would pay off the 2 high interest (#3 & #5) and put the remainder on (#1)

#1 $10,000.00 15.99% $31,000.00 90.32% (new balance)

#2 $13,868.69 11.24% $18,000.00 77.05%

#3 $8,042.13 23.74% $21,000.00 38.30%

#4 $750.00 0.00% $5,900.00 12.71%

#5 $4,103.58 23.24% $10,000.00 41.04%

#6 $7,881.36 13.65% $10,000.00 78.81%

#7 $1,878.00 15.65% $12,000.00 15.65%

You now owe $35,000 and have an average rate of just over 14%

You also have about $700 in lower payments per month.

With those numbers you can pay this off in just over 2 years with out taking out a loan.

[CreditInspired]

Hi and welcome to MyFICO,

If it were me and I had $30K to work with, this is what I would do:

Balance Rate Credit Limit Utilization

#1 $28,000.00 15.99% $31,000.00 90.32%

• pay $14K (45% UT)

#2 $13,868.69 11.24% $18,000.00 77.05%

• pay $7K (38% UT)

#3 $8,042.13 23.74% $21,000.00 38.30%

• pay $4K (19% UT)

#4 $750.00 0.00% $5,900.00 12.71

• make 2-3X minimum payment if can

#5 $4,103.58 23.24% $10,000.00 41.04% 

• pay $2K (21% UT)

#6 $7,881.36 13.65% $10,000.00 78.81%

• pay $3K (48.8% UT)

#7 $1,878.00 15.65% $12,000.00 15.65%

• make 2-3X minimum payment if can

So my goal, OP, would be to get all of your balances under 48.9%, which is going to give you a score bump right away. I thought about paying the higher interest off first, which would save you money, but I kept going back to wanting the UT slashed. This is JMO and my 2cents.

This debtload is truly overwhelming and it's good that you have that influx of $30K coming in.  

GL2U

[tacpoly]

I wanted to bring this up, in case it might be relevant: I thought conventional wisdom says not to take out home equity loans (secured by the house) to pay off unsecured credit card debt. Because you’ve now put your house on the line if you’re unable to pay off the HELOC — if OP & wife runs up the credit cards again, for example.

[Anonymous]

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@Kforce wrote:

With the $30,000,   I would pay off the 2 high interest (#3 & #5) and put the remainder on (#1)

#1 $10,000.00 15.99% $31,000.00 90.32% (new balance)

#2 $13,868.69 11.24% $18,000.00 77.05%

#3 $8,042.13 23.74% $21,000.00 38.30%

#4 $750.00 0.00% $5,900.00 12.71%

#5 $4,103.58 23.24% $10,000.00 41.04%

#6 $7,881.36 13.65% $10,000.00 78.81%

#7 $1,878.00 15.65% $12,000.00 15.65%

You now owe $35,000 and have an average rate of just over 14%

You also have about $700 in lower payments per month.

With those numbers you can pay this off in just over 2 years with out taking out a loan.

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^^ I like this idea

I don't like cashing out what little equity you have in your home (relative to it's value) for a few reasons. One correction in the housing market and then suddenly you're underwater on it. Also while you may not personally do this, it generally becomes a cycle for the majority of people.

You're able to put a big enough chunk on this to get it manageable and then see 0% offers pop up or do low interest personal loans for some of it etc.

Longer term, once the revolving debt is down, you'll actually have better credit not having a new high util mortgage on your CR.

[Revelate]

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@tacpoly wrote:
I wanted to bring this up, in case it might be relevant: I thought conventional wisdom says not to take out home equity loans (secured by the house) to pay off unsecured credit card debt. Because you’ve now put your house on the line if you’re unable to pay off the HELOC — if OP & wife runs up the credit cards again, for example.

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At some level you need to make a commitment to pay off the debt, and if you do I think this conventional wisdom is basically wrong; sure know what your income is but not using a HELOC appears to be foolish to me anyway.

Short of getting hit by a bus (after which I don't really care) I know that I can pay off my debts, and as such a HELOC ain't no big thing especially when we're talking 6% or so, and really I wouldn't optimize at 100% I'd optimize at 80 (like I did) or 90% just to leave a cushion for exactly the reason you suggest: might want that spare equity someday if something really does go wrong, but really I'd do the HELOC and then just pay that down on the same timeline as the cards given that 6% is basically pay off right now in my world anyway... but 6% is way way cheaper than 16% or higher.

Admittedly all that said if I couldn't trust my wife (in my theoretical case) on that front, well, meh.  BK isn't the end of the world and if we're headed towards a divorce because of uncontrolled rampant spending then the house is probably up for sale anyway, but it just makes no sense to me to carry a bunch of debt at 20% instead of putting it on the HELOC, but admittedly I'm pretty risk tolerant and this one appears low to me.

[Anonymous]

Thank you everyone for your feedback! This has been a great thread. I've got another 20-30k cash infusion coming later this year so that would be yet another large ding away at the mountain. I think my primary goal is to just optimize our free cash flow to get the minimums as low as possible and then crank away at the debt via additional principal payments and commissions over the next year or so. I'm in good spirits that that we will be able to have 0 credit card or vehicle debt in the next 2 years if we can get the minimum overall debt payment to less 1k a month and then throw 2 grand a month at debt on top of that. Any commissions/bonuses will go straight to it as well.

Most of this debt came from a complete remodel of our house (yeah, that kind of got away from us, lesson learned...) and our wedding. Fortunately this debt isn't from financing extravagant vacations or just going on buying sprees where we bought all sorts of crap we don't need.  

Love the input and insight from everyone. Great forum!

Cheers