MyFico Family,
I have finally reached a place in my life where I am going to begin paying off debt. I have chosen the avalanche method. So I have some questions regarding doing so. Heres where I am at on debt.
Collections- 5 total adding up to $3,680. $29 the smallest, $1,725 the largest.
Auto Loan- $15,985 @ 22.5% interest 
Credit Cards- I don't carry balances on any active cards but I have a $872 balance on a closed capital one at 24.99%. I also have two charged off First Premier cards. $475 and $439. One of which will reach 7 years later this month. The other is about 2 1/2 to 3 years old. I did not factor either of those two into my debt avalanche.
Personal Loans- $2,819 total across 3 loans ranging from 36%-41%.
Student Loans- Heres the big one. $44,152 spread across 11 different loans all <7% most in the 3.5%-4.5% range. On extended graduated in order for debt avalanche.
So here's the situation. I felt the avalanche would be best seeing as how due to past credit issues, my $16,000 car has a 22.5% interest rate. I cannot refinance due to the fact I am so far upside down. Literally owe $16,000 on a car worth $9,000 if I'm lucky. My problem is that while reducing debt I also want to improve my credit. With this method, the collections will be ignored until last. Their minimum payment is $0. Their interest rate is 0. With PenFed and NFCU trending to using FICO 9, from what I understand paid collections are ignored by FICO 9. Should I stick with paying them last? Or should I pay them off before the avalanche? I am putting an extra $400-$500 each month towards debt.
I appreciate any advice.
@Anonymous wrote:MyFico Family,
I have finally reached a place in my life where I am going to begin paying off debt. I have chosen the avalanche method. So I have some questions regarding doing so. Heres where I am at on debt.
Collections- 5 total adding up to $3,680. $29 the smallest, $1,725 the largest.
@Anonymous Loan- $15,985 @ 22.5% interest
Credit Cards- I don't carry balances on any active cards but I have a $872 balance on a closed capital one at 24.99%. I also have two charged off First Premier cards. $475 and $439. One of which will reach 7 years later this month. The other is about 2 1/2 to 3 years old. I did not factor either of those two into my debt avalanche.
Personal Loans- $2,819 total across 3 loans ranging from 36%-41%.
Student Loans- Heres the big one. $44,152 spread across 11 different loans all <7% most in the 3.5%-4.5% range. On extended graduated in order for debt avalanche.
So here's the situation. I felt the avalanche would be best seeing as how due to past credit issues, my $16,000 car has a 22.5% interest rate. I cannot refinance due to the fact I am so far upside down. Literally owe $16,000 on a car worth $9,000 if I'm lucky. My problem is that while reducing debt I also want to improve my credit. With this method, the collections will be ignored until last. Their minimum payment is $0. Their interest rate is 0. With PenFed and NFCU trending to using FICO 9, from what I understand paid collections are ignored by FICO 9. Should I stick with paying them last? Or should I pay them off before the avalanche? I am putting an extra $400-$500 each month towards debt.
I appreciate any advice.
It's a tough call. Collections are more serious even though they're not costing you any money in interest right now. You could save on interest by holding off on them, but it would be better for your credit long term to deal with them first. There's also the risk of being sued/judgments on them. But I would also question taking any action on items that are about to fall off.
Your scores are actually coming along very nicely.
In your shoes, I would think any of the collections that I *was* going to deal with, I would try to settle as cheaply as possible. Negotiating a pay for delete may be best, but I think it tends to require payment in full. I think you need to get out of them as cheaply and quickly as possible so you can get to those personal loans and your car note. While a settled for less notation still dings the score a bit, it's going to lessen the negative effect this is having on your credit. (and like I said, your scores aren't so bad right now.)
Then attack those personal loans.
Then throw everything you can on that car note and bring the loan amount down to the value of the car.
Then refinance it. You'd be able to get a good rate if your scores were in the mid 600s by then and still save a nice chunk in interest on the remaining balance on the loan.
Definitely spend some time in the rebuilding forums and I think you'll see a lot of different scenarios to give you ideas.
Good luck 