Help! $3k in cc debt, need to reduce interest and need a new car!

[Anonymous]

Hey guys, I'm turning 27 in a few weeks and I'm in a bit of a bind. I could use some input from people other than my parents (who haven't done great on their own credit journeys..).

I applied for my first CC in 2018 (Cap1 Platinum), after about a year my credit limit was increased to $3500. The credit limit increase happened at a time when I lost my job and was financially struck --  I very quickly maxed out my card. Fast forward a few months to about this time in 2019 and I started to pay off my debt (min. payment $100, paying $150/mo with an interest rate of 25%!!). Right now my balance is about $2900, my credit score is sitting at around 708 according to several sources (cap1 and chase, where I have my regular checking account).

I'm looking for help building a strategy to pay off my debt. To make things complicated, I also need to put myself in a position where I can be approved for an auto loan by next summer if possible. I got a new job in July and I've managed to save about $2k in cash, but the problem is my current car -- it's a 2011 Chevy Malibu and these were built with faulty transmissions. My transmission went out at 80k miles and was rebuilt, the current mileage is at 130k and the car is running great...for now. The transmission is almost sure to fail again, and it's at the mileage where things are going to go downhill in no time. My goal is to sell the car while it still has value, after one more midwestern winter. kbb and my own market research tells me the car can sell for ~$3500.

So I have this credit card debt, my current interest rate hemorraging money, and I need a car.. my thinking is that I need to find a way to reduce my interest rate either through a personal loan with a lower rate, or opening a second credit card to reduce my CU (and ideally balance transfer). So, keeping in mind that I want to build a healthier credit history moving foward, along with needing to reduce my interest rate to avoid wasting more money, what should I do? Is a second credit card a good option (thinking more credit history& lower CU percentage, lower interest etc..), if so what companies/cards should I be looking into? Should I be looking for a personal loan? Should I pay off a chunk of my debt as well, or would it serve me better to hang on to the 2k and continue saving (and keep my financial safety net!). Feel free to school me, I need it! 

Thanks for reading

[tcbofade]

You might check the prequalify link at Discover.  They might have a zero percent intro rate/BT available for you and you can find out without taking an inquiry.

Don't wish death on your car, that is a self fulfilling prophecy.  Change the oil, rotate the tires, tend to the brakes.  Fix problems as they arise, but don't go looking for them.  

If it were me, I'd apply $1k to the credit card balance and keep $1k in cash.

Good luck!

[Anonymous]

Thanks for your response @tcbofade , no wishing death here! Just trying to think about maximising the value of my assets while I have them!

I'll definitely take a look at discover's website, thanks for the tip. 

[CYBERSAM]

Look in to Credit Unions locally or some bigger ones. Having a job should lend you 3K personal loan with not much of issue.

Service Credit Union is easy one to get, DCU is good but they looking for under 40% DTI.

Balance transfer credit card is good idea, but you may not get decent SL on a new card and the time for BT offer is usually 12-18mo.

Depending on your financial situation with new job, PL probably be more flexible and would improve your score for the long run.

[CreditCuriosity]

Discover is a good bet.. On the bright side 2900 in CC debt isnt alot regardless of income or shouldnt be that bad and can be easily knocked out with a 2nd job if needed.  Best of luck to you.

[fatcomic]

I second the recomondenation of joining a credit union, they will work with you on refinancing the $3,000 at a lower rate.  Or depending on the credit union, they may balance transfer your $3,000 to a lower rate credit card instead, which would be a double win.  You would have a lower rate to pay down the $3,000 and then a lower % option credit card to use in the future if you did have to carry a balance again. 

Then when you are ready to buy a car, they will give you more favorable terms than a dealer in most cases.  

Either way, I would wait unitl you get the $3,000 @ 25% paid off before I would look to get an auto loan.  Take the amount you would pay each month for a car payment and apply it to the $3,000 for the time being.  

[Remedios]

Chase and Capital one provide Vantage score. Those aren't really used by lenders, so you'd want to find out what your Fico scores are. 

If that card is your only card, and your credit history is only two years, it really doesn't look you're going to have an easy time getting approved at this time, because your only account is almost maxed out. 

I would suggest you take a look at credit unions and see if you can get a credit card through one.

As far as personal loan goes, with only two years history, unless you can get one through a CU, you're looking at APRs not that far below your card APR. 

The simplest solution here is to use the money you saved to pay off credit card debt, then save the amounts you'd be putting towards minimum payment.

That way you'd stop the bleeding, and by next summer with a little extra effort, your savings should accumulate right back where they were. 

[K-in-Boston]

Definitely agree with throwing what you have saved for the down payment on the car on the credit card instead.  Right now you're bleeding over $60 a month in interest alone on that card.  Without a maxed out credit card, you're likely to have much better terms on an auto loan with a smaller down payment or even no down payment, which could potentially save you thousands over the life of the auto loan.

[NRB525]

Before making any adjustments I'd suggest looking at a few angles. 

How confident are you that your job and earnings will continue? If very confident, then that makes the entire situation much better. If not so confident then you need a true buffer in savings. 

The savings amount you note, is that completely separate from your cash flow to pay the bills, and pay this card? Your cash flow needs to be well understood. 

Next, look at how much you are paying each month in CC interest, and how much you have in savings. Basically your savings may be costing you that much each month in interest cash flow. If you apply some of the savings to the CC, cash flow improves immediately. The rest of the CC bill goes down faster.  

Get in touch with a local CU, or a National CU like PenFed. Building the relationship now will set you up for success with borrowing, particularly for a car loan next year. 

Good luck!

[Anonymous]

Thanks everyone, these responses are super informative and helpful. Credit Unions were not on my radar at all, but the more I'm looking into them it's definitely a route that sounds right to me.

@NRB525, let me respond to every point you brought up..

The savings amount I have is entirely from cash tips I've received. I use my paycheck from my hourly wage for daily expenses and bills and I don't need to touch the money I make from tips to get by. I keep a record of my tips and I've actually made $4000 in tips alone; however, my parents loaned me money a while ago and I used some of my savings to pay them back and have also bought new clothes & other essential items I've needed for a while. So now I have $2100 in cash.

Also, I'm working as a valet at a hotel, business has been slowing down in the last week as the weather has been changing and it will continue to slow as winter approaches, so this is my answer to your first question -- When I said I got a new job, I really just meant I'm working at a new location, and at this new location my income in tips has substantially increased. I've been working for my current boss for 4 years now, and I'm very confident I will hold this job, but I'm also confident my tips will decrease this winter as less customers will be traveling. There is another factor to consider here, and that's what effect the cooling weather will have on COVID-19 cases in my area. The hotel I work at opened it's doors in February of this year, my boss and the GM at the hotel have both told me they intend to stay open if another round of business closures take place, however it is a wild card factor to consider. There's always a possibility that they're forced to shut down and I could be subsequently forced to go on unemployment at some point this winter.

So, I am a little hesitant to just throw all/half of my savings into my credit card bill. I think putting $800-1000 towards it sounds realistic and beneficial, but I haven't made that decision yet.

Edit: I was also able to check my Fico scores, Exp: 712, Eq: 702, and TU 701. In 2014 I wanted to start building credit and I got a car loan ($3k) from a local Credit Union, but my Dad was paranoid about me being younger and in debt and had me pay it off in just 4 months. So my credit history technically goes a little farther back than just 2 years.

Edit Edit: I'm mostly typing this out because it's helping me map out my situation a little more clearly, if anyone has any more tips with this new info I'm still listening!