Slipper's method to getting out of debt. The quickest way to a better score.

[Anonymous]

I can attest to this because i did this twice!  First time, i did not follow step #1, got my personal loan to pay off all revolving debt, but ran up my credit cards AGAIN leaving me with basically DOUBLE the debt.  **Doh! Foot in mouth**  I learned the second time, paid off all debt, sock drawer'd some credit cards and cancelled a couple (which was wrong in hindsight) and now i'm in the 700's with a couple choice credit cards, a 1.74% APR car loan, and actively looking for a mortgage/home.  It will take dicipline, but trust me it's worth it.  You save sooo much money having low interest rate loans and it's nice being able to qualify for pretty much anything.  This focuses on getting out of debt and getting your credit score up quick.  It may not be the best method for saving the most money, or building the most miles/rewards, but in the long run i think this is the best method.  Read 3x and as Nike says, "Just Do It"

1) Sock drawer ALL your credit cards.  This is to get your mind straight with credit.  Credit is not a shopping spree pass.  There's no "set it and forget it" as Ron Popeil may say.  (That's how you get collections accounts which is a different story)  From now on pay cash or debit with the money you have so you learn to treat credit cards like cash.  Credit cards should only carry a balance for emergency situations such as an emergency car repair so you can get to work, or a new computer if you rely on a personal computer for your work, etc.

2) Get an installment (not revolving) personal loan for 20% more than your existing credit card debt.  Check the local credit union you've built a relationship with.  Talk face to face with that loan rep.  That's what i did.  Check online for debt consolidation loans, can't help much with that, no experience with this.  Keep in mind getting a new loan may cause a temporary dip in your score.  The extra 20% in step #4.

3) Pay down all your credit cards to ZERO except your lowest APR credit card and keep a 9% balance on it.  This is a forum concensus on optimal revolving credit utilization.

4) Use the left over money and pay it back to your personal loan.  This is to get your installment utilization down.  When you first get a new loan, this is when technically you are least creditworthy to get another.  By paying down the additional 29%, you are no longer at 100% utiliation for your installment loan, therefore a tiny bit more creditworthy, and this should help boost credit score a bit.

5) Make minimum payments on the personal loan (were looking for consistency and a history of on-time payments here) and a little more than miminum payment on the 9% balance credit card (since paying minimum on revolving credit will get you nowhere)

6) During this process, use all your cards once or twice a year (but no more) for small charges to keep them active.  Pay in full what you charged when your statement arrives

7) Only after you pay down the 9% balance credit card is when you should bring out one or two of your best credit cards permanently from the sock drawer and remember to treat it like an extention of your debit card/cash on hand and always PIF.

Good luck!!!

Disclaimer this is based on "bro-science" from slipper's personal ongoing experimentation on his own credit.  The man/machine/stud-muffin/batman formally known as "slipper" holds no responsibility.

[RobertEG]

Many use lower APR installment loans to pay off revolving debt.

Installment loans do not have a % util, they have a % remaining of orig loan balance, which is weighted much lower in credit scoring than % util of revolving accts.

As an aside, some of the gain in paying revolving balances is often offset if the balance has remained high for a period of time, or if current score has dropped significantly.

Under such situations, it is not uncommon for existing creditors to progressively lower your credit limit as your balance is reduced, thus keeping your % util at a higher amount.

It is wise not to maintain high % utils for any extended period, as lendors may reduce your existing CLs to reduce their perceived future risk.

[Anonymous]

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@RobertEG wrote:

Many use lower APR installment loans to pay off revolving debt.

Installment loans do not have a % util, they have a % remaining of orig loan balance, which is weighted much lower in credit scoring than % util of revolving accts.

As an aside, some of the gain in paying revolving balances is often offset if the balance has remained high for a period of time, or if current score has dropped significantly.

Under such situations, it is not uncommon for existing creditors to progressively lower your credit limit as your balance is reduced, thus keeping your % util at a higher amount.

It is wise not to maintain high % utils for any extended period, as lendors may reduce your existing CLs to reduce their perceived future risk.

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Tomayto, tomahto.  Same smell, different nostril, and still affects credit.  =)

[Revelate]

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@RobertEG wrote:

Many use lower APR installment loans to pay off revolving debt.

Installment loans do not have a % util, they have a % remaining of orig loan balance, which is weighted much lower in credit scoring than % util of revolving accts.

As an aside, some of the gain in paying revolving balances is often offset if the balance has remained high for a period of time, or if current score has dropped significantly.

Under such situations, it is not uncommon for existing creditors to progressively lower your credit limit as your balance is reduced, thus keeping your % util at a higher amount.

It is wise not to maintain high % utils for any extended period, as lendors may reduce your existing CLs to reduce their perceived future risk.

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Non-trivial effects on FICO 8 for me, 25-30 points on my file, 700-710 to 725-740.  Doesn't factor into FICO 04, does into 98.  80% vs 100 is a much smaller boost though, 5-6 points in my experience on my file.

That said, one of the unstated wins on this is taking out a larger loan and paying it right back dramatically accelerates the amortization curve, and you will pay much less in interest over the course of the loan unlike if you'd just paid it as normal, especially as larger loans tend to have same or smaller rates.  Really you go out and get the biggest installment line you can to be most effective, but it's hard to justify that as a consolidation loan to a lending officer.

[Anonymous]

The point of contention here regarding the 20%+ personal loan paid back immediately and credit scoring is there are no negatives, some negligible differences (debatable for which i disagree with and think it's more than negligible), and mostly only positives.  IMO the impact with credit reporting is potentially more significant.  Mortgage or credit card underwriter sees a brand new loan at 100% balance versus seeing 71%, he/she would feel much more comfortable seeing 71%.

[Revelate]

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@Anonymous wrote:

The point of contention here regarding the 20%+ personal loan paid back immediately and credit scoring is there are no negatives, some negligible differences (debatable for which i disagree with and think it's more than negligible), and mostly only positives.  IMO the impact with credit reporting is potentially more significant.  Mortgage or credit card underwriter sees a brand new loan at 100% balance versus seeing 71%, he/she would feel much more comfortable seeing 71%.

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I would suggest that underwriters are looking at payment history instead regardless of balance (since when we're talking installment it's just DTI calc anyway which is monthly payments aggregated): a brand new loan with no pretty OK's regardless of initial vs. current loan size still has 0 payment history on it.

There's lots of good reasons to do as you suggest, just in my opinion, that isn't one of them .

[Anonymous]

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@Revelate wrote:

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@Anonymous wrote:

The point of contention here regarding the 20%+ personal loan paid back immediately and credit scoring is there are no negatives, some negligible differences (debatable for which i disagree with and think it's more than negligible), and mostly only positives.  IMO the impact with credit reporting is potentially more significant.  Mortgage or credit card underwriter sees a brand new loan at 100% balance versus seeing 71%, he/she would feel much more comfortable seeing 71%.

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I would suggest that underwriters are looking at payment history instead regardless of balance (since when we're talking installment it's just DTI calc anyway which is monthly payments aggregated): a brand new loan with no pretty OK's regardless of initial vs. current loan size still has 0 payment history on it.

There's lots of good reasons to do as you suggest, just in my opinion, that isn't one of them .

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It's good hearing differing opinions and having a friendly debating as this is what a good forum is.  My biggest point here though is getting your head straight with credit and not abusing it.  Everything altogether is kinda like hot rodding your car.  A little ignition timing here, a little spark plug gap there, better exhaust system out back; small things here and there equals a finely tuned machine.  This system as a whole has worked great for me and i'm sure it'll help many others as long as you have the discipline.  

You have stated yourself that it does have a small positive impact on scoring (depending on bureau) and it has significant impact on amortization and its pretty easy to agree there's really no negative impact in anyway, i would definitely recommend it.

[Revelate]

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@Anonymous wrote:

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@Revelate wrote:

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@Anonymous wrote:

The point of contention here regarding the 20%+ personal loan paid back immediately and credit scoring is there are no negatives, some negligible differences (debatable for which i disagree with and think it's more than negligible), and mostly only positives.  IMO the impact with credit reporting is potentially more significant.  Mortgage or credit card underwriter sees a brand new loan at 100% balance versus seeing 71%, he/she would feel much more comfortable seeing 71%.

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I would suggest that underwriters are looking at payment history instead regardless of balance (since when we're talking installment it's just DTI calc anyway which is monthly payments aggregated): a brand new loan with no pretty OK's regardless of initial vs. current loan size still has 0 payment history on it.

There's lots of good reasons to do as you suggest, just in my opinion, that isn't one of them .

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It's good hearing differing opinions and having a friendly debating as this is what a good forum is.  My biggest point here though is getting your head straight with credit and not abusing it.  Everything altogether is kinda like hot rodding your car.  A little ignition timing here, a little spark plug gap there, better exhaust system out back; small things here and there equals a finely tuned machine.  This system as a whole has worked great for me and i'm sure it'll help many others as long as you have the discipline.  

You have stated yourself that it does have a small positive impact on scoring (depending on bureau) and it has significant impact on amortization and its pretty easy to agree there's really no negative impact in anyway, i would definitely recommend it.

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Hence why I Kudoed your original post!

[9CLINE]

Thanks for sharing your experience.....glad things worked out for ya,,,,,continued success !!!!!!!!!!!!

* wishing you continued success.....