Best way to utilize $4k

[asanch12]

Hello everyone,

So here is my situation.  I lost my job a few months ago; I went through my savings pretty fast and started using my credit cards heavily.  I managed to rack up about $15k in credit card debt.  Luckily for me the card I used the most has a 0% APR until June. 

So I am now working and my debt is down to $12.5 and I have about $4k that I want to throw into my credit card debt.  I am comfortably putting about $500-$750 a month towards my debt.  I am trying to maximize my fico but I am unsure whether I should pay off my nationwide card or put it towards my maxed out citi card, which I’m sure is killing my fico. 

All of your input will be greatly appreciated…thanks !

Here are my cards:

Citi Platinum:        8000/8100   (0% interest until June’11)

Discover:                      0/7300

Nationwide:           4450/5000   (0% until February ’11)

State Farm:                   0/3500

Shell                                 0/850

Chevron                         0/1700

[haulingthescoreup]

Hmmm. Well, since they're both 0%, it's down to scoring questions, instead of saving money.

I think I'd take $2000 and put it on the Nationwide card, which would get it to precisely 49%, and then apply the rest to the Citi card. I'd probably then tilt most of my monthly payments to the Citi card, while continuing to take down the Nationwide more slowly, until the Citi balance reached around $3960 or 49%, and then keep taking both of them on down.

That's admirable that you're hitting that debt fast, and thank goodness for 0% APR, but do you have an emergency fund? It might be wiser to just stick the $4k in the bank and have it available, just in case. At least you'd have cash if something bad happened again, and you could avoid having your CC balances go up again.

8/25 edit: I take it back. Peach8321 is correct: Don't tilt subsequent payments toward Citi. I hadn't considered that you only have 5 more months on the Nationwide 0%. Schedule your payments so that you pay it in full by the time the promo offer ends.

[Anonymous]

Hi there,

good job bringing down your debt, and glad to hear you have a new job!

You already got some good information, I'll just break it down here a little differently...

But first, as mentioned, if you don't have an emergency fund type stash of cash, put the $4k there.  Assuming you do have something else though...

You have 5 months to pay off the Nationwide before you have to pay interest...

So I'd put $2k there, and $500 a month on it...that'll pay it off right on time. 

I'd put the other $2k on the CITI and then the $250 a month on it until you have finished paying the Nationwide.

This means that come Feb. you'll only have 1 card reporting and that card will be just over 50%....a payment in march of $750 (the $500 you were paying to Nationwide + the current $250) will bring it down to just under 50%...

So, I'd say by April, 2011 your FICO scores should be much better...now, granted, that is several months away and I don't know if there's a reason you want to max out your FICO (ie, you want to buy a house/car) but if you can wait until April you'll be in pretty good shape with (ideally, don't charge more) one card reporting less than 50% - and then if you keep paying $750 on it, within a year you should be $0 across the board...

But as cool as that would be, I also highly highly recommend building up an emergency fund first...if something happened, and you didn't have one, you'd be right back where you started (or worse).  So I only say pay the $750 a month on the CC IF AND ONLY IF you can put at least $250-300 aside for emergency cash.  Otherwise just delay the payback a little longer and have cash on hand.

Good luck!

[asanch12]

Thank you for all your input.  I do have a little cash in an emergency fund, but I want to just get rid of my debt as soon as possible.  I need to get my fico up a lot higher and I want to maximize my score.  I have another 0% BT offer until april from discover,  although I know I shouldnt move money around and incur a transaction fee but I really need to get my fico up around 700.  Should I move some money from my citi onto my discover?  im trying to keep my citi from showing as maxed out and continuing to kill my score, should i do it? and if so, how should i split the money, i havent done anything with the $4k yet

thanks again!

[RobertEG]

Prior comments are all excellent, and I wont add to the great payment strategies suggested.

I would just throw one further wrinkle into the discussion.  It is not just all about where you are now, it is also about the future.

Cards that are maxed out, or close to being maxed out, are prime targets for possible future reductions in your current credit limit.

Your CITI card is your highest CL card, and thus your biggest bread-winner is your overall % util of credit.  It is currently at 98% util.

I would be concerned about a possible CLD, and thus probably place a little more towards that card as a first line of payment.

[tiger67]

Don't perform the transfer. Having another account reporting a balance will definitely lower your FICO. Not to mention transfer fee.

Do as recommended above - $2000 on Nationwide, $2000 on Citi. Two positives occur. First overall utility decreases from 47% to 32%. Second, Nationwide goes down to 49%. Together, these will gain 10 -15 points. The next $750 payment will reduce your overall utility to 29%, which normally is another positive break point ( maybe 5 points). If you just continue to pay down 500-750/m, with the bulk aimed at Citi, you will easily achieve 700.

Stay focused and patient.

[haulingthescoreup]

---

@Anonymous wrote:

...You have 5 months to pay off the Nationwide before you have to pay interest...

So I'd put $2k there, and $500 a month on it...that'll pay it off right on time. 

I'd put the other $2k on the CITI and then the $250 a month on it until you have finished paying the Nationwide.

This means that come Feb. you'll only have 1 card reporting and that card will be just over 50%....a payment in march of $750 (the $500 you were paying to Nationwide + the current $250) will bring it down to just under 50%...

---

Great point, and I amend my reply on tilting payments toward the Citi card.

January does NOT feel like it's only five months away! But it is.

[RobertEG]

I agree with tiger.

A BT is rarely a gift-horse.  If it was generally to the consumer benefit, they would not be making those "generous" BT offers.

A BT, regardless of the introductory APR or period, instantly hits you for 3% or so of the amount transferred.  Let's say that you do a BT for $4,000.  Instant fee of $120 this month, tacked on to the balance of the account of the party who gave you the BT.

Assume the APR on the account you are considering the transfer of payment to as having a current 20% apr.  The  next month interest, without the BT, wouild be  approx (0.20/12) x $4,000, or $68.  So you pay $120 for the BT as oppose to $68 next month to party who would have received the BT.  Sure, no interest for six months with the transferee, .  You have now financed the $120 BT fee as a new balance on the account of the creditor who granted the BT, which will begin accruing its own interest once the introductory period has expired.  They are banking on that $4,000 remaining afer six months,when their normal interest rates then kick in.  They are relying on the 0% apr during the intro period to lull you into still retaining most of the transfered balance until ex;piration of the 0% apr period, and then they can begin to collect the $68 of so per month in interest the other creditor was collecting.

It is a gamble for them, and for you.  They know that, in most cases, the intitial fee plus the ability to then collect iinterst on the higher balance to their account when the intro perid expires, will, in most cases, cost you, and benefit them.

In all of this, it has zero affect on your overall % util. It is kinda just a shuffling of the deck chairs.  Sure, it has the benefit of reducing the % util on one card, but at the expense of increasing the % util on the other.

[asanch12]

got it, thank you everyone!

[asanch12]

Hello,

I have $2-$3k that I want to use ASAP; I plan on getting a car next month and want to have my score as high as possible when I apply for credit.  Should I pay off my nationwide and just have a balance on my citi, or should I pay them both down below 50%?  My Citi card statement cuts on Friday.

 My current scores are: 681 Equifax, 715 Transunion, and 696 Experian (LO Pull).  I have a car lease that comes to an end this month, never late.  I have baddies (lates) from '05 nothing since.

Citi Platinum:        6750/10200   (0% interest until June’11)

Discover:                      0/7300

Nationwide:           2900 /5000   (0% until February ’11)

State Farm:                   0/3500

Shell                                 0/850

Chevron                         0/1700

Thank you for your help!