Credit Card offers to help pay down balance, but will reduce credit line????

[Anonymous]

I have been offered the opportunity by one of my credit card companies to receive 20% back toward my total balance on the amount over minimum that I pay each month over the course of the next 4 months. The catch is that at the end of the four months they will also reduce my credit line by the same amount that they credited me. Should I do this? Will it have an effect on my credit score because they are reducing my total credit line? I need advice

[Lel]

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2nickels wrote:
I have been offered the opportunity by one of my credit card companies to receive 20% back toward my total balance on the amount over minimum that I pay each month over the course of the next 4 months. The catch is that at the end of the four months they will also reduce my credit line by the same amount that they credited me. Should I do this? Will it have an effect on my credit score because they are reducing my total credit line? I need advice

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So if I understand correctly, if you pay $100 over the minimum amount due, the CCC will pay off an additional $20 of CC balance?

Even though your CL will decrease if you accept this payoff plan, your percent utilization is still going to decrease.  Here's how.

Let's say you have just this one credit card with a CL of $10,000, and it's maxed out.  You're at 100% utilization.  Over the course of the next 4 months, you dig deep and pay off $5000.  The CC company rewards you by paying off an additional $1000, but they also cut your limit by $1000.  Your CC balance is $4000, your remaining CL is $9000, and your utilization is 44%.

Even if you only paid of $1000 and got a $200 credit and credit line decrease, your utilization still goes down: $8800/$9800 =  90% utilization.

ETA: this is simplified since it doesn't take into account the minimum payment due, but you get the idea. 

Message Edited by Lel on 06-11-2009 04:21 PM

[Anonymous]

Which credit card company?

This sounds like (or is similar to) the offer from Citi a few months ago. I would expect there is a cap on the credit contributed by the company - Citi's was $550 if I remember correctly - so the offer cannot be exploited too much for large paydowns as in the example ...

[Anonymous]

20% return on money is hard to beat.  Plus, since they offered you this "orderly" CLD, they may very well CLD you anyway in the future even if you don't take the offer.  They have shown their hand, they want to CLD.  Giving you this ramp down rather than what many others got, balance chase or CLD without notice, is much better, and to get paid 20% on top....I'd take it.  But that's just me.

[LB1771]

I got this offer 2 months ago from sears/k-mart (serviced by Citibank).  I had to agree to *not* use the card and then after the four months they would credit the 20% over the minimum paid in those four months.  However, I believe that I still cannot use the card until after they have credited the 20%, which could be another month after the four month period.  Because I only used the account for a large (family gift) Christmas item and haven't used it since, this deal was a no brainer for me.  I don't shop at Sears that often and the closest K-mart is over 100 miles from where I live.  If you agree, they will send you documentation outlining the specifics of the agreement.  As for lowering my limit afterwards, I am not away that this was part of their plan.  It wouldn't surprise me if this happened anyway.

I hope it works out for you whatever you decide.