Need advice please?

[Anonymous]

I've been reading on the forums about how "bad" CFL's are and the ding that you'll take on your score for having them.

I owe approximately $5800 in credit card debt, to four different credit card companies (Target VISA, WAMU, Chase and a local bank MC).  The highest interest rate on any of these cards is the Target at 18.99%.  I'm just about maxed out on every card I own. 

I have applied for a debt consolidation loan through CitiFinancial (I should've read the boards FIRST!), and have been approved for up to $7500 at 25.99% interest. 

Would it be better for my credit score to borrow the money and pay these all off, freeing up the available portion of my credit or just keep paying on them as I go?

One other thing I should mention, prior to today, I had another 7 credit cards (mostly department stores - Belk, Macys, JCPenney, Lane Bryant , Kohls but also AMEX and Orchard Bank) that had a combined total balance of around $5300.  Yesterday I sold a motorcycle that I owned free and clear and immediately used the proceeds to pay off all of that debt.  The way I figure it is that in the next month or so, my credit score should improve at least some, right?

CitiFinancial will loan me the $7500 for 5 years at $233.47 per month, but i figured I would try to pay it off in 3 years at about $325 per month and in the meantime, shred all but one major card.

I did pull up only my TU score, which as of 9/1/08 shows 659.

What is your advice?  Thanks for all of your input. 

[llecs]

I wouldn't do it. Your CitiFinancial rate is likely higher than all of your CC rates. I'd just throw extra and pay off your CCs and shelve them until you do.

[RobertEG]

HarelyMom, IMHO, I would tend to agree with llecs.  It appears that you have already cut your revolv % util by close to 50%.

But most of this decision depends upon whether you are doing this simply for FICO reasons, or whether financial reasons also enter into the decision.  The higher interest rate on the consolid loan will increase, rathter than decrease, your debt, as monthly interest will lead to more going each month towards interest, and not balance owed.

Unless you need an immediate FICO boost because you are taking out a major loan in the next few months, I would not buy into the higher interest rate loan.

[Anonymous]

I recommend reading "The Total Money Makeover" by Dave Ramsey. It changed my family's life.

[fused]

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1234567890 wrote:

I recommend reading "The Total Money Makeover" by Dave Ramsey. It changed my family's life.

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Please keep your posts on topic.

[Anonymous]

fused:

HarleyMom wants to refinance her debt @ 18.99% and below to a new debt @ 25.99%, and she was asking for advice.

I thought I understood the rules, but maybe I need enlightenment.

Even if all 4 cards are @ 18.99%... if she pays the cards off in 3 years (as opposed to a 25.99% loan in 3 years) she will save over $7000 in interest.

Is education really off-topic?

[Anonymous]

Thanks for your input.  I have to be honest and say that realistically, my concern is that if I do not consolidate and FORCE myself to pay a minimum of $250 or whatever the CitiFinancial payment is each month AND shred the cards, then I will continue to pay just the minimum monthly amounts due on the cards and then they will never get paid off.   By having one credit card with a $2500 balance and paying just the minimum on it each month of $59 (this month), but a $35 addition for interest, I'm only paying $24 towards the principal if you will.  If that cycle continued and assuming that I never charge another penny on the card, I figure it would take me paying $59. each month for 104 months or over 8 years to get it paid off.  I do realize that this is not exactly a precise example because the interest amount would go down each month slightly as the overall balance went down.  But that would be VERY slooooowwwww.

I know it's something you really have to reconcile yourself to doing and then religiously doing it.

At any rate, there is alot of great information on these boards, and I'm committed to improving my FICO scores for the long haul...not just my short term future. 

[Anonymous]

But you said the highest interest-rate card is 18.99% - and the CitiFinancial loan is 25.99%. So you're going to consolidate and pay a crazy-high interest rate on that new loan, even higher than the accounts you currently have. Financially that's just not a good decision, plus it's likely not going to be good for your FICO score because you may get dinged for the new account (a CFL at that)...isn't there any way you can just put that $250/month toward those cards? If you're going to be disciplined enough to pay $250/month toward one loan, it's not that much more difficult to split that same amount up among a few cards - and you'll pay it off faster because your interest rates are lower.

[Anonymous]

My suggestion is to take the card with either the highest interest rate or the lowest balance , hit that card as hard as possible paying as much as you can on it while paying the minimum balance on the remaining cards, until it is paid off.

Then you will use the amount you were paying on that one card to pay off the next card in line along with the minimum balance you were paying on that card.

Let me know if I didn't explain the above clearly and I can try to do better.

Good luck!

S

[Anonymous]

What's to say you won't call up and say you lost your cards so you can charge them up again? I don't want to be the devil's advocate when you're trying to move in the right direction, but if you can't muster the willpower to put $250 (or whatever) toward the cards, it will be hard to keep from requesting replacement cards and charging them up again. Hopefully before you make any big moves you'll sit down and think through how you got your debt. What will you do to prevent it in the future? Was it a one-time emergency? Maybe you need to build an emergency fund so you'll have some padding. Was it a bunch of impulsive spending and you don't even remember where all the money went? If so, you need to get this under control before you go consolidating anything..

It seems like a lot of people that take the "easy" way out and consolidate or use a windfall to pay off credit card debt find themselves right back where they were in a couple of years.

I'm not a DR freak, I promise. Just a few suggestions for long-term FICO and financial health.