My wife and I need to start paying down our credit cards.... I'll list my balances, the interest rates and the current minimum payments. All cards are currently maxed.
$15,000 - 3.9% lifetime - $300 per month $12,300 - 17.99% - ~$350 per month $8,700 - 20.99% - ~$240 per month $7,000 - 0% until 7/07 - $150 per month $5,000 - 0% until 7/07 - $75 per month
What is the best plan of attack for successfully paying these cards down? We do not own a home and our credit is not too good because of the high balances on all of the cards, so the idea of moving the high interest balances elsewhere I don't think is possible, unless anyone has any ideas on that front.
Please any help or advice any of you have would be great, thanks in advance.
I have edited this to add: There's a roughly 10% chance that I could get my parents, who are pretty well off, to help us by taking out a loan for us... be it a HELOC or other some such method of consolidating the debt into one payment at a lower interest rate... thoughts on that, if that is the best option here, are also appreciated.
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Absolutely make the minimum payments (at least) on all of the cards. Not much is worse than universal default. Then with whatever money you have left attack the highest rate first until it is gone and then start on the next one.
There are two different strategies that you will see proposed in the FW Finance forum. Both have their merits so I will breifly discuss each one and the reasoning behind it.
Strategy 1: Pay at least the minimum due on each card every month. Put all additional money towards the card with the highest balance to pay it down. When that card is paid off, go after the next highest rate card.
Strategy 2: Pay the minimum due on each card every month. Put the remaining money towards the card with the lowest balance. When it is paid off, go after the next one.
I must say, from a financial standpoint, strategy 1 is far superior. You will pay less interest and, as a result, pay the balances down more quickly. Strategy 2 is better for people with more smaller debts to whom reducing the number of maxed out cards is going to be a comfort.
These strategies are easy (not to mention obvious, but I digress...). What you really need to do is look at your current situation, income, and expenses to understand why you owe almost $50K on credit cards. If your debt is the result of a medical emergency, national disaster, I wouldn't worry to much about it as long as it is a one-time event and was out of your control. But, if you are just living it up and spending beyond your means you really need to evaluate your lifestyle and resolve your situation before it gets out of control. There are lots of topics in this forum devoted to saving and budgeting that would help. Whatever your situation is, I wish you luck!
<edit>To address your second question re: parents financing your debt, that is probably a terrible idea. If you are spending beyond your means, you will end up spending whatever they borrow for you as well. All of a sudden, all your cards are maxed out and you owe your parents money. Just think of every holiday/etc when your parents bring up that loan. From what I hear, borrowing money from relatives really sucks. Unless you are very disciplined and have a great relationship with your family, stay far away from this.
Thanks for the replies so far... I am obviously new here but have been taking a look around to read as much as possible before posting this topic, but wanted to post about my situation in particular for more specific advice - The debt resulted mostly from a medical situation and from our wedding, I would say about 80% of it was due to those two things - we do not live beyond our means and are quite frugal when it comes to spending on things like clothing and meals.
1. Call up the two CC companies that are charging you the double digit rates and try and get them to lower the interest rates.
2. If the rates are still high open up more credit cards to do zero % no fees balance transfer to. Citi and Discover have a lot of cards that offer zero % no fees for 12 months BT.
Hello Hypersion thank you for the reply - We have a Citi and Discover card, that is the card the 0% until 7/07 is currently on - due to our high balance to credit limit ratio we are unable to open more credit card accounts at 0% at the time - also the two cards at high balances are with Bank of America - we have tried everything to get them to lower the interest rate and they wont budge, saying it's based on our current credit score... so we're kind of screwed in that regard.
mike841 said:Thanks for the replies so far... I am obviously new here but have been taking a look around to read as much as possible before posting this topic, but wanted to post about my situation in particular for more specific advice - The debt resulted mostly from a medical situation and from our wedding, I would say about 80% of it was due to those two things - we do not live beyond our means and are quite frugal when it comes to spending on things like clothing and meals. Congrats on the recent married and sorry about the medical stuff. Those doctor/hospital bills can be insane.
If your parents can get a good rate on a line or credit, it could save you a significant amount of money (and possibly bring your credit score up which would help getting 0% offers) if you put $10 to $20K of the highest rate debt onto the LOC while you get things straightened out.
It still makes sense to do some serious budgetting. Figure out your monthly income and all your expenses (including minimum payments on your cards). You might be surprised to see where the money is going and where you can save money.
mike841 said:Hello Hypersion thank you for the reply - We have a Citi and Discover card, that is the card the 0% until 7/07 is currently on - due to our high balance to credit limit ratio we are unable to open more credit card accounts at 0% at the time - also the two cards at high balances are with Bank of America - we have tried everything to get them to lower the interest rate and they wont budge, saying it's based on our current credit score... so we're kind of screwed in that regard. There are a lot of people on FW who juggle BTs between spouses. Remove AUs on each card (so, for example, your credit card with a huge balance doesn't show up anymore on your wife's credit score) and you may be able to bring one or both of your scores up enough to get some better cards. 20% of that $20K debt is $4,000 so you are going to be paying some pretty serious interest until you can lower your rates. I'd say that this would justify signing up for a service that monitors your credit (they cost less than $15 a month). Those, especially in conjuction with FWF and sites like creditboards can really help you improve your credit score so that you can get cards with lower interest rates.
mike841 said: $15,000 - 3.9% lifetime - $300 per month $12,300 - 17.99% - ~$350 per month $8,700 - 20.99% - ~$240 per month $7,000 - 0% until 7/07 - $150 per month $5,000 - 0% until 7/07 - $75 per month
First I'm going to sound a little mean... if you could not afford to spend big on your wedding, you should not have. But that is water under the bridge. But this now means you need to pay the price for your actions and buckle down. OK, I'm off the soap box.
Paying min. on all except the highest interest card is _not_ usually the way to go. If this card also has the highest balance, the min you will pay on a low interest rate card will just be drawn out for such a long time, you'll end up paying more. Of course, you _always_ need to consider the amount owed. Here is what you need to keep in mind... if you can get rid of a card quickly, you can then apply that min. payment to another card. It's called the snowball effect. Whereas if you pay the min. on all but the highest balance card, you will never be able to consolidate those min. payments and "attack" one card.
First, call BOA again and eventually speak to a supervisor. If you don't, they won't lower your rate. You need to _push_ hard but be nice.
In your specific case, I'd pay the 20.99% first. It has the lowest balance and the highest rate. In order to pay this down, you need to cut corners _everywhere_ else. Drop that high speed Internet access down to $10 dial-up. Drop that cable service all together. Only eat out 1-2 times a month and then do it cheaply. If you don't ATTACK these debts, you will just be throwing away even more money then your throwing away now! You don't want to take a year to pay off this amount. If needed, someone needs to get a part time job on the side. Also, this will not work _UNLESS_ once you paid off one card, you take the money you were applying to that card and add it to paying off the next card! Go back and read that last sentence again.
I'm guessing those 0% are going to change to a variable rate after the 0%. BOA (and others) were sending those deals out like candy as people thought they were great. Well, I have news... rate are _only_ going to go up! I'm betting they turn into 17%-20% rate cards when they become due.
If the 0% cards are not higher by the time you pay off the 20.99% card, move to the 17.99% card. But if they have increased by then, then you may want to move to the $5,000 card next and _aggressively_ pay it off.
Sit down and draw up a plan on what you can cut out in order to pay those cards down. Then apply all that money to the cards. Write down what amounts you're going to pay and once one card is paid off, apply all of that _additional_ money to the next card.
What you might also want to do is to add up all the interest you're paying monthly and pin it up on the fridge. Also, multiply that number by 12 months and write it on that paper as well. This way you will be reminded _exactly_ how much your paying to your friendly bank.
mike841 said:Thanks for the replies so far... I am obviously new here but have been taking a look around to read as much as possible before posting this topic, but wanted to post about my situation in particular for more specific advice - The debt resulted mostly from a medical situation and from our wedding, I would say about 80% of it was due to those two things - we do not live beyond our means ...
OP, how much extra are you able to pay per month? Also, what are the credit limits on the cards you have? This info would help us out in formulating a strategy for you.
The thread that "Poo" reference above will really tell you everything you need to know to get out of this debt. I'm sure it seems like a huge weight on you, but if you're dedicated to a solid plan you'll be able to get through it and move on to accomplish other financial goals because you will have developed discipline.
Here's my first couple of suggestions:
1) Call those high rate card co's and see if they'll reduce your rate. They may or may not do it depending on on your credit (you said it's not good)...but it absolutely can't hurt to ask!
2) Get as many of the cards down to <50% of their credit limit--this will help to raise your FICO and eventually enable you to get some 0%/2.9%, etc BT offers. Conventional wisdom says to pay the highest rate card first, but from a FICO standpoint it makes sense to get those balances below 50% of your CL ASAP.
EDIT: In the future, when you have "medical situations" don't pay for them on your credit card--it's a lot easier to work with hospitals, etc than it is to work with MBNA, Bank of America, etc. Medical bills can be paid as you can...as long as you make some sort of payment they won't hassle you too much. I had my wisdom teeth removed in college--when I had NO MONEY, I was able to pay $10/month until I was able to pay it off.
psychtobe said:mike841 said:Thanks for the replies so far... I am obviously new here but have been taking a look around to read as much as possible before posting this topic, but wanted to post about my situation in particular for more specific advice - The debt resulted mostly from a medical situation and from our wedding, I would say about 80% of it was due to those two things - we do not live beyond our means ... apparently the wedding was beyond your means. Since when did spending within means become normal and fashionable?
$15,000 - 3.9% lifetime - $300 per month $12,300 - 17.99% - ~$350 per month $8,700 - 20.99% - ~$240 per month $7,000 - 0% until 7/07 - $150 per month $5,000 - 0% until 7/07 - $75 per month
Currently u're paying $1115 / month
I'll say Pay min payment for both 0% and 3.9% card, let say $150 total Pay int only on 17.99%, about $185/month Pay the rest of the $1115, about $780 towards 20.99%. In about 13 months, you should be able to pay off this one. After that, pay off the next highest % card until paid off.
I am encouraged about your wiilingness to seek help. The big key to getting this under control is not to be in denial about the seriousness of this debt. And as has been said to be able to give up what you need to get your finances under control. What about those starbucks 3.00 coffees? Are you tracking your finances with Quicken, you would be suprised at where the money goes. Watchout though about what you tell the credit card companys, I read in a another thread where a guy sought help from them and a debt advisor to lower his interest rate and the company put negative info in his credit file.
Check out the terms of those 0% cards. Often you can make additional 0% BTs during the promo period without fee. So it MIGHT make sense to make additional BTs from those cards after you've made payments to them. It's revolving credit after all--you can take the money out again once you put it in. Be careful of the fees, of course.
pay the minimums on each card for say 6 months.. and use the extra moneys to build up some kind of emergency fund... then you can start on paying down the smallest balance first.. once thats done you can use the freed up cash flow to make larger payments on the next smallest balance.. ..
its important when your maxed out like this to try to develop an emergency fund.. and then some free cash flow..
Derffie said:pay the minimums on each card for say. months.. and use the extra moneys to build up some kind of emergency fund... then you can start on paying down the smallest balance first.. Huh? That makes _no_ sense.
Why put money in the bank _and_ piss away money on interest? On the other hand, the OP could take the money you suggest putting in the bank and pay it toward the credit cards so they don't get raped by the interest. If an "emergency" comes up, just use the credit cards. You're no worse for wear.
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