Paying down credit cards - Plan of attack - looking for help.

Hello,

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.

I guess I'll state the obvious one...

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.

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.

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.

Do this: http://www.fatwallet.com/forums/messageview.php?catid=52&threadid=227686&highlight_key=y&keyword1=debt+free

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.

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.

mike841 said: Hello,

$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.

Water
Bread
Condoms
Second job for each of you

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..

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.

If you got the card balances below 50% on all of the cards, you probably could get more credit and 0% offers..assuming you dont have any other derogs..Maybe do a FW "get out of debt AOR"...and use your spouce's credit profile also to get things paid.

if you credit sucks just file BK, majority of not all will be wiped out since it's all medical. keep the lowest balance card open so you can rebuild your credit after you file bk. ch.7 should do, credit / score will be crap for first year then it will rebound. let this be a lesson to you not to spend so much. good luck

EricGo said: Water
Bread
Condoms
Second job for each of you

I'd add

Multivitamin

To prevent scurvy, rickets and other medical conditions while on the bread/water diet.

Ounce of prevention and all that.

what is your income per month?

You may want to check out a book(total money makeover + radio show) by this guy, he's a little bit hokey but has sound advice on getting out of debt and changing your lifestyle. Much of paying off debt and understanding how money works is budgeting and psychological. For example paying off the smaller credit cards, while paying your minimums on others, may help you build what he calls the snowball. You kill these cards and cancel them, building momentum.

Good luck with this, my wife and I went through this and when we told our friends that we wanted to live debt free people looked at us like we were crazy. The way we live now we have no car payments, no credit car payments, and just pay our utilities. Making a budget is really important, people might be shocked to find if the add their car payments(+ extra ins for financed car), credit card payments, and other debts together it is a huge monthly number. If they could stop sending that money to other people and keep it for themselves, they can really start building wealth.

Not always, supertie.
IBJanky had great success finishing off his low debt cards first in order to gain more 0% apr offers. The important differnce here though, is OP's cards are maxed out.

tcope said: 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.

What? This makes no sense at all. Ignoring paying down a card to lower your utilization in order to try to attract 0% offers(which is not the reson you give), mathematically paying off the highest rate first will save you the most money.

Can you please show me some of your magic math where the low interest rate card getting drawn out causes you to pay more?

Because every card is maxed out, the OP will not qualify for any 0% offers so they would be best off paying the highest rate first.

tcope said: mst3k said: tcope said: 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.

What? This makes no sense at all. Ignoring paying down a card to lower your utilization in order to try to attract 0% offers(which is not the reson you give), mathematically paying off the highest rate first will save you the most money.

Can you please show me some of your magic math where the low interest rate card getting drawn out causes you to pay more?

Because every card is maxed out, the OP will not qualify for any 0% offers so they would be best off paying the highest rate first.

I won't get into the long explanation by showing all the math (as there are just too many variables), rather I'll explain it a bit differently:

Card 1 = $10,000 balance at 25% with a min payment of $150
Card 2 = $1,000 balance at 5% with min payment of $25

If you were to pay the min on Card 2 while your paying off Card 1, you'd be paying $25 for almost 4 years on Card 2. Where as if you _aggresivly_ pay off Card 2 (read, quickly), you then can add that $25 toward paying off Card 1 more quickly. It's not the interest your looking at avoiding. it's the ability to _remove_ a min payment amount toward a card that can now be applied to another card (Debt Snowball). By paying off the smaller amount quickly, you reduce the interest your paying toward that card but this is a minor point. You're really trying to free up that min amount.

Again, your not really trying to remove the interest you're paying rather you're trying to free up that min payment amount so it can be _quickly_ applied to another debt. Now you're _really_ hacking away at the higher interest rate card.

This will only work if the person aggresivly attacks the debt and also applies every last cent to paying off the next card.

Better then I can explain it:
Wikipedia - Debt Snowball

It's unlikely that the person will qualify for a 0% card anytime soon. Just paying down one card somewhat will not trigger this. It can take a year or more to get a better deal. if the OP waits around for this or counts on it happening, he's fooling himself yet again.

I ran your example in Excel. Paying off the higher rate first causes your total debt to be paid off sooner than paying off the lower rate first. Also, I don't know of a single credit card that lets you pay less than the accrued interest. So you numbers disprove your point and are contrived.

And I think that is really the point if you think about it. Sure you can come up with hypothetical scenarios where one thing might be better than the other but in the end you need to run the numbers for your own case and figure out which one is best. However, even if you find a highly contrived example, I still dispute your statement that paying off the highest rate is *not usually* the best option. Even when you fudged the numbers it didn't work out so I'm betting those corner cases are pretty rare.

I went to your link. It supplied no factual evidence that this was the best method. In fact it didn't claim to be the fastest (least costly) method to repay debt at all. Really it said that there is a pscyhological benefit to retiring a debt so paying off the smallest debt gets you to the first debt retirement the quickest. I won't dispute that.

The fact remains with the numbers you gave me in my simulation your method cost over $800 extra.

Since OP is paying $1115 + two car payments + rent every month, and he is thinking about "attacking the CC debt", we can assume they have steady job/income, 3k or more take home pay every month? If my assumption is way off, let me know.

With this, I would say, swallow your pride and ask for help from your parents. With one upfront promise, you will put a direct deposit to the account your parents open for you to pay it off.

1. You really only need to refinance two high interest CC debt, $21,000 for the 18&21% cards. If your Dad opens a HELOC for you to pay off these $21,000, you only need to direct deposit whatever minimum pay you are paying right now, $590 a month, right? You can pay it off in less than 4 years.

2. Pay just the minimum on the 3.9 card. That interest is not that bad, you can earn more interst with your cash in many places.

3. Start (if you haven't already) saving your cash for the balloon payment in 07/07. Get as hight interest as possible now. But make sure you can liquidate them b4 07/07.

needdealsnow said: Weird that OP does not respond to several questions on the family income. Looks like a thread to get juices flowing through the old FW.

N

It's not weird at all - my birthday was this weekend, and I don't stay attached to the internet at all times so getting right back to the thread was not an immediate concern considering other priorities this weekend.

Our bills each month are as follows:

Auto loans - $650 (both up in 7/08)
Auto/renter insurance - $280
Student loans (after recent consolidation) - $325
Credit card minimum payments - $1115
Rent - $1350 (been here 4 years, rent hasnt gone up and never will per the lease, landlord is basically non-existant)
Electric/water - $150-$200 depending on season
Cable/cel/internet - $200
Gas - $75 per week (will begin carpooling in fall/winter reducing this number)
Groceries - $200 per month

Total takehome pay is $5400 after taxes per month

It appears from everything I have read thusfar that it's either HELOC if we want to pay it, and BK if we don't (and spend the next 4-5 years we'd spend paying off the HELOC building credit and saving from money saved via BK).

It might have been repeated earlier but worth mentioning....

Credit utilzation on any single card should not be more then 50%. It really hurts the score. As a consequences your APR goes up. You can hike up the CC score by 30-40 point if you bring down CC utilization on one of the card below 50%. Lately lots of CC companies are looking for this sort of situations and increases the APR as the risk factor becomes very high.Once you are flagged as RISKY PROFILE, you are doomed! All your CC APR will touch 30% and It takes long time to come back to normal profile


$8,700 - 20.99% - ~$240 per month
$12,300 - 17.99% - ~$350 per month
$15,000 - 3.9% lifetime - $300 per month
$7,000 - 0% until 7/07 - $150 per month
$5,000 - 0% until 7/07 - $75 per month

I think the order above is best way to pay up the debt.

1. Bring down $8700 balance to less then 50%
2. Bring down $12,300 balance to less then 50%
3. Pay up remaining balance on $8,700 card
4. Pay up remaining balance on $12,300 card

Depending on your savings and income this might take you a year. Just about time for your 0% apr to get back to normal APR. Repeat the same process. However, I think you might want to consider next para...

For 0% APR BT, I recommend you bring your balances to under 80% of credit limit. This will avoid CC companies RISK PROFILE flag. You will have judge your payment affordability and make appropiate decision for 0% BT credit card payment.

Try increase your credit limit, Best way is to be an authorized user on your spouse/parents card.
Make sure this cards are never used to it's max limit or it will severly impact your scores.
Make sure authorized user card do get report to credit history. DO NOT be an authorised user for
a no limit card. Limits do not get reported to credit history.

Good luck.