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Best option re: credit card debt

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aricha123
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Best option re: credit card debt  Reply with quote  

I currently have 5 credit cards. It is my goal to become debt free-I intend to maintain a minimum number of credit accounts to keep my credit score healthy.

I have a certain amount of money to pay these debts down with. Is it more beneficial to pay:

#1-4 credit cards down to 30% and 1 @ 60%(balance to available credit)
#2-pay off three completely and leave 2 maxed out
#3-split the money between the 5 leaving an equal % balance to available credit-which will be more than 30% but less than 100%.
#4-pay one completely off and close it then split the rest as an even percentage among the other 4

All accounts are 10+ years old and have an excellent payment history.

The idea is to pay them all off of course but i'm in a bit of a time crunch. I will try to refinance my house out of my ex husbands name within the next 6 months. My hours at work take a big cut over summer.

I'm trying to raise my credit score as much as possible by June.
Post Wed Jan 27, 2016 1:55 pm
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global
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Pay the card with the highest interest rate all the way off first and work your way down through all of them. Once you get them all down to zero I would cancel all of them and never use a credit card again. If you went into debt once it isn't too unlikely that you could get sucked into a debt hole again.

If you must have a credit card for certain online purchases or to keep your credit up I would recommend having only 1 card.

I'm not an expert on credit card companies, but they are built because they make money off people. It is sad that society wants them to be a regular thing when they really don't help any customers.
Post Thu Jan 28, 2016 1:36 am
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GardenCat
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There are a couple ways to look at this. Having been a credit counselor for a few years, I was exposed to a myriad of scenarios with debt-ridden folks and seldom does one method work for everyone...

One plan is to pay the minimum on each card every month and putting any extra $ to paying off the highest interest rate card first. Then when that card is paid off add the $ that was going to that card to paying off the next highest interest rate card, and down the line. This route gets the interest monkey off your back, unless there is a lower rate card with lots of debt on it, making the actual interest amount in dollars every month on this card higher than the higher rate card...so pay this one down first until the higher $ amount shifts to the higher rate card.

Seeing as you have some $ to pay off some of this debt, probably best way is to look at how much $ you are paying in interest on each card each month (not the interest rate). Then pay off the cards with the highest amount of interest first. Then proceed as in the above paragraph.

Partial agreement with the previous poster. You DO need to take a serious look at how you spend money. Rule #1 is spend less than you bring in, period. Every pay check put some money away for emergency fund, plus some for your future. These ideas are another discussion but are an essential part of your financial well-being!

Having said that, CC usage can be helpful in financial management but cc DEBT is the worst. Foremost caveat with using cc's is to only charge what you can pay off completely every month! without fail! Once you carry debt on a cc, they will continue to compound your interest far beyond when you have paid it off by charging interest on your new purchases over some average of 2-3 months usage. They may even raise your rate into the 20%+ range.

Don't just close the cards once they are paid off, especially if you want to IMPROVE your score for the house re-fi. Your score is for the most part determined by how much of your available credit you use, or have used.

You didn't give your amounts on the cards but for example: if you have $50K in available credit on cards and have $30K in debt you will have a low score. If you paid off $20K of that debt and closed the cards that carried that debt, you could end up with $10K debt but only $20K in available credit, still numbers for a low score. OR, if you pay off $20K and don't close any cards you still have $50K available and the ratio of available to usage improves and your score improves.

It is not easy to improve a score in 4-5 months, if you need to go from in low 600's up to high 700's for the re-fi. Part of a score is history. Not missing payments is good. Having the cards for 10years+ is good.

Good luck. Dealing with divorce is difficult, especially with finances...
Post Fri Jan 29, 2016 5:01 pm
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littleroc02us
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The way I became debt free was the Debt Snowball method. It was very effective and no the popular choice of most financial advisors. It's based on small wins that keep you motivated instead of pure mathematics. The real difference in interest is so small that it's not worth talking about unless paying off your debt will take forever.
1. List your debts from lowest balance to highest balance
2. Make minimum payments on all of the balances except the lowest.
3. Pay everything you can towards the lowest balance and you'll quickly expire the credit card.
4. close that card.
5. That frees up money now, so apply that towards the next lowest balance and now two are done.
6. rinse and repeat until they are all gone.

*works for me and can work for anyone. Having no cc debt or car debt is wonderful world to live in.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Fri Jan 29, 2016 9:32 pm
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