Knocking down my credit card utilization?

[ganchan]

[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]My credit score would easily be 800+ if not for my credit utilization percentage, which is lousy enough to drag me down into the upper-mediocre zone. I'm trying to figure out the best way to fix this issue in a reasonable amount of time. I've begun the process of "[/font][font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]snowballing[/font][font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]," which will definitely get the job done but may take a few years to do it (I'm also saving up money for a vehicle, or at least a healthy downpayment on one.) But I've also wondered whether it would make sense to get a personal consolidation loan large enough to pay off all the credit cards at a comparable or better interest rate. As I see it....[/font]

[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]Pros: [/font]
[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]-Would instantly drop my credit utilization to 50 percent, even before I started paying it down (Actually, if I shift the rotating credit debt to installment payment debt, it looks like I'll drop my CC utilization all the way to zero)[/font]
[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]-Zeroed-out credit cards would continue to work for me, but only for essential monthly bills which would be paid off in full each month, reinforcing good credit behavior to help overall score that much more[/font]
[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]Cons:[/font]
[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]-Would reduce the age of a big chunk of my overall debt (which is one of the strong points of my current score)[/font]
[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]-I'd have to cough up one big payment a month as opposed to several smaller ones[/font]
[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]-If the rate or terms change, it'll hurt more than a rate/term change on an individual CC balance[/font]

[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]Thoughts?[/font]

 

[Reducto]

Why are you worried about credit score? My credit is currently not perfect but it hasn't stopped me from getting the best available rates when I need them.

It seems to be your biggest concern should be paying those things off! Consolidation is only helpful if it gives you a significant savings in the interest you're paying every month. Do whatever you can to increase income and reduce expenses and start knocking those cards off one at a time. Start with the highest interest card and work your way down.

 

[SoulRaven]

My thoughts? No. Amended: Probably not.

The consolidation loan is too easily seen as a "quick fix" and the intention to PIF the credit cards doesn't often follow through in the long run. Snowballing helps retrain your psyche to earn the reward of your card being at 0%, and it's such a difficult process that  by the time you get there you're very highly motivated to keep it that way. Whatever habits caused you to run up your utl in the first place are generally best reversed by fixing it the hard way.

That said, if you have no open installment loans, getting one would improve your credit in and of itself. The typically recommended thing for those who don't have one is to obtain a savings secured loan and to pay back 90% of it soon after the first statement posts, and keep it open for the entire remainder of the term. Alliant Credit Union is known for being pretty awesome about that. If you don't already have any open installment loans, I could see how obtaining a saving's secured loan and using the proceeds to reduce credit UTL and pay it back at a more "normal" pace could benefit you so much as to outweigh my above paragraph. Especially if you have a high APR on some of the cards.

But you'd still have to undo those habits.

I highly recommend MyFico forums for info on these matters.

 

[BradKW]

[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]Pros: [/font]
[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]-Would instantly drop my credit utilization to 50 percent, even before I started paying it down (Actually, if I shift the rotating credit debt to installment payment debt, it looks like I'll drop my CC utilization all the way to zero)[/font]
[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]-Zeroed-out credit cards would continue to work for me, but only for essential monthly bills which would be paid off in full each month, reinforcing good credit behavior to help overall score that much more[/font]
[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]Cons:[/font]
[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]-Would reduce the age of a big chunk of my overall debt (which is one of the strong points of my current score)[/font]
[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]-I'd have to cough up one big payment a month as opposed to several smaller ones[/font]
[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]-If the rate or terms change, it'll hurt more than a rate/term change on an individual CC balance[/font]

[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]Thoughts?[/font]

A consolidation loan almost always makes sense provided it is at a lower interest rate. Couple thoughts though:

1) It sounds like you're saying you have a score of 750+ now...that is generally considered high enough to qualify for top-term auto loans (the ones they advertise).

2) One of us isn't understanding the way "age" applies to credit score. It has been my belief that this category only reflects a) longest active credit acct, and 2) earliest record on credit report (not necessarily still active). I feel pretty sure that your statement under "Cons" that "-Would reduce the age of a big chunk of my overall debt (which is one of the strong points of my current score)" doesn't actually have any bearing. If I'm wrong, I'll have learned something useful

 

[SoulRaven]

2) One of us isn't understanding the way "age" applies to credit score. It has been my belief that this category only reflects a) longest active credit acct, and 2) earliest record on credit report (not necessarily still active).   I feel pretty sure that your statement under "Cons" that "-Would reduce the age of a big chunk of my overall debt (which is one of the strong points of my current score)" doesn't actually have any bearing.  If I'm wrong, I'll have learned something useful  

"Average Age of Accounts" is the main factor, so if you get a new account it brings down the average age of all of them. Typically this is only all that significant when first starting out with credit and little to no history. I've seen it recommended that once you have a few accounts that are at least 2 years old, adding another one doesn't make much difference.

 

[ganchan]

A consolidation loan almost always makes sense provided it is at a lower interest rate. Couple thoughts though:

1) It sounds like you're saying you have a score of 750+ now...that is generally considered high enough to qualify for top-term auto loans (the ones they advertise).

Well, it's closer to the 720 zone, which isn't so bad. But I actually had one credit union tell me that while my overall score isn't a problem, the heavy CC utilization alone was sufficient to refuse me an auto loan. That was quite some time ago, and I didn't bother shopping around much after that bombshell. But credit unions are usually thought of as being relatively flexible about such things compared to the big banks (?)....

Anyway, it surprised me enough to make me think that even a good overall score isn't going to be of much use to me until I pay down these cards, either by converting them to a personal installment loan or by slowly digging my way out over the next several years. I think I should just lay all this out in front of a financial advisor and say, "Okay, here's my mess. Draw me a map toward the nearest (sensible) exit."

 

[Reducto]

Credit unions are actually fairly conservative with loans. They care that you pay them back, which private lenders don't anymore. The loan gets packaged and sold to someone else or they'll just charge you extra interest to make up for the risk knowing they can repo the car and get some of the money back if it goes South.

I've been where you are twice, and I'm almost out of the second one. The first time I was just young and irresponsible, the second was largely out of my control. Shuffling around high interest debt just helps you feel like things are ok and distracts from the real goal. You need to increase your income and reduce expenses and pay that stuff down ASAP. I don't know anything about your situation but there are usually options. Pick up a couple of days of temp work per month, get on food stamps, ask for a raise, dumpster dive for food and stuff to sell on ebay, drive as little as possible, etc. Keep track of the total debt at the start of the month and have a goal for how much you think you can drop it. That feeling when you beat your goal for the month and knock a card down to zero is so good!

 

[gcal]

[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]My credit score would easily be 800+ if not for my credit utilization percentage, which is lousy enough to drag me down into the upper-mediocre zone. I'm trying to figure out the best way to fix this issue in a reasonable amount of time. I've begun the process of "[/font][font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]snowballing[/font][font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]," which will definitely get the job done but may take a few years to do it (I'm also saving up money for a vehicle, or at least a healthy downpayment on one.) But I've also wondered whether it would make sense to get a personal consolidation loan large enough to pay off all the credit cards at a comparable or better interest rate. As I see it....[/font]

[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]Pros: [/font]
[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]-Would instantly drop my credit utilization to 50 percent, even before I started paying it down (Actually, if I shift the rotating credit debt to installment payment debt, it looks like I'll drop my CC utilization all the way to zero)[/font]
[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]-Zeroed-out credit cards would continue to work for me, but only for essential monthly bills which would be paid off in full each month, reinforcing good credit behavior to help overall score that much more[/font]
[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]Cons:[/font]
[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]-Would reduce the age of a big chunk of my overall debt (which is one of the strong points of my current score)[/font]
[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]-I'd have to cough up one big payment a month as opposed to several smaller ones[/font]
[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]-If the rate or terms change, it'll hurt more than a rate/term change on an individual CC balance[/font]

[font=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]Thoughts?[/font]

First, why are your CC balances so high? It sounds like you have gotten used to living beyond your means and are not planning or budgeting wisely. Why do you have more than two? I worked in the financial industry for years and never saw anyone have a problem with CC "utilization" as long as they did not carry  large balances. I have seen problems come from high balances and too many cards. A consolidation loan will not help you if you then go back to running up your CC balances right back up, again. You will be in worse trouble. If it will take you years to pay off your cards, you have developed some bad habits that you will need to break.

Start paying down your cards by focusing on the highest interest rate card and paying as much as you can on that one, first. Pay minimum on the others until you get rid of that one and close it. Repeat until you are down to one or two cards, negotiating with the companies for lower interest rates as you go. Start a savings account for large ticket items like vacations or insurance or vehicle repairs and stop living off your cards. Stop going into debt for toys. Stop socializing off your cards. Budget an entertainment allowance for yoursellf and do not exceed it. 

If you cannot learn to live within your means, I guarantee you that you will only dig your hole deeper by going back to credit card overuse.

BTW, what is snowballing? When I Googled it, the definition I found was way too much sharing.

 

[ldmccain]

Dave Ramsey...
Debt free snowball.

 

[Thunder Dan]

BTW, what is snowballing? When I Googled it, the definition I found was way too much sharing.

Snowballing (when talking about debt) is taking all the available funds after budgeting for necessities and paying that toward the credit card or other debt that has the smallest balance, and making minimum payments on all other debts. Once that is paid off, all available funds go toward the next smallest balance. You build to the larger and larger debts, like a snowball gets bigger as it rolls downhill.

 

[ganchan]

The credit card debt is all old, dating from a past financial emergency; I put the cards away and I never charge anything on them these days. Now it's just a matter of paying down the balances.

I've only been snowballing for a few months, so maybe I'll just keep doing that and watching for positive changes. Luckily enough, my highest-interest cards are also my smallest ones, so snowballing them will kill two birds with one stone....

 

[Canine]

Sometimes things happen in life truly beyond ones control. Most of the time the fault lies with oneself.

Fixing credit is a bummer. It takes a long time of sacrifice and usually involves changing who you are as a person.

Just getting a consolodation loan and stopping there may not be enough. You may need to make extra effort in other areas. For example: Writing down what you spend every time you buy something takes time and effort. Then try doing that for a month to see exactly where your money is going. This is a great way to identify frivilous spending. I'm not saying this is a factor for you, but it is with most.

Increasing available credit will help your score, but having too much available credit is harmful as well. If you used none of $1 million in available credit, you wouldn't be able to get a loan with an annual income of $50,000/year. If you used $1000 of $5000 in available credit, you probably could get a loan on that same annual income.

It's impossible to tell if getting a consolidation loan would help you. If you have 23% interest on your cards and can only pay the minimum monthly payment, a consolidation loan at 8% would help a lot. As long as whatever caused you to go into debt the first time doesn't happen again.

I have a friend that is on her second bankruptcy and working toward her third because she is not changing the way she spends her money. It has little to do with things beyond her control, but for some reason she is incapable of seeing it. Taking an honest look at ourselves and then making the choices needed to live in reality is too hard for some.

I am unfamiliar with your specific situation, but since debt is such an important issue and can be so devastating, I wrote down some worst case examples that may more may not apply to you in some way. No matter what way you choose, it looks like some medium to long term sacrifice is in your near future.

 

[SoulRaven]

For example: Writing down what you spend every time you buy something takes time and effort. Then try doing that for a month to see exactly where your money is going.

^Seconded. Best habit I've ever established to improve my financial savvy.

 

[gcal]

The credit card debt is all old, dating from a past financial emergency; I put the cards away and I never charge anything on them these days. Now it's just a matter of paying down the balances.

I've only been snowballing for a few months, so maybe I'll just keep doing that and watching for positive changes. Luckily enough, my highest-interest cards are also my smallest ones, so snowballing them will kill two birds with one stone....

Are you able to work overtime or get a part-time job and put that extra money directly to your CC balances? That is a pretty direct way to increase your ability tackle paydown your debt and shorten your wait for freedom.

 

[ganchan]

Are you able to work overtime or get a part-time job and put that extra money directly to your CC balances? That is a pretty direct way to increase your ability tackle paydown your debt and shorten your wait for freedom.

I can certainly try. As an ex-girlfriend once commented many years ago while watching me sweat over my bills, "Why don't you just make more money?" 

 

[gcal]

I can certainly try. As an ex-girlfriend once commented many years ago while watching me sweat over my bills, "Why don't you just make more money?" 

It is worth it in the end. When we had our own health related financial disaster, I worked three jobs to get us back on our feet. I could not have held up for long, but I did not have to do it for long. Just long enough to get over the hump.

 

[HarmonicaBruce]

As an ex-girlfriend once commented many years ago while watching me sweat over my bills, "Why don't you just make more money?" 

I'm with her.  

I looked up "snowballing" on Dave Ramsey's site.  I've listened to Dave Ramsey's show on the radio while looking for a station.  It's nice to hear the debt-free people call in to tell how great it is to be debt free.  But I have to disagree with him on several points.  He says pay off the smallest debt first, don't worry about the interest.  It seems to make more sense to pay down the bills with the highest interest.  I once advised a woman to cash in her 401k, pay the taxes and 10% penalty, because by doing so she was able to collect food stamps.  Every situation is different.  

As long as you have a plan, and implement it, you'll be fine.  Of course you need to cut expenses.  I know people with chronic credit card debt who go out to eat, and order expensive drinks and such on a regular basis.  That kind of behavior has to end.

 

[mayble]

Check with your CC companies about increasing your credit line.  
It's a quick and painless way to drop your utilization - as long as you don't run up the balance to the new limit.

 

[gcal]

Check with your CC companies about increasing your credit line.  
It's a quick and painless way to drop your utilization - as long as you don't run up the balance to the new limit.

I do not know about that. The OP says his cc troubles are the result of the recession. So, he has been paying on them since 2008, already. He also says that he still has several years to go, even tho he does not use them anymore. Something does not sound right to me. I do not think he needs a higher credit line.