Reducing credit card interest + debt

[stlcole]

About 6 months ago, after several years to the contrary, I finally got back to the point where income > obligations. My credit card deb ballooned to $65k, with almost $40k with interest rates > 20%. Certainly not ideal, and perhaps, I could have managed all of that differently. Also, my FICO fell to 670.

I have laid out my plan below, hoping for some valuable pointers. Sorry if it borders on tl;dr.

My focus is on getting both the dollars of debt lower, and the average interest rate lower. Here are my current 'debt stats': $12k @ 22%, $5k @ 19%, $12k @ 16%, $20k @ 14%, for a total annual interest expense of roughly $8,300. So here are the things I am working on besides the very obvious pay-off-debt part.

1) Get a debt consolidation loan. MAGIC BULLET: I have applied for a loan with SOFI ($30k over 5 years at 8%), application pending. My alternative is to get a loan from Prosper ($15k over 3 years @ 10%)

2) Apply for either/both Citi Double Cash Care + CapitalOne QuickSilverOne (I have cards with AMEX, BofA, Chase and Discover). These cards would have a period of 0% interest, should allow for a balance transfer and could help me increase my generic cash-back rate above 1%.

3) Convert cash-back awards from my BofA CashRewards, Chase Ultimate Awards, Discover Cashback Bonus to statement credit as efficiently as possible.

4) Shop diligently, using Discover / ApplePay, maximize cash back as best as possible, and use Jet.com aggressively (it's a great and also has a great portal).

Also, I think I want to get Cash Ink Cash card to complement my Cash Freedom card and be able to get 5% back on most utilities, etc. I don't have a problem having my income considered income from a sole-proprietorship.

Comments?

 

[incendia]

I would suggest getting a Chase Slate card they have 0% interest and no balance transfer fee

I would also suggest you look into more debt consolidation loans, try Discover Loans

https://www.discover.com/personal-loans/debt-consolidation-loans.html

You might also try walking into local banks and seeing what loans they can give you

If anyone knows any tricks to get a quick boost to your Credit Score that will help with loan approval and rates

if you have other debt [student loans HELOC etc.] it might be worth it to refi those to get some $ cash for the credit card debt

PS eat lots of ramen lots and lots of ramen

 

[Matt]

I would suggest getting a Chase Slate card they have 0% interest and no balance transfer fee

I would also suggest you look into more debt consolidation loans, try Discover Loans

https://www.discover.com/personal-loans/debt-consolidation-loans.html

If anyone knows any tricks to get a quick boost to your Credit Score that will help with loan approval and rates

Not yet. First the why, and the cash flow.

 

[stlcole]

I don't think you can trick the FICO. The biggest reason for my FICO is my heavy credit card utilization. Secondary is that I probably have too few accounts. My payment history, length of credit, etc., is all very good.

 

[stlcole]

UPDATE: I meant @incendia .. sorry for the misattribution and thanks for the suggestions.

@Matt .. I already have one and plan to call Chase and see if I can move more of my credit to that card. I cannot at the moment use that card for balance transfers.

RE: discover. I think Prosper has much better rates, but will check it out.

Thanks

 

[Matt]

About 6 months ago, after several years to the contrary, I finally got back to the point where income > obligations. My credit card deb ballooned to $65k, with almost $40k with interest rates > 20%. Certainly not ideal, and perhaps, I could have managed all of that differently. Also, my FICO fell to 670.

I have laid out my plan below, hoping for some valuable pointers. Sorry if it borders on tl;dr.

My focus is on getting both the dollars of debt lower, and the average interest rate lower. Here are my current 'debt stats': $12k @ 22%, $5k @ 19%, $12k @ 16%, $20k @ 14%, for a total annual interest expense of roughly $8,300. So here are the things I am working on besides the very obvious pay-off-debt part.

1) Get a debt consolidation loan. MAGIC BULLET: I have applied for a loan with SOFI ($30k over 5 years at 8%), application pending. My alternative is to get a loan from Prosper ($15k over 3 years @ 10%)

2) Apply for either/both Citi Double Cash Care + CapitalOne QuickSilverOne (I have cards with AMEX, BofA, Chase and Discover). These cards would have a period of 0% interest, should allow for a balance transfer and could help me increase my generic cash-back rate above 1%.

3) Convert cash-back awards from my BofA CashRewards, Chase Ultimate Awards, Discover Cashback Bonus to statement credit as efficiently as possible.

4) Shop diligently, using Discover / ApplePay, maximize cash back as best as possible, and use Jet.com aggressively (it's a great and also has a great portal).

Also, I think I want to get Cash Ink Cash card to complement my Cash Freedom card and be able to get 5% back on most utilities, etc. I don't have a problem having my income considered income from a sole-proprietorship.

Comments?

That's quite a long post, but it doesn't address your income or expenses:

Points 2,3,4,5 (5 not labeled but the ref to Ink Cash) - you shouldn't think about any of that nonsense. Playing the points game is for people out of debt.

Your goal needs to be getting out of debt, which is an inflow/outflow equation. Budget, first.

Rolling up into a loan can work ONLY if you have sorted out your budget.

 

[Matt]

I don't think you can trick the FICO. The biggest reason for my FICO is my heavy credit card utilization. Secondary is that I probably have too few accounts. My payment history, length of credit, etc., is all very good.

UPDATE: I meant @incendia .. sorry for the misattribution and thanks for the suggestions.

@Matt .. I already have one and plan to call Chase and see if I can move more of my credit to that card. I cannot at the moment use that card for balance transfers.

RE: discover. I think Prosper has much better rates, but will check it out.

Thanks

Based on what i've seen, I wouldn't call any card issuer, loan provider, anyone. I wouldn't trick FICO, FAKO or anyone.

I'd hammer out my inflows and outflows.

 

[stlcole]

@Matt .. yes the post is long. And thanks for your contribution here.

I have lived with a constrained budget for many years, something I take for granted and didn't emphasize enough in my above post. I agree with you that budgeting and limiting spending is first, second and third-most on the debt reduction to-do list. Now I am looking at some of the marginal opportunities. Every dollar of reduced interest expense is a dollar of less debt. Compounding and all that stuff.

 

[GettingReady]

Sticole, please don't take this the wrong way but have you been in and out of debt before? Some people, even though they may get out of debt, end up owing money again as they don't change behavior. I have a family member that way. I offered to help years ago but she wasn't willing to give up buying new cars or flat screen TVs. We'd be amazed at the stuff she would buy that we couldn't afford, or chose not to buy, with 3x the income. Unless behavior is changed, it doesn't matter what you do.

I agree with Matt that the points game isn't for those in debt. It does cost--gas, time, being able to float money, etc. Working OT or having a second or third job would be way more lucrative.

When I first met my dh over 25 years ago he owed 40K. I didn't find out until after we were married. I told him if I had known, I would never have married him. Lol. It took 4 years of working 48 and 60 hr weeks, even when I was 9 months pregnant, to get into positive net worth. Behavior and choices had to change though. I still remember the phone call I got from WM. My dh said he had ac artful of things, looked at it, and realized he didn't need any of it. He spent over an hour putting everything back. Progress!

You might want to read some of Dave Ramsey's books or listen to his podcasts. He's helped a lot of people get out of debt (Hopefully we can refrain from the "math" debate with his pay off the smallest debt first).

Kudos to you for even wanting to get out of debt. That's the first step!

 

[stlcole]

@GettingReady .. I hear you loud and clear, and agree with you about all of your points. The absence of significant income for several years accounts for 70% of the debt and the remainder is that I'm not perfect at the not spending, but in the main, do a rather good job of that.

At a certain point, when income > obligations, there is the opportunity to do some additional things besides simply pay down the debt. There is the opportunity to lower the cost of the borrowed funds. I think if I could start this thread from the beginning, I would rewrite my post to emphasize this emerging sense of agency. I am not reading Save-r-ocity to read about the points, but rather to read about the Save part (which frankly in my opinion is somewhat underrepresented here).

I have done all the fancy travel. I have bought plenty of fancy things. All when I had the financial means and appropriate savings. I don't need those thing and don't aspire to have them back. So I think my head is, and has for quite some time, in the place you imagine it should be.

Now if you wanted to take issue with my willingness to go a long, long time with limited income...

 

[Matt]

I am not reading Save-r-ocity to read about the points, but rather to read about the Save part (which frankly in my opinion is somewhat underrepresented here).

That's exactly what we are saying! For me, the points are in the same basket as the promo APRs - its all smoke and mirrors. What you need to focus on is the saving part.

You might be focused on it, but all I see in this thread is questions about promo APR, statement credits and discounts - this stuff is all 'pointless' without a solid budget and plan underlying it.

If you want to open your budget so we can look at cash flow, debt repayment schedule, and inefficiency, I'd do my best to help with that, but this points/gimmick focus on the things right now is not a place I'd want to work from.

The absence of significant income for several years accounts for 70% of the debt and the remainder is that I'm not perfect at the not spending, but in the main, do a rather good job of that.

This is worrying... and it also makes me worry about the stability of your present day better fortune on the income front - if you want to be debt free and on the path to success you need to really question the inflows and outflows and find hedges for the weak parts.

 

[stlcole]

@Matt Thanks for the spirited reply. Here are some facts which might address the missing parts.

RE: balance sheet. My assets exceed my debts and income from those assets exceed my interest expense. I cannot sell the assets or would consider that as a significant tool re: debt pay down.

RE: income. I helped start a company which is now publicly traded. The process took several years, and thus several years of limited income. I sit on the board, which as far as my life experience goes, is one of the more stable jobs there is. Annual cash compensation is $90k, non cash is $30k (forced savings is you will), and income from my assets is $20k. I also support my family by being able to handle all the mid-day stuff, driving the kids around, cooking, etc. My wife has a high-demand sales job and drive 40k miles a year. I have conference calls and the occasional business trip.

RE: expenses. My major expense -- support -- has dropped from $4k a month to $1.5k in the past two years. My spouse pays the mortgage. I pay all utilities and feed the family which runs roughly $1300 per month. Health/Dental/Car/Life insurance/Kid's ortho, $900. Interest on debt is $800. Throw in some misc/discretionary spending, and my outflows equal at most $5k per month.

RE: pay down. I pay down at least $1k per month, probably closer to $2k.

RE: improving cash flow. It naturally improves roughly $100 per month every quarter. Reduction to support, ortho, misc stuff should improve monthly expenses $700 over the course of the next 6 months.

RE: $800 / month in interest expense. This piece is a) significant, b) declining because of debt pay down and c) one of the things I probably can do something about in addition to paying down debt as a reasonable pace. E.g. if I can get $5000 at 0% for 1 year, that's $1k of found money. If I can get a debt consolidation loan, that a lot of found money. Found money makes the debt go away faster.

Does this breakdown help? Where do you see marginal opportunities for cash flow improvement here?

 

[Matt]

Does this breakdown help? Where do you see marginal opportunities for cash flow improvement here?

Yep, helps a lot, thanks! Couple of questions:

You mentioned your spouse pays the mortgage, where is the rest of her salary going, is it being factored into the debt reduction ability? What is the total household income? I see it as $90K+$20K+X? You mentioned $5K per month+mortgage is the outflow.. what is the inflow?

RE: pay down. I pay down at least $1k per month, probably closer to $2k

By this you are referring to the amount of money you are currently targeting at the credit card debt?

income from my assets is $20k

How much do you have in assets? Are you able to liquidate the assets in order to pay the debt? It doesn't need to be ALL the debt, but some.. are there any assets there that are currently losing money, which could be sold without creating a tax burden for you?

 

[stlcole]

@Matt .. I will figure out how to quote your comments some times later. To answer your questions:

1) My wife and I have to operate as if we have separate incomes and balance sheets. She does help me here and there, pays for the family vacations, and is exceptionally supportive. If there was the ability to commingle everything, then this whole thread would be mute.

2) RE: assets. I have liquidated those which could be reasonably liquidated. I have $150k of assets that I am required to hold because I am on the board of directors. I cannot hypothecate these assets either.

3) I have a spreadsheet with my credit card balances. They have declined $10k in the past 6 months. So I am talking about actual debt pay-down after all interest expense. So my gross payments to credit cards has been at least $2k per month (before interest expense of $800).

I have worked diligently to increase the gross amount I pay the credit card companies each month. I am trying to reduce the interest expense netted out from those payments so my debt declines as fast as reasonably achievable. Since my wife and I are very reasonable about the things we want in our lives, it would be very, very hard for us to spend more than we make.

The debt I have is the consequence of two choices: 1) I divorced 7+ years ago (and am now very happily remarried) and 2) professionally, I spent much of the past 4 years helping what is now a thriving company get started. For many, debt is a life-style choice. I think that is the prism that many first read this post of mine. Maybe I am unaware it is my lifestyle choice, but I don't think so. Debt also can also a tool, a potentially dangerous one perhaps, but then again, most of us have mortgages. (The one on my house happens to be a 2.75% 15-year one.)

 

[Matt]

It's a little complicated.. but here's what I might do in your situation:

• Wait for a reply from SOFI before applying for any cards. Whatever the decision is, I'd still apply for the Slate, and perhaps one other.
• If you are unable to get credit at 0%, Consider a BT to one of your existing cards - even with the 3% hit... check for offers, and do it on a 'clean card' so you don't mix up debts.
• Decide between debt snowball vs debt avalanche when considering which liabilities to push into 0% and which to keep out. They both work, and while one is more mathematically effective, the other may be more emotionally effective, so it is a balance, decide which fits your personality best.
• Consider the bank of your spouse. While you are financially separate is there a way to use those resources? It seems detrimental to your family wealth to be taken debt when there are interest free assets/cash flows available. Is there a way where you could draw up a formal loan agreement and repayment plan to her? I know it may be unusual, but if it could be resolved this way you'd do well. Perhaps you could propose it in a way where there was some sort of pseudo APR attached - you pay 1/3 or 1/2 of the APR that would have been paid to a bank to her, or into a college fund if you both (or she) has a dependant. That would highlight the value to her for helping. You could include clauses where it would require immediate repayment from your assets (share in house etc) in the event of a divorce.

I would get that sort of base first, then start looking at other things like cashback cards and whatnot, they are minor in comparison.

 

[stlcole]

@Matt Thanks for you attention and thoughtful reply, especially your initial focus to insure my strategic choices where appropriate to my circumstances. It was very valuable to me to write out in detail the different things I have been doing. As is so often true, wonderful things can happen when someone actively listens to someone else's challenges.

 

[cocobird]

Some excellent suggestion by Matt. If you sit on the board of a company, that you must be familiar with finances. While debt can be used in a positive manner, for the most part, there should have been (I know backseat driver at this point) a plan for repayment. While looking back is not helpful, there is a lesson to be learned going forward.

While there is a focus on points and miles, there are other forums in the web that might have some practical tips for you as well, so it might be worthwhile to do some research.

While most people prefer the do it yourself method, have you considered obtaining any professional financial counseling? Your immediate goal is to pay off debt, but have you adequately planned for the mid or long term? For instance with a family, do you have back-up plans in case you or your wife are unable to work? Planning is key for long-term financial success.

 

[GettingReady]

Cocobird, I agree. Most people don't plan and live paycheck to paycheck. I don't get it. Life happens. You lose a job, a car get totaled, you need a new roof,etc. Those are all things you can plan and prepare for. We grew up with the paycheck to paycheck family. My brother and I chose to plan. He makes more in a month than I do in a year ,but it's not about the income. It's about saving and planning.