How to tackle credit cards

[sigamy]

I make a good salary but we live over our means--too much house, car lease, etc. My credit score has taken a beating as 90% of bills are in my name and I have to do monthly juggling act.

I have two credit cards, both with balances. These were used over past few years for general household expenses and some remodeling projects.
Card 1: 2600 balance
Card 2: 4800 balance

I will be coming into some extra money soon. I will use some of it for $1000 emergency fund. Then I'd like to apply the rest to pay off at least one CC.

My question: Will it help my credit score if I pay $2600 on Card 2, then use Card 2 to pay off Card 1? Is this a good strategy? If yes, how long should I wait before paying off Card1? Like one month? two?
Or does this not matter? Should I just pay off Card 1 directly and immediately?

Any help is appreciated.

[kork13]

A better picture of your overall financial picture will help with giving better-quality advice -- a good start would include your household income, listing of your household's monthly spending, and what (if any) savings and other debts you may have. It sounds like you have more debt & spending issues than just these CC's, so we'd be happy to help you build a more comprehensive plan to improve your finances.

But in general terms, I'd first reassure you that you don't need to worry about your credit score on a regular basis. Just pay your bills on time & in full, and your credit will be just fine. Any month-to-month movement of debt from one card to another, or how you try to time payoffs will result in almost no net change to your credit over time. You shouldn't try to juggle the debt -- just pay it off! That's gonna be your best bet, both for your credit and for your financial wellness.

As for paying off your CC balances... You don't say how much "extra money" you're getting soon, but I'd say that you're on the right track generally. Saving $1000 for a bare-bones emergency fund is a good place to start. From there, throw everything you can at one of your CC's. You can do the smaller one first to knock it out faster, or if one of them has a significantly higher interest rate, you can attack the higher-interest one first -- either way works. The way you win is to just pay them off, and never accumulate more debt on them. If you choose to use the cards & pay them off in full every month, that's fine. But you don't want the debts hanging around your neck.

Clear the debts ASAP, and keep them gone! From there, work through paying off any other debts like the car(s) or anything else, tightening down your household's spending to live well within your means, then you can save for retirement and other goals in earnest. It's sometimes a tough, long road... but the work is worth it.

[disneysteve]

Card 1: 2600 balance
Card 2: 4800 balance

My question: Will it help my credit score if I pay $2600 on Card 2, then use Card 2 to pay off Card 1?

I agree with kork. Focus on paying off the debt and getting your spending under control. The credit score will fix itself in time.

As for your specific question, no I wouldn't use one card to pay off the other. Just put the cash toward the card with the higher interest rate. If they're about the same, then pay toward the smaller one to knock it out.

we live over our means

This is the main thing you need to work on. Until you can get your spending below your income, your problems will just continue to occur. If you're willing to share, posting more details of your income and budget can be really helpful. There are a bunch of folks here who can help point out ways for you to trim spending.

[Jluke]

I never knew you could pay a credit card with another credit card.

that’s just a shell game.

You Need a Budget (website)

payoff the lower balance. Hide that card.

use cash for everything.

make a plan to payoff the other credit card.

are you contributing to retirement and if so how much?

anything you can sell or return to help with paying off the card?

[disneysteve]

Goal is to sell this house in 2 years

Why 2 years? Why not sooner if that's the biggest thing that's killing you?

We just are not frugal people and I don't see us changing.

Sorry to say that THIS is actually your biggest problem. If you aren't willing to change your mindset and start living within your means, you are doomed to fail. Even if you downsize the house, you will likely find other places to spend the newly freed up money.

You shouldn't be leasing a car. When does that lease expire and what would it cost to get out of it now?
You shouldn't have 4 different subscription streaming services.
Are you sure gas and maintenance on 3 cars is only $100/month? That sounds awfully low.
How much is the 401k loan?
Can you get a cheaper cell plan?
What's the early termination fee with Fios?

You need to work on this as a family and attack every penny of spending you can if you want to fix this. It's not just about the house.

[bjl584]

Looks like you need to take a step back and look at the big picture.
The mortgage is killing you. I'd sell ASAP

You need to stop the bleeding and seriously start cutting and downsizing.

If you are familiar with Dave Ramsey I'd check out his work and read his Total Money Makeover book.
You need a shift in mindset towards money

Can you pick up extra work? Sell unwanted items? Downsize cars? Cancel subscriptions?

[kork13]

Thanks for the details, that helps alot. The others already highlighted the big issues -- the house & cars are killing you, and if you want to succeed, you both have to radically change your mindset. Your credit cards, while problematic, are gnats compared to those problems. Additional income will also help the situation. Honestly, the rest is totally manageable!

1) The biggest problem is the fact that you believe you can't change. Dave Ramsey's "Total Money Makeover" book (or podcast...or YouTube videos...or whatever else) are a great suggestion -- he talks alot about understanding and focusing on your motivations for WHY you want to succeed financially. If you can finally get tired of living the stupid, broke, and desperate life of over-spending beyond your means, you can change your entire outlook find immense success. But if you accept the fact that you can never win, that you're a helpless victim of your circumstances, that you'll never succeed financially....well, with that attitude, you're 100% right. Nothing will change if you don't want it to change.
2) You're spending >50% of your income just on your mortgage! I don't know how you can even breathe! Strongly recommend you get that house on the market ASAP, and downsize immediately. Your mortgage should be less than roughly 25% of your income, but an absolute max of around 30%. If you sell right now, you've got $200k+ of equity -- roll that into a downsized $400k home (or less), and you can end up with around $2k/mo on a 15-yr fixed rate mortgage. Still a bit high, but much more manageable.
3) Likewise, the lease & auto loan are excessive for someone in your position. Look up the private party sale price on KBB.com, and get them both sold (note: a lease is just 1 step off from a regular car loan -- you can get the immediate buy-out price from the dealer, sell the car, and payoff the dealer). Buy some cheaper cars. Even if you are in fact underwater with your car loans, you can get a smaller loan for the difference and still be in a better position. You'd take your car debts down from ~$25k-$30k (including the lease) to probably $10k-$15k including the cheaper cars. If you're unwilling to sell your current cars, you need to pay them off AGGRESSIVELY. Like... within the next 2 years. And STOP BUYING/LEASING NEW CARS! Used cars work just as well, and are a far better value. You can get a great car for $10k-$15k, vs. paying retail for brand new $25k+ cars.
4) The 401k loan is concerning, even more so that you seem not to have much awareness on it. If you get laid off, or die, or quit, or whatever... that loan immediately becomes due in full, or you face massive taxes/penalties. Get rid of it!
5) Sure -- get the credit cards paid off as fast as you can. They've probably got 15%+ interest rates so getting rid of them will certainly help, though honestly those are small beans by comparison. But while you do that, you really need to focus on changing your financial mindset.

You have the capacity to be very comfortably wealthy. You haven't said your age, but I'm guessing late-30s/early-40s, just based on the size of the hole you've dug. Making $70k+ annually, if you invest $15k-$20k per year instead of flushing that money away in debt payments (note: just your car + CC payments = $14k/yr!), you can EASILY amass $1M+ within 20-25 years. And the more you save, the faster that happens. You need to get some VISION for the future in your lives. Once you see what you CAN do, you'll be able to figure out what needs to change so you can get there.

[riverwed070707]

Are you a single income household? How old are kids?

Budget doesn't seem inclusive of likely all your spending. What do you spend on entertainment? Clothes? Kids activities and sports? Do you have a water bill? I'd start tracking your expenses ASAP - Jluke mentioned YNAB which is good. I like Mint.com. Some people here use excel... regardless what you use, start tracking now so you can get a clear picture of what your spending is.

Food seems exceptionally low for a 4 person household, especially when you said you order takeout.

How old are you and DW? Do you have any money in savings? You also didn't address how much extra money you will be coming into - is that from the sale of the house or separate? Might get some good feedback from this group on how to best deploy that to get you on track if more details are provided.

[riverwed070707]

I feel like you're blaming being change resistant on your wife, but there is a lot of resistance in your own statements as well. You didn't address if you were a single income household but I get the impression that may be the case. I would be in a state of alarm if I supported a family of 4 on a single income with no savings. You're spending more than you earn now. How the heck are you going to get by if heaven forbid you lost your job? You wouldn't make it one week, let alone long enough to find a new job. You don't have to clip coupons to be financially stable, but you sure need to know where your money is going and to spend less than you earn. Personally, I wouldn't wait 2 years to start making changes - the house isn't the only problem in this picture. Definitely encourage you to hang around here for a while. Change is tough, but it's worth it. Old update, but fourth from last post in this thread is a good illustration of how far I came from the support of this board. Couldn't find one dating all the way back to when we were 10s of thousands in debt and barely scraping by but the almost post debt budget/income/savings compared to 7 years later still makes me do a double take. - https://www.savingadvice.com/forums/...at/debt/51089-

[disneysteve]

sigamy Sorry if the responses seemed harsh or hit too close to home. I've been here a long time and I can tell you I've seen dozens and dozens of stories like yours. The replies are always about the same - pointing out the issues and making suggestions to help. It can be hard to hear that stuff but don't take it as a personal attack.

You said you're familiar with Dave Ramsey. I'd suggest you and your wife read his book again together. Sometimes the message just doesn't get through or stick the first time.

I'd also ask who handles the finances. I'm guessing you do. If so, schedule a quiet time, maybe after dinner and a glass of wine, to sit down and go over everything in detail with her. Make sure she fully understands the situation and why it has to change. I get that selling the house before your kid graduates may not be on the table, but pretty much everything else needs to be, especially if you're keeping the house for a couple more years. Otherwise, you guys are just digging a deeper and deeper hole that will be that much harder to climb out of 2 or 3 years from now.

Good luck. Keep us posted with your progress and challenges. People here really do want to - and can - help a lot if you're open to it.

[sigamy]

Hey. We are all strangers on the internet and you all are offering help. That is great and I do appreciate it. But, I do want to say a few things as a very limited user of this forum.

I've come here a few times over the years, maybe once every 3-4 years or so, and I have asked for help on a specific topic. The replies are *always* the same. Every time I get the "post your entire budget", "how much do you make", "what do you have in savings". I knew this was coming so I tried to pre-empt it by saying "we live over our means", etc as shorthand to say, I know I have issues and I'm working on those..but here is one specific question for now.

I get taking a holistic approach to finances. I don't *do* it, but I get it. But geez, when someone is asking, "should I pay bill X or bill Y?" I don't get why you need to know my 401k balance. I'm sure that 90% of you will disagree with me...and I guess that's why you are where you are financially and on this board. But I have to say, part of me feels that its a bit invasive. Sometimes a person is just looking for one piece of information.

riverwed: I went out of my way to admit, multiple times, that I (me) don't budget, I used to spend on gadgets, etc. I tried very hard to not put blame on just my spouse or just me...I guess I wasn't clear. As for supporting my family....I do take exception to that post. I've supported my family, making 90% of the income, for 20 years. Yes I have debt and we are house poor. I admitted that multiple times. But in those 20 years I have bought two homes, multiple cars, supported kids, improved both homes, and give back where we can. I've watched many colleagues get laid off. Some day my number will come up. We talk about it and yes its frightening. My company offers a very good package but that could change. Again, plans are in the works to downsize house in a couple of years. I can't pack up and move to another state.

In summary, it seems this board just isn't a match for me. Maybe that means I'm lazy and don't want to do the hard work, as it seems every question here becomes a complete financial review. Let me be clear, its awesome that you all do that service, for free, for folks. But again, sometimes, people are just looking for a direct answer to one question. I hope that makes sense.

[riverwed070707]

Hey. We are all strangers on the internet and you all are offering help. That is great and I do appreciate it. But, I do want to say a few things as a very limited user of this forum.

I've come here a few times over the years, maybe once every 3-4 years or so, and I have asked for help on a specific topic. The replies are *always* the same. Every time I get the "post your entire budget", "how much do you make", "what do you have in savings". I knew this was coming so I tried to pre-empt it by saying "we live over our means", etc as shorthand to say, I know I have issues and I'm working on those..but here is one specific question for now.

I get taking a holistic approach to finances. I don't *do* it, but I get it. But geez, when someone is asking, "should I pay bill X or bill Y?" I don't get why you need to know my 401k balance. I'm sure that 90% of you will disagree with me...and I guess that's why you are where you are financially and on this board. But I have to say, part of me feels that its a bit invasive. Sometimes a person is just looking for one piece of information.

riverwed: I went out of my way to admit, multiple times, that I (me) don't budget, I used to spend on gadgets, etc. I tried very hard to not put blame on just my spouse or just me...I guess I wasn't clear. As for supporting my family....I do take exception to that post. I've supported my family, making 90% of the income, for 20 years. Yes I have debt and we are house poor. I admitted that multiple times. But in those 20 years I have bought two homes, multiple cars, supported kids, improved both homes, and give back where we can. I've watched many colleagues get laid off. Some day my number will come up. We talk about it and yes its frightening. My company offers a very good package but that could change. Again, plans are in the works to downsize house in a couple of years. I can't pack up and move to another state.

In summary, it seems this board just isn't a match for me. Maybe that means I'm lazy and don't want to do the hard work, as it seems every question here becomes a complete financial review. Let me be clear, its awesome that you all do that service, for free, for folks. But again, sometimes, people are just looking for a direct answer to one question. I hope that makes sense.

Sorry you feel that way. Asking which bill you should pay first without painting a complete financial picture is a bit like asking a doctor what pill you should take without describing your symptoms. Without knowing the interest rates of your cards, we can't tell you which you should pay off first even if the only two options for the extra money you'll be coming into were to pay card 1 or card 2. But the reality is, if we just look at this small slice of a question, you could be missing the opportunity to deploy those funds in a different way that would be far more beneficial in the long term. We're a community here. We do share a bit of a similar mindset out of a common goal. Many of us also could have made posts exactly like yours a year or two or 10 ago. It's a great board, and if it feels invasive, it is with good intentions.

[myrdale]

My question: Will it help my credit score if I pay $2600 on Card 2, then use Card 2 to pay off Card 1? Is this a good strategy? If yes, how long should I wait before paying off Card1? Like one month? two?
Or does this not matter? Should I just pay off Card 1 directly and immediately?

Any help is appreciated.

No.

Your credit score is based on several items:

1) Age of your oldest account
2) Ratio of debt to available credit
3) Payment history
4) Any foreclosures / bankruptcy
5) Types of credit

If you paid both of these cards off tomorrow, I'd close the newest card and keep the oldest open. This maintains the oldest history.

With both cards paid off, I'd use the oldest card sparingly. Say if it has a $5000 limit, I might spend $50 a month on it.

With that smaller amount, I would not carry a balance. I would pay it off in full every month. Carrying a balance buys you nothing but an interest payment.

Also payment history diminishes with time. While missing a payment may be a bad strike on you today, 2 years from now, with 20 additional on time payments it's not so bad, and 7 years it has evaporated all together. This is to say worrying about paying one off this month and the other off next month doesn't buy you alot.

You've got a mortgage, credit cards, and a car lease. I think you have all the types, save a personal loan, covered.

Also towards your last post, don't take the advice too personally. Everyone who post in response has one goal in mind here, helping you, admittedly in their own way.

Also consider working on fine tuning your questions / post. Honestly you open up with a shot gun blast of information before asking one questions.

To paraphrase what you wrote: "I make money, no budget, car leases, mortgages, bad credit score, struggle to pay bills. Which card should I pay off to max my FICO?"

To demonstrate what we read: "The engine room is on fire, there is a hole in the hull, OMG pirates!. Soooo.... which paint would look the best on these deck chairs?"

What I would suggest you should have posted instead "Which card should I pay of to max my FICO?"

[disneysteve]

To paraphrase what you wrote: "I make money, no budget, car leases, mortgages, bad credit score, struggle to pay bills. Which card should I pay off to max my FICO?"

To demonstrate what we read: "The engine room is on fire, there is a hole in the hull, OMG pirates!. Soooo.... which paint would look the best on these deck chairs?"

OMG, this nails it exactly!

sigamy, very often people post questions somewhat similar to yours and the truth is nobody can give an intelligent, well-reasoned answer with extremely limited information. Plus, people often post 2 choices, as if those are the only two options, which is almost never true. No financial decision occurs in a vacuum. How you deploy extra money coming in will affect your overall financial picture, not just your credit card balances. It is super hard to have a bunch of strangers asking you a slew of invasive questions, but it's all done with the best of intentions to help you make the best possible financial decisions.

[bjl584]

Hey. We are all strangers on the internet and you all are offering help. That is great and I do appreciate it. But, I do want to say a few things as a very limited user of this forum.

I've come here a few times over the years, maybe once every 3-4 years or so, and I have asked for help on a specific topic. The replies are *always* the same. Every time I get the "post your entire budget", "how much do you make", "what do you have in savings". I knew this was coming so I tried to pre-empt it by saying "we live over our means", etc as shorthand to say, I know I have issues and I'm working on those..but here is one specific question for now.

I get taking a holistic approach to finances. I don't *do* it, but I get it. But geez, when someone is asking, "should I pay bill X or bill Y?" I don't get why you need to know my 401k balance. I'm sure that 90% of you will disagree with me...and I guess that's why you are where you are financially and on this board. But I have to say, part of me feels that its a bit invasive. Sometimes a person is just looking for one piece of information.

riverwed: I went out of my way to admit, multiple times, that I (me) don't budget, I used to spend on gadgets, etc. I tried very hard to not put blame on just my spouse or just me...I guess I wasn't clear. As for supporting my family....I do take exception to that post. I've supported my family, making 90% of the income, for 20 years. Yes I have debt and we are house poor. I admitted that multiple times. But in those 20 years I have bought two homes, multiple cars, supported kids, improved both homes, and give back where we can. I've watched many colleagues get laid off. Some day my number will come up. We talk about it and yes its frightening. My company offers a very good package but that could change. Again, plans are in the works to downsize house in a couple of years. I can't pack up and move to another state.

In summary, it seems this board just isn't a match for me. Maybe that means I'm lazy and don't want to do the hard work, as it seems every question here becomes a complete financial review. Let me be clear, its awesome that you all do that service, for free, for folks. But again, sometimes, people are just looking for a direct answer to one question. I hope that makes sense.

Best I can answer is that specific questions about finances are often too specific. Without knowing or seeing the bigger picture we can't offer sound advice.
Usually the solution to a problem isn't paying off one specific credit card. It is a mindset shift that will allow you to pay off all of your debts and stay out of debt going forward.
Plugging one hole in a dam that has 17 leaks won't go you very far.

All advice given is given with the best of intentions from people who genuinely want to help.
Most people on this board are more than qualified to offer advice, as they have all achieved a certain level of success financially.
A lot of them were once in similar situations as you and are offering advice that comes from direct experience.
Sometimes that advice is hard to hear, but it works. And, that's the point.
Don't take anything said on here as a personal attack.
Good luck, and I hope you will stick around so that we can all help you.