Paying off debt - should we cancel credit cards?

[niki_the_tiger]

My husband and I sat down the other day and realized it's time to stop spending and time to start paying off debt. We would like to pay it all of in 12 months (by September 2006). It's a big goal, but even if we don't get to $0... as long as we get as close to it as possible, we'll be happy.

Oh btw, I'm not talking all debt as in mortgage too... but more specifically credit card debt. If we could manage to pay off our Jeep loan too, that would be great, but that might not happen (and would be too much to ask of ourselves).

We tallied up all our credit card debt last night (this includes my husband's business credit card) and the total came to just over $9000. With payments that are due my hubby we should be able to bring it down to $8300 by the beginning of this September.

All the 0% offers ran out on our cards, so now we're paying 12.99-15.99% interest on all the cards (JcPenney has a balance of $300.00 at 22%). We realized that we are spending an awful lot of money on interest... and that money could be going to paying off the balances, so we decided we would check into getting a personal loan, which will hopefully be under 8%.

Do you think that's a good idea? We would probably get it for 3 years, so that the payment would not be more than what it is now, separately. Then, at worst, we would bring it to zero in 3 years, but we fully intend to put as much as possible towards it. Also, because a good chunk of that is my hubby's business credit card, whenever he gets paid for jobs he does (www.phoenixtuning.com), he can put that towards it.

We also intend to put our tax return towards it, as well as any extras we get throughout the year. We figure with less money going towards interest and more towards the balance, that will help lower it quicker as well.

As soon as we get the loan (if we can get the loan), we want to cancel most of our credit cards. We still need the business credit card and as we own a duplex and don't have much of a savings account, we need to have a bit available for emergencies, so we are thinking of keeping one high balance card (meaning the highest balance card to serve for both purposes). Is it a good idea to cancel our credit cards? How will that affect our credit score?

Any advice is appreciated, thanks!

-Niki

[terry1156]

Re: Paying off debt - should we cancel credit cards?

First off, let me congratulate you on your decision and I hope we can all support you here. It's always risky to trade unsecured loans (credit cards) with secured loans, so I would try and pay down the credit cards on your own first and see how that goes. Once you've spent some time doing it and are sure that your plan is working, then taking out a loan for the rest may be in order, but form the habits first.

Step number one: pay off the JC Penny card even if that means only paying the minimum on the others.

How is your credit? Any late payments? Either way, call all your credit card companies and ask for a better rate 8worst they can say is "no") if you have a junk mail offer with a low rate, that can help convince them to lower the rate.

What is the Jeep loan % at? If it is less than the credit cards, don't even think about paying it off until the credit cards are all paid off.

be careful of cancelling all your cards - especially the one you've had the longest since that is a good part of your credit history. If there is no yearly payment involved and no "no use" fees, ask that you limit on it be reduced to a small amount and freeze it in a block of ice in your freezer so you can't use it - but you will keep your good credit history.

[zakity]

Re: Paying off debt - should we cancel credit cards?

It looks bad on your credit if you cancel the cards if you have had them for a long time. Also, it looks good if you have credit cards (credit available) and you aren't using them (but you do have access to it). If there isn't a yearly fee, freeze them in a butter container in the freezer if you don't think that you can resist using them. Or, better yet, when you recieve a new card, don't even activate it and cut it up (we do that with one of the cards). If there is a yearly fee, call the company and ask them to waive it (especially if you get a junk offer for a free card).

[niki_the_tiger]

Re: Paying off debt - should we cancel credit cards?

We called all the credit card companies and asked them to lower the rates. One gave us a special rate for 3 months of 3.9% then up to 10.99% (still lower than the 12.99% that we have now on it) but would not go any lower. This is the one we want to keep for sure though, it has the biggest balance and my hubby has had it for the most years.

The other said sorry, can't do anything unless you transfer your balance to another card, then we will send you a new offer. They are at 15.99% (too bad, I enjoyed using that card becuz we got free points towards Amazon books, and both of us buy books from Amazon all the time... we had 0% for 6 months, but that just ran out) <--- we might cancel this one, we've only had it 7 months, would it be ok to cancel it? This one has the second highest balance but also the highest interest of all our credit cards (other than store cards).

We're good at not using credit cards when we're determined not to. Or we leave them at home if we're scared we might use them.

None of our cards have yearly fees.

Our credit is good, not great. It was really good but then we put too much on credit card (between stuff on the house breaking down and my hubby starting his own business) so it went down, but now it's on it's way up. We're at about 650.

Oh we also have a Sears card (we were going to buy a washing machine and stove when ours broke down and wanted to get the 0% financing, but then someone gave us one of each) and an Old Navy card. Both are at $0.00 and we don't even have them in our wallet... is it okay to keep those (we get special offers by having them) or should we cancel them?

Thanks for the advice! Any help is muchly appreciated!

-Niki

[Roger]

Re: Paying off debt - should we cancel credit cards?

While your credit may drop a few points when you cancel cards, it is a good idea. Keep your oldest card open, if you want to keep the plastic card for emegancy, freeze it in ice. Otherwise, cut up the card and leave the account open.
Roger

[terry1156]

Re: Paying off debt - should we cancel credit cards?

We called all the credit card companies and asked them to lower the rates. One gave us a special rate for 3 months of 3.9% then up to 10.99% (still lower than the 12.99% that we have now on it) but would not go any lower. This is the one we want to keep for sure though, it has the biggest balance and my hubby has had it for the most years.

Call back in three months and have them lower it back to 3.9 % again when it is about to get bumped up again.

The other said sorry, can't do anything unless you transfer your balance to another card, then we will send you a new offer. They are at 15.99% (too bad, I enjoyed using that card becuz we got free points towards Amazon books, and both of us buy books from Amazon all the time... we had 0% for 6 months, but that just ran out) <--- we might cancel this one, we've only had it 7 months, would it be ok to cancel it? This one has the second highest balance but also the highest interest of all our credit cards (other than store cards).

Then find a lower rate card where you can transfer the money to - and force that card to lower the rate by saying you will transfer the money...or do the transfer to a lower rate card.

We're good at not using credit cards when we're determined not to. Or we leave them at home if we're scared we might use them.

If you are good at not using them but you want to close some of the accounts, I would do it in this fashion. Once you have paid off a card in full, put it someplace to the side where you won't use it. When you pay of the second card, close the account that you've had the shortest amount of time and place the other card someplace where you don't use it. This will ensure you always have available credit (good for your credit score) and will ultimately decrease your cards.

None of our cards have yearly fees.

Good

Oh we also have a Sears card (we were going to buy a washing machine and stove when ours broke down and wanted to get the 0% financing, but then someone gave us one of each) and an Old Navy card. Both are at $0.00 and we don't even have them in our wallet... is it okay to keep those (we get special offers by having them) or should we cancel them?

If there is no danger of you abusing them, keep them open. They will help your credit score.

[Tree0164]

Re: Paying off debt - should we cancel credit cards?

Hi Niki,
Welcome! Credit card debt can be very stressful.

I would get the JC Penny card paid off first and then snowball the payment towards your next highest interest rate. You take all the credit cards that you have and look at the highest interest rate. This is the one you are going to tackle first. Pay as much money to that one and pay the minimum amounts on others. Once you get the first one paid off you then focus on the second one. You snowball the payment you were making on the first one to the second one.

Here is an example:
CC 1 min payment $100 percentage 19.2% balance $3000
CC 2 min payment $150 percentage 15.6% balance $8900
CC 3 min payment $50 percentage 9.9% balance $4500

If you have $500 a month to pay toward credit cards, you would
pay CC1 $300. CC2 $150 and CC3 $50. Once CC1 balance is paid off you would then pay $450 to CC2 and $50 to CC3.

To play with numbers yourself you can go to the snowball calculator

Another frame of thought from Dave Ramsey List your debts in order from smallest to largest with the smallest payoff or balance first. Do not be concerned with interest rates or terms unless two debts have similar payoffs, then list the higher interest rate debt first. Paying the little debts off first shows you quick feedback, and you are more likely to stay with the plan.

When my husband and I were paying off our debt, we used the highest interest rate first.

[jmjj215]

Re: Paying off debt - should we cancel credit cards?

We also intend to put our tax return towards it

While this is probably small, you really should adjust your withholdings (or business withholdings) down so you aren't loaning the government money until you get your refund. Not only are you not earning any interest on that money, but you're also paying interest on these debts you owe b/c your money is tied up with Uncle Sam.

[niki_the_tiger]

Re: Paying off debt - should we cancel credit cards?

Hey thanks for all the great advice! We were on vacation for the past few days and just got back. (on a side note, woohoo we spent wayyyy under budget on the trip, I am so happy with our efforts! The money was all saved up and we came home with leftover that's going straight to debt.)

Today, we paid off the JcPenney credit card as per everyone's advice. Does that ever feel good to have one completely gone! The rest of what we have has to go to my hubby's business card because he needs to have some balance available to him on that.

Finally, balances are going DOWN!! (Now if only gas prices would follow, grr)

Our cat got sick last week and costed us an unexpected $270, so that is a bit of a setback. I'm hoping I can sell my electric guitar though to cover that.

As for the tax return... my hubby and I would just spend the money if we didn't get it taken out... it's just better to get it later on as a tax return.

[jmjj215]

Re: Paying off debt - should we cancel credit cards?

As for the tax return... my hubby and I would just spend the money if we didn't get it taken out... it's just better to get it later on as a tax return.

Hmm, maybe you could set up your own automatic withdrawal into an interest-bearing savings account such as ING? I'll hold the money for you interest-free - why give Uncle Sam all the fun?

[niki_the_tiger]

Re: Paying off debt - should we cancel credit cards?

Hmm, maybe you could set up your own automatic withdrawal into an interest-bearing savings account such as ING? I'll hold the money for you interest-free - why give Uncle Sam all the fun?

LOL!

The ING automatic withdrawal idea is a good one. Hmm, I will have to pass it by my hubby.

[boothev]

Re: Paying off debt - should we cancel credit cards?

As Dave Ramsey mentions, do you have at least $1,000 saved up in cash as a small emergency fund? This will help you avoid using CC in an emergency.

Valerie

[niki_the_tiger]

Re: Paying off debt - should we cancel credit cards?

No, I barely have $300 in the savings account... (well I have $550 in another savings account, but that's towards oil heat for this winter - i had more than that but we just had to fill our tank and then make our first payment... so that was $900!! uggh). I put "extra cash" in the savings when I can... (like loose change etc) but everything else goes towards paying off debt now.

[boothev]

Re: Paying off debt - should we cancel credit cards?

I struggle with this myself. I have no savings, so last payday, I paid myself $25 for the first time. (We have a household income of $45k, but DH is a Stay At Home Dad with toddlers, DD and DS.) I have DH out delivering pizzas in the evening, but the tips are nowhere near where they used to be when he delivered in HS in 1985. No one tips anymore!

DH tells me over and over again that many people hold out their hand to get their penny change. He hands them a nickle and tells them to keep it. If they need that penny THAT badly, they can have 4 more!

Anyway, I digress. I guess $1,000, has a lot of $25 deposits in it. $50/month for 20 months, is that right? Ugh.

Luckily, we only have 1 CC for $1,500. The Credit Limit is $1,500. If I can't control myself with that, then I have no business getting any other CC's! LOL!

Good luck!

[marglo]

Re: Paying off debt - should we cancel credit cards?

We now have more than $1000 in EF but not nearly as much as I would like to have. IMO you should build your EF to $1000 before you start paying off debt. If you don't an emergency will come up, you won't be able to handle it and there you are back in debt again or in more debt than ever! This has happened to us in the past more times then I like to remember! I try not to touch the EF ...even fore what appear to be emergencies...I take a little from my snowball or other categories in my budget before I go to the EF, but it is nice to know that it is there when/if I really need it.