by Hope
I truly appreciate everyone’s thoughtful guidance and feedback to my last couple of posts on my Current Debt Load and desire to Increase my Credit Score. I am still working through all my lists of tips and suggestions. And frankly, it is too overwhelming to me to come up with a master plan. Thus, I’ve come up with a few bite size plans that give me immediate action AND immediate gratification! The OVERWHELMING advice that stood out, as expected, is pay off debt.
Thanks to our mostly No Spend Month, I have some extra money sitting around here at the end of the month. And it is burning a hole in my pocket, let me tell you! That leads us to the first plan.
Pay Off Debt
I will be tackling three debts with everything I’ve got with the goal of $0 balances on all three by the end of this calendar year. Here’s my plan:
- Amazon (current balance $527) – pay in full November 3rd with $$$ saved through No Spend October. This will bring it to a $0 balance before the statement date for the month of November. Question: do I leave the account open or close it? Bearing in mind the affect on my credit score. Guidance please.
- Computers (current balance $2,655) – pay $500 the first week of November with $$$ saved through No Spend October. And review November and December budgets to see if I can find a way to bring it to a $0 balance before the end of the year. Maybe a modified no spend month…we’ve still got quite a bit in our pantry. This will drop the balance quite a bit before the statement date for the month of November (yes, I’m still thinking of my credit score, but only as a benefit of making wiser financial decisions.) Question: do I leave the account open or close it? Bearing in mind the affect on my credit score. Guidance please.
- Collection Acct (Apartment) – call and see if I can negotiate a 1) pay to remove arrangement and 2) settlement amount, effectively decreasing the amount I must pay. Again, I will attempt to close this account out by the end of the year.
What about my credit card?
For the time being, I am going to keep using my one credit card as a revolving line of credit, effectively paying it off every month so I do not accrue any finance charges and using it to pay all my regular budgeted items.
I think this plan is very do-able for me. It’s definitely trackable. And if I could eliminate these three debts over the next 2 months. Well, that would be AWESOME!!!!
Hope is a creative, solutions-focused business manager helping clients grow their business and work more efficiently by leveraging expertise in project management, digital marketing, & tech solutions. She’s recently become an empty nester as her 5 foster/adoptive kids have spread their wings. She lives with her 3 dogs in a small town in NE Georgia and prefers the mountains to the beaches any day. She struggles with the travel bug and is doing her best to help each of her kids as their finish schooling and become independent (but it’s hard!) She has run her own consulting company for almost twenty years! Hope began sharing her journey with the BAD community in the Spring of 2015 and feels like she has finally in a place to really focus on making wise financial decisions.
Yes. Yes. Yes.
Keep all accounts open. But cut the cards up. That way you have to ask for a new card in order to use it. There’s no issue with using a credit card for everyday spend. It’s actually preferred due to rewards and fraud protection. But you must pay it off every single month without fail. No exceptions ever. Maybe change the way you pay the card so you pay it weekly or bi-weekly instead of getting surprised by the balance at the end of the month? Open up a Mint or YNAB account so you can track to a real budget even if the transactions are all on one credit card.
+1 to paying off the day-to-day credit card off every week. I’d plan to do it on Monday or Tuesday, so you know over the weekend that every penny you charge will be cash out of pocket the next day. Almost as fast as cash.
The rest of the plan sounds awesome!
Hope. I think this a great plan. It gives you the satisfaction of paying off debt and then you can snowball that money to your other goals. Great job.
Hope,
Yes, pay the accounts off and keep the accounts open. One measure in the credit score is the length of the credit. That one does not count as much as on time payments or balances on the accounts, but it does count. Another factor is how much of the available credit is being used. The greater the percentage of use, the lower the score for that factor. You are making great progress so keep up the great work. Thanks for sharing your journey with us.
Thank you, Margaret. I will definitely be keeping the accounts open. But I will be putting them on the DO NOT USE list just like my EF. I really appreciate the support and encouragement.
I paid off quite a few cards in July and saw my credit score jump 30-40 points since then!
Now I’m hesitant to cancel the cards because I know my length of credit history and utilized vs available ratio will be affected. For the time being I am not going to cancel them.
I lock up all of my cards. One card just went through an online system revamp where I needed my card to create a new online account. Had I cut it up it would have been a hassle.
Also: as you are paying off these cards keep track of residual interest. Citi cards are especially notorious for this. Basically you pay it off and they send you a bill for the interest. The first month I called and alluded to canceling the card so they adjusted of $80+ worth of interest to keep me. The next month they sent me an interest bill on the interest. $2.50. So I “paid off” the card in July but it was September before I truly got it to a $0 reportable balance.
Good luck!!
Good hint to watch for the post last payment statements. I cannot wait to see what the payoff and pay down does to my credit score.
I still think you should use anything over 5K in your EF and pay off more, but it’s a good start.
I’d definitely leave the Amazon account open (you’re likely to use it to purchase things from them in the future, yes?). If you think you might use the computer card again in the next year or two I”d leave it open, but otherwise I’d probably close it. Closing it may have a very small impact on your credit score, but it might be worthwhile to eliminate the possibility of hacking or theft.
Good job! If you do not want a hit to your credit score then keep the accounts open and just avoid using them to keep credit utility lower.
That’s what I figured. I am going to have to put my “debt” lines of credit in the same category as my EF…completely off limits! And I know I can do that. Can’t wait to see them on that list with a $0 balance!
Good plan, Hope. I didn’t know you had almost 10K in savings (referencing your last post now). I would be tempted to used at least part of that to pay down debt, but I also have never been homeless. I bet at least most of those so critical of you haven’t been either. (can’t people just be nasty) I can understand how you would be so insistent on having several months cushion. That entire experience must have cause a lot of trauma for all of you. Whatever your path, you have proven you can live below your current means to put money aside. Since you are where you want to be with savings, best of luck on using that extra to attack your debt.
Hope,
That’s definitely good to take a moment to reflect on the next steps and ask others’ opinions.
Good luck
I like the plan but am still in the vote for using the Efund to payoff the computers and collections.
My take is, you already determined the computer purchases were an ’emergency’ when you took on debt for them. An emergency is something you cannot cashflow normally and needs to be dealth with immediately, like paying for new tires or a hospital stay.
Since you weren’t willing to save up to pay for the computers in full, you’ve de-facto declared them an emergency (if it wasn’t you could’ve just saved up money until you had enough to buy them). However, instead of using your emergency fund to pay it you put it on debt.
Here’s my question to you, if you for whatever reason weren’t able to get a loan for the computers, would you have used your emergency fund to buy them?
I have a line of credit with Dell for computers as a result of my business. And have had it for over a decade. That is how I got the computers.
But you are right, if I had not been able to use that quick and easy solution, I would not have gotten them. I promised myself when I started this job that my EF would not be touched at any cost. I have stayed true to that.
I guess my next step, once I pay the line of credit off this time is to either 1) close the account or 2) make the same promise to myself…not to touch it. I see your point.
Make sure you put any spending on your credit cards in your budget. If you are paying it off every month, I don’t think it should be treated as a debt. All that spending should be in your budget.
I don’t know if you have time to take a Dave Ramsey Financial Peace University class but I think you would really benefit from it. It really helps get people to organize their finances and teaches them how to pay off debt. I have a set of materials I would love to give you but only if you can commit to attend a two hour class once a week for nine weeks. My husband and I taught a class and know finances inside and out and we learned a lot!
Hi Sarah,
The spending is definitely in my budget. I keep it in my debt as I can’t get it to $0 yet. But that is the ultimate goal. I do like using it for all my regular expenses, it feels safer.
Unfortunately, I haven’t found anywhere near our tiny little town that offers it. And time is not something I have alot of right now. But thank you for the recommendation!
Now that you have cut your working hours down, I’d use a few hours of that time to read Dave Ramsey’s book The Total Money Makeover. You should be able to find this at your local library (or be able to request it) but if not, it would be well worth the investment to purchase a copy.