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Best way to get out of this credit card debt

Started by jimmytwotimes, February 24, 2020, 12:23:54 PM

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Hi all, first time poster here. Would greatly appreciate any advice I could get on the best way to get out of this spot and on a better road! A few years ago, my wife decided to switch occupations and went back to school. Suddenly her income (the lion's share of our household $) disappeared, and since she was living out of state, we had another rent payment on top of our existing mortgage, two sets of utilities, two separate meal plans, etc. Even with student loans, we were spending way more each month than I was bringing in. It got pretty stressful trying to keep tabs on our finances, so I opted for ignorant bliss. Rather than using credit cards to accrue points and paying off their balances every month, we were using credit cards like cash and their balances kept climbing.

Now, her degree is completed, she's back at home, and working in her new field. I'd like to get our finances in order again. Them credit card balances, however, aren't going anywhere. I'm hoping you might be able to provide some guidance on what might be the best approach for us to take.

Currently we owe ~$20,300 on 4 credit cards whose limits total $38,300 (53%). Individually, our balance/credit limit on each card is $9,655/$16,500 (59%), $7,800/$15,500 (50%), $2,850/$4,800 (59%), and $0/$1,500 (0%). I will be getting around $4,000 in tax refunds, which I'm planning to apply towards these balances. Then, I'd like to get some type of loan to consolidate this credit card debt.
I'm concerned that the fact our credit utilization is so high, will hurt our ability to get a loan with a solid interest rate. Currently, my credit score is 723. Ideally, by using the tax return to lower balances on the credit cards, I'd be able to bump my score a bit before applying for a loan. Would I be better served applying the $ towards any card in particular? I know they look at the ratio of individual accounts in addition cumulative credit utilization--would my score rise more if I applied it to the card with the lower credit limit (thereby getting its balance below 30% of its limit)?
Anyways, my thought is to pay down the debt with the tax refund, wait a month or two for credit scores to reflect new balances/rise a bit, then apply for some type of loan. I don't have much experience regarding what options are out there, and, as of now am thinking of doing a cash-out refinance with our mortgage. I'm under the impression this would be an option to get ~$20k to eliminate the credit card balances, but, to be honest, I don't know anything about this stuff. Currently, we are 4.5 years into our 30 year mortgage, and owe $181,000 of the original $204,000. We have never refinanced. Our rate is 4.25% and I think if we were to originate the same loan today, we would get a rate of ~3.75-4.00%. I guess, what I'm thinking/hoping is I could refinance back to the original loan amount at a similar interest rate, and end up with ~$23k in hand to eliminate the credit card debt. The downside would be that we'd be essentially restarting our mortgage, with the upside of having no credit card balances. Then, ideally, we could use the ~$650/month that was going to credit cards as an additional payment towards the mortgage's principal. Does it sound like my understanding is accurate? Or, am I waaaaaaaaay off base somewhere?  Does this sound like a good way to approach our situation? Or, is there another type of loan we should consider? Any insight you could provide would be greatly appreciated!
Thanks a ton!


Hi jimmytwotimes!

If I were you, I would focus on reducing interest expenses. Today you have credit card debt, which I hear in the US is more expensive than a personal loan, and more expensive than a mortgage. So, I would:

  • Refinance your credit card debt as much as possible against a new mortgage, specially if you could get a better rate
  • If mortgage refinance does not allow to refinance your entire 20.3k USD in credit card debt, take a personal loan with a smaller interest rate and longer tenor to refinance the remaining credit card debt

This should reduce your interest expense, and free cash so you can start repaying principal.

Hope it helps!


thanks, that's what i am thinking. i just want to make sure I'm aware of all my options in lower interest rate options.


I have once struggled with debt myself. When I have defeated the debt I decided to share my expertise with other people who need to pay off debt faster than it's accumulating. That's when I became a writer at FitMyMoney blog. I think that you took the right step when having decided to consolidate debt. Now you just have to find the right agency that will do the heavy lifting for you. Or, you could research the lenders market to choose one that will allow affordable down payments and not charge any fees or extra payments.


I would say you have a couple moves to make...

First depends on who your credit cards are with. Some of the card don't require a hard pull and will give a limit increase on a soft pull. Since you have a 723 credit score (potentially), first step I would make is call the credit card companies or check on their websites to see who does a soft pull. If they are soft pull and not hard pull, then I would ask for a credit increases. Typically when starting out, in the lower limits which you are relative, you can swing for the fences. I would ask for like $50k or something higher, they will either give it or potentially counter with something in the middle. If you can get the card limits raised, then you instantly lower the utilization. Even if you do have to make a hard pull, it only knocks you down for a small period, but the higher credit limit would be worth it.  You can also usually do this every 6 months or so depending on the CC company, some allow more often. I think it's good to keep pushing it up here and there to make sure you utilization is always less than 30%, and to make sure you have access to cash in the event you ever absolutely had to.  Also, it's a nice way to slowly increase you credit rating, just by asking for more credit but not using it. Again, look for the soft pull over the hard pull when available.

Next, I would look into a HELOC depending on your property value, and your confort level with your work. I like to leverage house equity when possible to buy other properties. There is of course a risk, but there is always a risk when borrowing money. So, go to zillow or some other site and see what your potential housing worth is. And if you have a large enough value then go and see about getting a heloc. This gives you a couple of new moves.  Let's say you house has gone up in value maybe $100k You can likely borry against the equaity up to 99% value in some cases, or slightly lower, but usually in the 85%-99% range of that equity.  Since the money is coming leveraged against your property you can get a lower rate usuall, and certainly a hell of a lot lower than the credit card rates.

So, say you can borrow against you house for $100k or even less, so long as it makes sense, to do it, then I would do it.  just looking at your house right now, at $204k  vs $181k balance. assuming your house didn't go up in value which I doubt, that's still around $23k you could borrow against. So, let's say you could only borrow 90% of that value, that's still roughly $21k that you could pull out and use to knock out one of these credit cards. The interest rate is likely 5-7 range, could be lower, or however, but in any case Credit Cards are usually 14%-24+ or even higher.  So even a "high" level around 8-9% is still cheaper than paying the higher rates.   

Also with a HELOC you have the insurance for typically 10+ years or so depending on how long you do this, where that money can be available to you after you pay it all back.  So it's kind of a win win in my mind. You can borrow the money, pay off the debt instantly.  Then pay off the HELOC and once complete you retain access to that money if needed.  Granted $20k isnt' all that much but in your situation I would still do it to get this mess behind you.  Also, like I said above, your property value has likely gone up over the last 4 years. so maybe you could be borrowing an even larger value and knock out all of these credit cards.

Next, you could play the credit card game - I don't do this, but people do. You could play the zero balance transfer game, and see about paying some of these down with others, and locking in the 0% interest for a year or so and then rinse an repeat with the cards. Just keep rollining the balance to the next card and pay it down with zero interest. This is technically smart, if you can stay disciplined enough to do it correctly. So this is an option as well.

Last personal loans and all that, but I don't like those as much because the rates are typically higher. however, in all cases the rates will beat your credit card rate.

So, you just need to make a plan.  I actually helped a friend with this not long ago. She found herself in a downward spiral with $65k in credit card debt and was paying so much money but not getting anywhere because of the compounding interest. It's a terrible cycle to get into.  So, I helped her with a bank that offers great heloc rates. She borrowed the money from her house, and paid off all of the credit card loans within once she closed on the HELOC.  now she is paying a reasonable 5% interest on the $65k, versus the crazye 18-27% she was paying on each of the cards.

Now, she pays her credit card bill each month in full (which is the key with credit cards).  And she pays down the debt monthly with the same money she was paying before, but at 5% the impact is much better.

So, that is my advice for you.    Step 1, see if you can increase the credit limits with a soft pull.  Step 2 evaluate housing LTV and see if a heloc makes sense. Step 3. execute loan rate better than credit card rates, and get them paid off.  Step 4 - work on the new consolidated loan payment or HELOC etc, as you will and get it done.    Step 5 - be more disciplined with your credit card usage.

Step 6 - review your credit cards for their perks. I'm not big on playing the credit card reward games, but at a minimum you should have a cash back card, since you are charging anyway. It's not exactly free money, but it's something to get back while you are spending anyway. Whether points, cash, etc.

Good Luck.


I would go for debt consolidation. If you decide to combine all the credit card debt you have and, for instance, take out a new personal loan, your debt will be refinanced and you will be able to get a lower interest on a new loan. As a result, you will have all the previous lending options set in one place and it will be easier to repay it over time. Keep in mind that repaying the credit card balance each month is beneficial and can save you from unwanted stress in the future.