Paying off Debts

[[AK]Nuts]

I've heard so many different means of adopting the right strategy for clearing off debt. I know that there's a couple of really smart AKers out there that may be able to give me some help.

I'll soon have enough cash to cut all my credit card balances in half (let's say I owe about 20k total). Question... do I drop each one down an equal amount or pay off the highest interest rate Credit Card first? I'm guess the later but I've also heard it's good to keep no more than 30% on any single card.

Also, do I ask for a reduced interest rate from the CC companies before or after I pay a big chunk? I've got one at a friggin 24%! Do I have more leverage by paying it down and then asking for a reduce rate?

[[AK]Hylander]

Nuts.. always pay the highest rate first. Even if it doesn't fully pay it off, the amount you are reducing is the amount that is costing you the most in carrying costs.

The only two reasons I can think of where that "may" not be the best option. The first being that although the card has a 15% interest rate (for sake of discussion), you may have taken them up on a balance transfer promotion where you transferred $10,000 over at 0% or maybe 7.99% or something. When you make payments, they apply the principal portion of your payment to the amount that is getting the lowest interest rate. For example, lets say you had $5,000 balance on that card where you are paying the 15%, then you transferred the $10,000 at 7.99% bringing your total to $15,000 owed. When you send your payment, they are applying the principal from that payment toward the 10% earning 7.99%. It's not generally split between the two or a percentage of any kind. It's applied to the balance earning THEM the lowest return, the 7.99%. This is worse when you are paying 0% interest on it.

A second reason might be that you want to pay off one card in order to free up cash flow. This is understandable as long as you make sure you take the payment you are saving and immediately start applying it (or at least a good portion of it) to another higher rate card. But in most cased applying that money to the higher rate card is going to reduce your minimum payment enough that this is hard to justify.

Unfortunately, I'm an expert on credit cards and it's not due my career in banking. Ironically, the highest rate card I have in my wallet is from my employer... 12.90%.

Sorry, forgot to answer the last part. When it comes to your rate, most likely they are going to look at your credit score to determine if your level of risk warrants a reduced rate. Everyone knows their credit score, don't they?!? You percentage of credit line used effects your credit score. So in general, it doesn't matter if its on one card or scattered over 5, its your total balance as a percentage of total available. (You may see how this is a flaw in the credit scoring system as someone who has $10,000 outstanding with $50,000 to credit limit has a 20% utilization rate but someone with only $1,000 out of $1,500 available limit has a 67% usage ratio). Again, the one aspect of this that may not apply is if a certain credit card does not show up on one of the major bureaus, so that can skew you score on that particular bureau. But that is usually fairly rare.

[[AK]Hardnok]

Being in the mortgage business and dealing with credit all the time...
If you keep you balances around or under 30% of the max it does not hurt your credit score...if it goes over that, it start to hurt your credit slightly...over 70%..it really starts hurting your credit score alot...Not sure how much that helps but its just a little input

[[AK]FiGHT*CLuB]

I also am going through trying to clean up my credit. I have to refinance my home within the next 3 month due to a interest only loan about to go to variable.
I have 3 separate problems hopefully you guys may help me with.

Problem 1:
I have a citi bank card which I just found out is at 33 percent rate due to my wife missing a payment last year. I about flipped out. It was a 9 percent card.

I have a good chunk of change to pay a big part of it off. I want to get a new card (citi bank can kiss my @__) with a 0 interest for a year promo and then pay the large payment. Is this a good idea?

Problem 2:
So last week I applied for a discover card with the zero interest and was denied. So I pulled my credit report. Turns out I have a medical bill I paid off showing on my report as a judgment. Again this is paid off (work injury) . So I called the collection company and asked why I was never notified and why is this on my report as it is paid.
They had a ooold address and they say it is still outstanding. They are refusing to furnish any documents about the debt other than a collection statement. It’s a hospital bill and calling the hospital about it won’t due much good because I can’t narrow it down to a particular incident because I was in and out of the emergency room at least 1 time every few months for many years.
Bills always paid by the employer.

What recourse do I have against this collection company if any or advice to fix?

Problem 3:
My ex wife during our separation before the divorce was final, opened a credit card in my name. She forged the signature. I found out about it by pulling my credit report a few years ago out of the blue. I called the credit card company and viewed the document and they agreed it was forged. I filled a police report on it also. Anyways the collection company talked me into paying half of it off due to if it went to court, that’s what I would be liable for due to us not being divorced at the time it was done. So I pay half and they agree not to pursue me for the balance. Well it’s on my credit report and now the collection company won’t remove it till she pays the other half. I got screwed..
Any suggestions for this problem????

Only gratification I can get from this is hopefully she will someday get arrested for the fraud document.

Any advice guys will be incredibly helpful.

All suggestions for improving credit score fast will be also a great help.

[[AK]Hylander]

Problem 1:
I have a citi bank card which I just found out is at 33 percent rate due to my wife missing a payment last year. I about flipped out. It was a 9 percent card.

I have a good chunk of change to pay a big part of it off. I want to get a new card (citi bank can kiss my @__) with a 0 interest for a year promo and then pay the large payment. Is this a good idea?

If you can get a 0% interest card, there is no problem in doing this. However, just make sure you know the fine print and what the interest rate reverts to if you miss a payment (even by a day or two) or after the teaser rate ends. Of course, just paying it off is the better option, if it's an option that is.

Problem 2:
So last week I applied for a discover card with the zero interest and was denied. So I pulled my credit report. Turns out I have a medical bill I paid off showing on my report as a judgment. Again this is paid off (work injury) . So I called the collection company and asked why I was never notified and why is this on my report as it is paid.
They had a ooold address and they say it is still outstanding. They are refusing to furnish any documents about the debt other than a collection statement. It’s a hospital bill and calling the hospital about it won’t due much good because I can’t narrow it down to a particular incident because I was in and out of the emergency room at least 1 time every few months for many years.
Bills always paid by the employer.

What recourse do I have against this collection company if any or advice to fix?

You need to contact the Credit Reporting Agencies and put them on notice that you are challening the incorrect information. Once they are placed on notice, they must verify the information within a certain period of time or else delete that information. You need to provide all information you have as proof that it is paid off as well to help your case. If it is not resolved to your benefit, you are allowed to place a statement on your report - but it doesn't help that much when applying for credit and they use risk based lending (your credit score) for determination.

Problem 3:
My ex wife during our separation before the divorce was final, opened a credit card in my name. She forged the signature. I found out about it by pulling my credit report a few years ago out of the blue. I called the credit card company and viewed the document and they agreed it was forged. I filled a police report on it also. Anyways the collection company talked me into paying half of it off due to if it went to court, that’s what I would be liable for due to us not being divorced at the time it was done. So I pay half and they agree not to pursue me for the balance. Well it’s on my credit report and now the collection company won’t remove it till she pays the other half. I got screwed..
Any suggestions for this problem????

Only gratification I can get from this is hopefully she will someday get arrested for the fraud document.

Any advice guys will be incredibly helpful.

All suggestions for improving credit score fast will be also a great help.

I would again contact the credit reporting agency with court papers and other information demonstrating you are a victim of identity theft. As that is exactly what you ex-wife has done. However, I feel you made a huge mistake in paying half the balance because you can't be held liable (I don't play a lawyer on TV though) for being a victim of identity theft - whether it's your wife at the time or not. The collection agency pretty much snowed you just to get the money so they could keep their cut. My best friend went through something similar. His now ex-wife took courtesy checks he had and wrote them payable to herself and forged his signature on the checks. (She was not on the account as he had had this account from before they were married).

I've had to deal with collection agencies as well unfortunately. My brother in-law has an ex-wife with the same first and middle name as my wife, so when she was married to him and my wife wasn't married to me yet... they had the exact same name. She was a dead beat and her bad credit was showing up periodically on my wife's reports and my wife's great credit was helping the ex-sister-in-law get new credit to go bad on and it was showing up on our reports. We put a fraud warning on my wife's report which requires all new credit being approved by verifying.

One of the best $10 I spend a month is for Credit Secure credit monitoring. I can pull a credit report anytime I want, as often as I want. It shows my credit scores and whenever there is an inquiry or any other change to my file with any of the credit reporting agencies, I get an alert in my email. If there is no change at all, I get a notice that "no news is good news" on a monthly basis.

[[AK]FiGHT*CLuB]

With both problems 2 and 3, I belong to equifax credit watch. It allows you to pull your credit anytime and dispute. (The monitoring does rock) I disputed both items. the medical bill collection company verified within 1 day. I said account paid in full to original creditor. So I believe this was a waist of time because I think all they did was check to see if its outstanding in there records and reply back verified. Theres no way they could have got with the original creditor and verified in fact it was not payed. Just seemed to me that disputing to the credit bureau doesn't do a dam thing.

I did the same with problem 3 with same outcome. Account still has a balance so they verify as still outstanding.
They don't investigate a dam thing.



Thanks Hylander for taking time to try and help.

[[AK]Hylander]

With both problems 2 and 3, I belong to equifax credit watch. It allows you to pull your credit anytime and dispute. (The monitoring does rock) I disputed both items. the medical bill collection company verified within 1 day. I said account paid in full to original creditor. So I believe this was a waist of time because I think all they did was check to see if its outstanding in there records and reply back verified. Theres no way they could have got with the original creditor and verified in fact it was not payed. Just seemed to me that disputing to the credit bureau doesn't do a dam thing.

I did the same with problem 3 with same outcome. Account still has a balance so they verify as still outstanding.
They don't investigate a dam thing.



Thanks Hylander for taking time to try and help.

Well you do need to provide proof of being paid, were you able to do that? What I would do, if you hadn't already, was send a copy to both the original debtor and the collection agency of proof of payment. (Cancelled checks, statements, letters, etc) If it is not then corrected to your satisfaction, pay an attorney to draft a letter for you threatening legal action to the original debtor and the collection agency.

[[AK]Bribo]

When all else fails hire a lawyer who specializes in this area. Might cost you a little but you'll end up with a clean credit report and save money in the long run.

[[AK]Hardnok]

Was just listening on the radio to this money guru and advice guy here. A woman called in asking about whether or not she should close all her open but zero balance cards off. He actually told her that all the open good standing accounts were helping her score reach and stay in the 700 that she has. He also mentioned that credit score was based on the balance of TOTAL credit you have available to you. Lets say you owe $2000 on one card but have a total credit available of $10000 total with other open cards but little or no balance. He said if you closed the other accounts because of you not thinking you need them because of none use, it will hurt your credit. So, not really sure what to say about my previous.

http://www.wptf.com/goout.asp?u=http://clarkhoward.com/

Guy has great advice on so many money matters..worth a look

[[AK]Hylander]

Was just listening on the radio to this money guru and advice guy here. A woman called in asking about whether or not she should close all her open but zero balance cards off. He actually told her that all the open good standing accounts were helping her score reach and stay in the 700 that she has. He also mentioned that credit score was based on the balance of TOTAL credit you have available to you. Lets say you owe $2000 on one card but have a total credit available of $10000 total with other open cards but little or no balance. He said if you closed the other accounts because of you not thinking you need them because of none use, it will hurt your credit. So, not really sure what to say about my previous.

That is correct. As I mentioned above, it is the total amount outstanding of your total available credit. Closing the account hurting your credit rating depends on a few things. If you have 5 cards with $100,000 of credit ($20K each for discussion sake) and you have 3 cards with $10K each on them, so outstanding debt of $30K. This gives you a 30% utilization rate, which is pretty low for most people. Now, if you closed the 2 cards with 0 balances, you now have $30K outstanding on $60K available credit, which boosts your utilization rate up to 50%. So how badly it hurts your credit rating depends on how much your credit lines total, and how much you owe. Some credit cards charge an annual fee if you don't use the card for so long, etc... so it might be worth it to close the account if you have very little or no debt and high availability.