A comfortable Utilization to have

[xfazer]

I have available to me $10,700 cash on hand. Then a weekly income also. I would like to start paying down my credit card utilization - as they are in the 80% to 90% zone. I could do this now, and then go back living check by check, or pay down the balances to 40% utilization now instead of 0% and then pay more and more over the next 3 months with my income. This will allow me to have "safety" money/cash on hand to live on also. Which is my better option? I'm in no rush but would like my score to be back up in the 700 range within 2 to 3 months.

[selfmadetool]

My advice would depend on your salary and circumstances. Although it wouldn't be the smartest thing to do, as you should always have cash on hand if possible, I would pay off my balances and save my paychecks. My reason for doing so wouldn't be just to save on interest, but for the mental peace of mind knowing that I'm debt free. When I was in debt, I was always thinking of which bills I would pay next, counting the days until my next check, performing a balancing act on how much to pay on my accounts, watching due dates and counting weeks until I would have a credit card paid off. For me, it was a horrible way to live and I hope I never have to return to it again. It's a great feeling when you receive your paycheck and you know that it's all yours after recurring monthly bills.

[road2freedom]

I see no sense in paying interest to keep cash on hand unless there is a specific need. If your balances are in the 10k range you are probably paying about $150/month in interest.

[BobWang]

I am REALLY simple-minded, and I think in bullet points.

 

So, here goes

 

1) Most emergency expenses, like hospitals, can be put on a credit card.

 

2) Paying interest on credit cards bleeds off money that could be put in a emergency reserve.

 

3) There is no reasonable investment in the world that returns anything close to the rates charged by credit card companies.

[johnny5]

I would recommend you keep some level of cash on hand but consider how much money your loosing to interest on the debt.

 

Ultimately you pay down the debt, you have access to all that credit again if something happens or comes up. Granted you can't use credit to pay for everything I would think it covers most Sudden issues and you have another source of income for those things that are cash only like mortgage/rent, Car Payments, etc...

[kayvebear]

Use the cash to pay down balances (save 1-2k$ cash for peace of mind if you need).

 

You can always charge to CC's again if need be. You will save on interest and drop your util like crazy. If you can be frugal as all hell for the coming months you might just make it by without spending on CC's again, build up some savings, and have your debt paid off

[xfazer]

Thank you for the replies. One card has a $10,000 line of credit and a balance of $7200. at 13%. The other card has a $5000 limit, and a balance of $4,950 at a 0% interest. and it is at 0% for another 11 months.

 

After I pull my $ out of savings with a penalty, I will have approximately $7,700.00 plus my paycheck of $1,500 a week for a total of $9200. That's why I'm curious as to how I need to disburse funds before it reports to the CRA for June.

Edited May 22, 2012 by xfazer

[road2freedom]

That totally changes things... you slow-player you...

 

If there's a penalty for withdrawing the funds, that must be considered when weighing the benefit of paying off interest-bearing accounts vs letting the money mature.

 

Any balance with 0% is not costing you anything, and really isn't a concern, except minimum payments, until the promotion expires.

 

How much is the penalty exactly?

[BobWang]

Well, if you're paying 0% on the card balances, don't pay them off.

[Repairerer]

3K penalty????

 

Just pay them as fast as you can out of your income.

[xfazer]

That totally changes things... you slow-player you...

 

If there's a penalty for withdrawing the funds, that must be considered when weighing the benefit of paying off interest-bearing accounts vs letting the money mature.

 

Any balance with 0% is not costing you anything, and really isn't a concern, except minimum payments, until the promotion expires.

 

How much is the penalty exactly?

 

Not slow, just taking care of children!

 

I took out a $5000 installment loan on my Sequioa; and the $3700 I have in the savings that my company invested for me wants 30% federal and 10% state to withdraw!

 

I will still have my 401K with the company that they contribute 50 cents on the dollar and that cant be touched until I'm 59. It's some sort of SSEP or something 401K.

 

Anyway the savings I can get as I said is currently at $3700.00 less 40% would give me 2,220. apprx.

[xfazer]

Well, if you're paying 0% on the card balances, don't pay them off.

 

The purpose of paying the cards off or utilization down is to get my score up in the 700's!! No company I have come across gives a cc limit of $20K unless you are in the 700 range. My utilization on the 0% interest card is at 95%!!

 

My question again is do I bring the utilization down to 40, 30 or 20% etc... utilization?

[BobWang]

I feel like I took a nap, and woke up in an entirely different thread.

[BobWang]

[road2freedom]

I feel like I took a nap, and woke up in an entirely different thread.

 

Same here... whew.

[xfazer]

Same thread guys, just trying to decide best approach.

[road2freedom]

Well, let's break this down... rate these objectives in order of importance

Saving the most money

Having cash on hand (and a specific amount)

Score above 700

Applying for a new card

 

I would not touch that money with a 30% hit off the top. Granted you may get some of that back when you file next year, it's still quite a big hit just to lend it to uncle sam for 6 months. Also, what type of account is it exactly? Is there a tax penalty assessed at EOY as well?

Edited May 22, 2012 by road2freedom

[xfazer]

Same thread guys, just trying to decide best approach.

 

Maybe I should bullet - and I was off some numbers sorry about that.

 

Savings balance: $3700.00 to take out and put in my pocket 40% less = $2200.00

Car title loan: $5000.

other savings: $500

Paycheck:$1200 each week.

 

So as of tomorrow I will have $8,900.00 wont get paid again until next Wednesday.

Credit card balances in full; 40% utilization; 30% utilization or 0% utilization? What will impact my score by 30 points or more in the positive? That is the question?

[Repairerer]

Also, transforming unsecured debt into secured debt is a little sucky, though cheaper. But it sounds like what's done is done there. So, put the 5K on the 13% card, leave the savings, live cheap and pay the rest off with your salary.

[xfazer]

Well, let's break this down... rate these objectives in order of importance

Saving the most money

Having cash on hand (and a specific amount)

Score above 700

Applying for a new card

 

I would not touch that money with a 30% hit off the top. Granted you may get some of that back when you file next year, it's still quite a big hit just to lend it to uncle sam for 6 months. Also, what type of account is it exactly? Is there a tax penalty assessed at EOY as well?

 

Not sure.

[road2freedom]

There's no guarantee that you will see a 30 point jump (and it's unlikely), but if you follow BobWang's various FICO threads you will see that optimal utilization for FICO seems to occur in the lower single digits. I think 2-3% was the last update I read.

[road2freedom]

Well, let's break this down... rate these objectives in order of importance

Saving the most money

Having cash on hand (and a specific amount)

Score above 700

Applying for a new card

 

I would not touch that money with a 30% hit off the top. Granted you may get some of that back when you file next year, it's still quite a big hit just to lend it to uncle sam for 6 months. Also, what type of account is it exactly? Is there a tax penalty assessed at EOY as well?

 

Not sure.

 

I would confirm what kind of account that "savings" is. By the sounds of it, it could be a 401(a), 403(b , 401(k), ESP, or many other plan types. The default withholding of 20% and 10% seems common for what I've seen in most retirement savings plans, which is why I'm concerned. The tax burden may not be worth it.

Edited May 22, 2012 by road2freedom

[Jeremy09]

401(k) loan?

 

Benefits: doesn't report to CB's, utilization will drop drastically, you pay interest to yourself instead of some other company and usually at a LOW rate. Also, you keep [most of, depending on your 401k balance] your cash.

Edited May 22, 2012 by Jeremy09

[road2freedom]

401(k) loan?

 

Benefits: doesn't report to CB's, utilization will drop drastically, you pay interest to yourself instead of some other company and usually at a LOW rate. Also, you keep [most of, depending on your 401k balance] your cash.

 

[hegemony]

get a hidden credit card it makes utilization when you make large purchases a non issue

Edited May 22, 2012 by hegemony