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How bad is it to use over 70% of credit line?


Littlehuman
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Hi,

 

I've been maintaining my credit utilization under 10% for the last 15 years.

 

I urgently need to have an emergency fund so I'm thinking about using direct deposit cash advance, but I need to use about 80% of my total credit line from a single credit card. 

 

I'm sure it'll hurt my credit score, but how bad is it?

 

Should I use multiple credit card to use direct deposit cash advance instead of one with higher total credit line?

 

 

Is this reversible easily?

Edited by Littlehuman
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Use of the line is not what will ding the score, although the cash advance COULD hurt internally as relates to future line increases.

 

What hurts is the report of a balance that exceeds certain thresholds.  You don't indicate how long you intend to revolve that balance or how many of your other cards ALSO have balances being reported. 

 

Paying interest for the sake of an emergency fund is NOT wise though...

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6 hours ago, centex said:

Use of the line is not what will ding the score, although the cash advance COULD hurt internally as relates to future line increases.

 

What hurts is the report of a balance that exceeds certain thresholds.  You don't indicate how long you intend to revolve that balance or how many of your other cards ALSO have balances being reported. 

 

Paying interest for the sake of an emergency fund is NOT wise though...

 

Not only paying interest but the cash advance fee could be as high as 3% of the advanced amount.

 

In addition to the interest and fee(s) there is another potential consequence.  Whether you use multiple cards or one with a higher limit you run the risk that sudden large cash advance(s) signals financial problems to the creditors and they balance chase or close your accounts outright out of concern you are about to implode.

 

This is a really bad idea.

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There's much I can say in addition to what's been noted.  Bottom line, borrowing (of any type) is not an effective means by which to establish an "emergency fund".  If you proceed as planned, I'll lay odds that 2 years from now the "fund" is exhausted and you still have much of the credit card debt outstanding.  (I'm not singling you out here; you may be the "exception'.  But that's descriptive of general human behavior, including my own.)

 

My advice, set up a weekly funds transfer from where you pay is deposited to a savings account (say, for anything from $25-$200 per pay period).  And don't touch that account for any need except a cash squeeze that will prevent you from making your housing payment.  Make it absolutely your last resort, even if the alternative is taking on a 24% debt.

 

If, instead you dip into your "emergency fund" for unexpected expenses ... car repair, dental work, etc., you'll likely find that you won't build up much of an "emergency fund".  Even "unexpected" expenses must be expected to occur with some frequency over the medium haul.

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Regardless of what the funds are used for (that bottle of champagne in Vegas was ONLY $2,499 thank you very much!), I’ve found little score difference between carrying across multiple cards or loading up one card as long as you have (1) good history, (2) overall usage mid-teens or lower and (3) you have a decent stable of mid to high limit cards with zero balances (one PIF daily usage card is OK).

 

When I’ve done the one-card thing, I made a payment of $910 each month. A $10,000 balance was taken care of in just over one year. Would under one year be better? Yes. But I’ve found that psychologically $910 feels easily doable while still reducing the balance in big, mouthwatering chunks.

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Thank you everyone.

 

10 hours ago, centex said:

Use of the line is not what will ding the score, although the cash advance COULD hurt internally as relates to future line increases.

 

What hurts is the report of a balance that exceeds certain thresholds.  You don't indicate how long you intend to revolve that balance or how many of your other cards ALSO have balances being reported. 

 

Paying interest for the sake of an emergency fund is NOT wise though...

Thank you for the suggestion. The only reason I'm interested in this cash advance is that it's a promotion. 0% APR until 2023 although I need to pay up front 3% of transfer interest as CreditSucksNot pointed out.

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6 hours ago, racer7949 said:

Regardless of what the funds are used for (that bottle of champagne in Vegas was ONLY $2,499 thank you very much!), I’ve found little score difference between carrying across multiple cards or loading up one card as long as you have (1) good history, (2) overall usage mid-teens or lower and (3) you have a decent stable of mid to high limit cards with zero balances (one PIF daily usage card is OK).

 

When I’ve done the one-card thing, I made a payment of $910 each month. A $10,000 balance was taken care of in just over one year. Would under one year be better? Yes. But I’ve found that psychologically $910 feels easily doable while still reducing the balance in big, mouthwatering chunks.

 

I totally agree and I plan to pay it back within a year as well.

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17 hours ago, Littlehuman said:

Thank you everyone.

 

Thank you for the suggestion. The only reason I'm interested in this cash advance is that it's a promotion. 0% APR until 2023 although I need to pay up front 3% of transfer interest as CreditSucksNot pointed out.

You won't make that 3% back on the emergency account interest.  If you were in a position to pay the advance back across a year (in which you are ALSO not going to put other purchases on the card because of how payments are applied), then you are in a position to simply place funds in an account monthly without sending red flags to your lender. 

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On 10/6/2021 at 7:50 AM, Littlehuman said:

Hi,

 

I've been maintaining my credit utilization under 10% for the last 15 years.

 

I urgently need to have an emergency fund so I'm thinking about using direct deposit cash advance, but I need to use about 80% of my total credit line from a single credit card. 

 

I'm sure it'll hurt my credit score, but how bad is it?

 

Should I use multiple credit card to use direct deposit cash advance instead of one with higher total credit line?

 

 

Is this reversible easily?

I gather you need cash that should have come from an emergency fund and not that you intend to use the cash to create an emergency fund.

 

Consider taking out a personal loan instead. You could well get better interest rates than the overall cost of cash advances on a credit card. And it will look better on your credit reports than running up a large balance after a long record of low balances.

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On 10/7/2021 at 2:36 AM, centex said:

You won't make that 3% back on the emergency account interest.  If you were in a position to pay the advance back across a year (in which you are ALSO not going to put other purchases on the card because of how payments are applied), then you are in a position to simply place funds in an account monthly without sending red flags to your lender. 

I understand I won't get 3% back as it's interested, but it's the lowest total cost I've found as long as I pay the total amount in time.

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On 10/7/2021 at 9:39 AM, cashnocredit said:

I gather you need cash that should have come from an emergency fund and not that you intend to use the cash to create an emergency fund.

 

Consider taking out a personal loan instead. You could well get better interest rates than the overall cost of cash advances on a credit card. And it will look better on your credit reports than running up a large balance after a long record of low balances.

I've looked into personal loan and they have higher APR than the offer I have from BOA.

 

BOA offers 3% transfer fee and 0% APR until 2023. Discover personal loan APR is around 5%, which is higher than advance direct deposit. I wasn't able to find lower APR in other banks' personal loan offers.

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5 hours ago, Littlehuman said:

I've looked into personal loan and they have higher APR than the offer I have from BOA.

 

BOA offers 3% transfer fee and 0% APR until 2023. Discover personal loan APR is around 5%, which is higher than advance direct deposit. I wasn't able to find lower APR in other banks' personal loan offers.

You indicated you would pay off the loan within a year. If so, then a 5% APR loan you pay off within a year with fixed payments each month will cost you less than a cash transfer fee of 3%. and a zero APR after that paid the same way. Run a spreadsheet. Just be careful if terms aren't met. Banks make a lot of money on deals that seem good but have triggers if terms aren't met.

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9 hours ago, cashnocredit said:

You indicated you would pay off the loan within a year. If so, then a 5% APR loan you pay off within a year with fixed payments each month will cost you less than a cash transfer fee of 3%. and a zero APR after that paid the same way. Run a spreadsheet. Just be careful if terms aren't met. Banks make a lot of money on deals that seem good but have triggers if terms aren't met.

 

Thank you. Well, I wasn't able to find a personal loan that I can pay off within a year. Unfortunately, most of them only offered 36 months+. That actually came out more than 3% + 0$ APR.

 

I'm going to keep looking.

 

Update: I'm a bit confused. I used a calculator.

 

Discover offers 5.99 APR for 36 months personal loan.

 

Say I borrow $20,000 and pay it back within a year.

 

Total amount is $20,644

 

BOA promotion offers 3% transfer fee with 0% APR until Jan 2023.

 

3% of $20,000 is $600 making total amount $20,600.

 

Isn't it cheaper...? (it's just $44 though).

 

 

Edited by Littlehuman
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8 hours ago, Littlehuman said:

 

Thank you. Well, I wasn't able to find a personal loan that I can pay off within a year. Unfortunately, most of them only offered 36 months+. That actually came out more than 3% + 0$ APR.

 

 

Not a problem!

 

Just because the loan terms are 36 months doesn't mean you can't pay it off in 12 months. You can always pay more than the minimum just like on a credit card and any excess goes to the principal. So if you can afford to pay it off sooner you will pay even less overall. 

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6 hours ago, cashnocredit said:

 

Not a problem!

 

Just because the loan terms are 36 months doesn't mean you can't pay it off in 12 months. You can always pay more than the minimum just like on a credit card and any excess goes to the principal. So if you can afford to pay it off sooner you will pay even less overall. 

Ah I see what you mean. Yeah, I think I'll look into Discover personal loan in that case. Thank you again!

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