Closing substandard credit cards

[chrissy16]

Been a rough few years. Wound up maxing just about all my cards (there are a lot of them). I even wound up applying for some substandard cards to help.

 

I'm in a better position now to start paying off the cards. From the snowball calculator with the extra money per month I am paying, the plan will take about 3 years.

 

As I pay off some of the low limit substandard credit cards, should I go ahead and cancel the substandard cards, or wait until I'm further along to help with utilization (which is really high now)?

 

My concern is two-fold:

 

1. One credit card I just paid off that has a $300 limit with Indigo Genesis just sent me a letter saying there is a $99 annual fee coming up shortly. Doesn't make sense to have them charge my card $99 since I just paid it off. I have a lot of credit cards - some which are good which I got in better times, and some that are substandard that I got when I was struggling. 

2. I will need to get an auto loan by the spring. I have always paid everything on time with my credit cards and all other debt that affects my credit, just the utilization with the credit cards is extremely high. If I pay off some low limit credit cards the next few months, will that hurt me overall due to utilization?

 

Just trying to figure out the best way to handle this

 

Thanks!

[shifter]

Definitely drop the subprime AF cards. No reason to close cards with no fees. 

[shifter]

55 minutes ago, chrissy16 said:

If I pay off some low limit credit cards the next few months, will that hurt me overall due to utilization?

If you pay off and close cards, that will not help your util. If you post a list of cards with limits and balances and fees we can help direct your payments. The biggest issue that will tank your scores is maxed out cards i.e. +89.5% util. 

[supern8ural]

10 hours ago, shifter said:

Definitely drop the subprime AF cards. No reason to close cards with no fees. 

 

I'd agree with this, maybe request a CLI instead.  That'll make your utilization look better

[Sidewinder]

6 hours ago, supern8ural said:

 

I'd agree with this, maybe request a CLI instead.  That'll make your utilization look better

 

I respectfully disagree.  A subprime card with a $99 fee should be closed no matter what; the guys who issue those cards are never going to give worthwhile limits, let alone ones worth their fees.

[Sidewinder]

Evidence is seeping into my brain that supern8ural was not in fact endorsing the open-keepage of subprime cards with fees in the first place.

 

Which means I must disagree with the disagreement that I have voiced.

 

: /

[chrissy16]

18 hours ago, shifter said:

If you pay off and close cards, that will not help your util. If you post a list of cards with limits and balances and fees we can help direct your payments. The biggest issue that will tank your scores is maxed out cards i.e. +89.5% util. 

I've started paying $500 extra per month in a snowball payoff plan that says it will take about 3 years to pay it all off.

 

I always pay on time all credit-affecting accounts, and never missed a payment. May be the minimum, but it's paid.

 

As I mentioned above, with better times, I want to pay it all off and apply for a car loan in the spring. I paid off a $35000 car loan with one of the credit cards on time. I reapplied a few months ago for the same amount from the same place and was approved, but the timing wasn't right.

 

With the snowball plan I'm on, I was paying the lower balances first to build up momentum and success paying things off. I know they had another plan to pay the highest interest rates first, but the time to pay off and the amount of interest saved was a little bit better than the snowball, but I wanted the success with paying some off quickly.

 

Here is all the info on the credit cards: name, balance, limit, fees, APR - 

https://www.dropbox.com/scl/fi/mxndaqd5n4j7hx3sqy9nz/CC-info.jpg?rlkey=rgbfi5u5jofayfg98oz7kanh7&dl=0

 

Any suggestions would be appreciated.

 

 

[supern8ural]

2 hours ago, Sidewinder said:

Evidence is seeping into my brain that supern8ural was not in fact endorsing the open-keepage of subprime cards with fees in the first place.

 

Which means I must disagree with the disagreement that I have voiced.

 

: /

 

Hah.  Yes, perhaps I should have been more explicit but I was stating that I wouldn't close any card without an annual fee unless there were a compelling reason to do so.

 

*WITH* an annual fee, yes, yeet it as the kids say nowadays.

[greendeh]

2 hours ago, chrissy16 said:

Any suggestions would be appreciated.

 

Your annual fee cards cost you $1077 a year.

 

My limited suggestions.

Order of payoff and account closures for annual fee cards is partially dependent on when the fee hits next.
This is the order I would pay off and close the most troublesome fee cards. All of your annual fee cards need to go, but those Aspires need to go immediately.

 

Indigo Genesis
Aspire 2
Aspire 1
Milestone
Cerulean Continental

First National Leqacy
Blaze
Taz
Merrick Bank

 

 

 

 

Also note that I do not have the list in complete order. My payoff order suggestions are only the ones I stated above the picture.

Edited September 23 by greendeh

[chrissy16]

1 hour ago, greendeh said:

 

Your annual fee cards cost you $1077 a year.

 

My limited suggestions.

Order of payoff and account closures for annual fee cards is partially dependent on when the fee hits next.
This is the order I would pay off and close the most troublesome fee cards. All of your annual fee cards need to go, but those Aspires need to go immediately.

 

Indigo Genesis
Aspire 2
Aspire 1
Milestone
Cerulean Continental

First National Leqacy
Blaze
Taz
Merrick Bank

 

Thank you for the insight. The ones you mentioned above (top nine) were on my first to go list, just maybe not that order.  What you say makes sense. My concern for the short term is the upcoming auto loan I plan to take out in the spring and making things worse as I pay off the accounts, IF I close the accounts as they are paid off. If I am misunderstanding how this would affect my credit, please let me know. I know because of my utilization, my credit is suffering big time. I just don't want to make it worse before the auto loan.

[Burgerwars]

I agree with the above. I wouldn't keep a card open with an annual fee unless you're getting some sort of value from it.

I do have tons of cards with no annual fee but aren't of much use. I do keep them open, but you got to use them or you risk them being closed for inactivity. I do small purchases every few months or load a small amount to my own Amazon gift card balance. No money wasted as it's something I would have purchased anyway and I do shop on Amazon. It's important to use cards with annual fees too. I've had one of those closed on me for inactivity.

 

[shifter]

17 hours ago, chrissy16 said:

I know because of my utilization, my credit is suffering big time. I just don't want to make it worse before the auto loan.

With so many cards and almost all of them maxed out, it's going to be hard to get your scores up in the next few months. The first step would be to pay each card down to below 89.5% of the limit. That would give you zero "maxed out" cards from a FICO perspective, which would give you a pretty decent score bump. But that's going to cost you about $4-5k and most of that money is going to go to your lower interest rate cards, so it's going to cost you. But if it results in a better auto loan rate, that could save you quite a bit of money. So you just have to decide what's more important to you.

 

Also, I'm confused how you pay off $80k at 30% interest in 3 years with $500/mo? You're going to need more like $3k/mo to do that.

[chrissy16]

33 minutes ago, shifter said:

Also, I'm confused how you pay off $80k at 30% interest in 3 years with $500/mo? You're going to need more like $3k/mo to do that.

The $500 is over and above what I am paying now paying minimums. With the snowball effect and keeping the payment at the starting level of the plan (not paying less when the balance goes down) it pays it off.

[chrissy16]

1 hour ago, shifter said:

With so many cards and almost all of them maxed out, it's going to be hard to get your scores up in the next few months. The first step would be to pay each card down to below 89.5% of the limit. That would give you zero "maxed out" cards from a FICO perspective, which would give you a pretty decent score bump. But that's going to cost you about $4-5k and most of that money is going to go to your lower interest rate cards, so it's going to cost you. But if it results in a better auto loan rate, that could save you quite a bit of money. So you just have to decide what's more important to you.

 

As I mentioned originally, one of the CC's listed gave us a car loan years ago that we paid off perfectly. With things the way they are now, I applied for the same amount of car loan - $35k - a few months ago, and was approved, but decided to wait. My concern is I don't want to make things WORSE than they are now by paying down and paying off cards, and closing the worst cards. If closing the cards, and losing the amount going towards a better utilization % will make my credit score worse, that is a concern.

 

Based on your suggestions, I was thinking instead of paying off the low balances and/or cards with annual fees, maybe I should focus on getting each account under the 89.5% utilization. That may be doable in the time I have before a car loan, or at least pretty close. Is it really that big of a bump if I were able to do that?

[shifter]

27 minutes ago, chrissy16 said:

Based on your suggestions, I was thinking instead of paying off the low balances and/or cards with annual fees, maybe I should focus on getting each account under the 89.5% utilization. That may be doable in the time I have before a car loan, or at least pretty close. Is it really that big of a bump if I were able to do that?

It's hard to say because you are still going to be dinged for overall balance being so high. What are your FICO 8s right now? I'd guess probably low 600s? You could probably get to 670 with no maxed out cards. But that's zero. Even one will tank your scores.

 

Will that make a noticeable difference on the interest rate on your auto loan? Depends on who is the lender and what their score bands look like. You could probably ask them what the interest rate would be at 610 vs 670.

[chrissy16]

6 minutes ago, shifter said:

It's hard to say because you are still going to be dinged for overall balance being so high. What are your FICO 8s right now? I'd guess probably low 600s? You could probably get to 670 with no maxed out cards. But that's zero. Even one will tank your scores.

 

Will that make a noticeable difference on the interest rate on your auto loan? Depends on who is the lender and what their score bands look like. You could probably ask them what the interest rate would be at 610 vs 670.

Where can I get a FICO 8? DCU Equifax is 668. I looked at Cap1 Walmart. Walmart used to have Transunion, but I didn't see it.

 

The one that gave me an auto loan before for $35k was Penfed, and they approved me again for that same amount a few months ago.

[shifter]

23 minutes ago, chrissy16 said:

Where can I get a FICO 8? DCU Equifax is 668. I looked at Cap1 Walmart. Walmart used to have Transunion, but I didn't see it.

 

The one that gave me an auto loan before for $35k was Penfed, and they approved me again for that same amount a few months ago.

I'm surprised your FICO5 is that high. When I was maxed out across the board but no lates many years ago I was in the low 600s.

 

What did PenFed offer you for rates a few months ago? 

[chrissy16]

1 hour ago, shifter said:

What did PenFed offer you for rates a few months ago? 

I searched through my emails and saw it was longer than I thought: last October. Financially, I was in the same situation. They said I was approved, but I needed to finish with some paperwork, which I never did. So, I don't know what the interest rate they wanted for this loan.

 

Knowing what you know of my situation now, how would you move forward, knowing that a car loan is coming probably in the spring? Would you go with the plan I mentioned about getting them all to 89.5% if I can, just pay down Penfed and maybe put some more in the savings account I have with them, or keep with the original snowball plan of paying the lower balance/high annual fees?

[chrissy16]

@shifter

 

When you get a chance, please take a look at the last post and let me know what you advise.

[shifter]

1 hour ago, chrissy16 said:

@shifter

 

When you get a chance, please take a look at the last post and let me know what you advise.

Based on your scores, I'd probably focus on paying down the higher interest rate cards especially those subprime ones with brutal AFs, so you can close them ASAP. The interest + AF is costing you thousands a year. 

[hdporter]

On 9/23/2023 at 7:26 PM, chrissy16 said:

I searched through my emails and saw it was longer than I thought: last October. Financially, I was in the same situation. They said I was approved, but I needed to finish with some paperwork, which I never did. So, I don't know what the interest rate they wanted for this loan.

 

Knowing what you know of my situation now, how would you move forward, knowing that a car loan is coming probably in the spring? Would you go with the plan I mentioned about getting them all to 89.5% if I can, just pay down Penfed and maybe put some more in the savings account I have with them, or keep with the original snowball plan of paying the lower balance/high annual fees?

 

I'm chiming in belatedly.  I'll give you some overall feedback.  Some is consistent with that of others; some different.  Take this primarily as added food for thought.  Ultimately, your gut will guide you in the manner that best works for you.  (Of course, please follow with any questions.)

 

It's very encouraging that  PenFed is willing to providing financing, at whatever terms they were willing to extend.  It means that you have at least a viable alternative and aren't starting that search with a "dead battery".

 

Because I fear that the addition of a new auto loan payment is going to squeeze your ability to further pay down your credit cards, I suggest that you defer that purchase/finance transaction as long as reasonably possible and work to reduce your utilization across the board.  Here's what I propose:

 

-- First, minimum payments to all debt except those with fees.  The total effective APR's (incl fees) on these cards are obscene.  Prioritize they're payoff and closure ASAP!  Closing these accounts will reduce your available credit by about $8k-$9k.  The impact on your utilization is significant, but isn't likely to make a real difference in how lenders view your credit.  Hypothetically, if you achieve 75% with these lines intact, after they're removal you'll be around 82%.  (As I said, not an insignificant difference, but unlikely to make or break a lending decision on its own.)

 

-- After the fee cards are "handled", target any payments in excess of minimums to getting each individual account utilization under 70% (target 69%).  You can apply payments as you judge best suits you. 

 

-- Once you have your balances capped at 69% of your credit limits, I would suggest it's an appropriate time to move forward with that auto loan app.  I'll stress that on manual review, your repayment activity will put a positive spin on whatever FICO you're currently at.  This won't get you a better rate than your FICO alone qualifies you for.   But if upon application, your lender has any marginal concerns about the loan, getting your utilization from above 90%+ to 70% in a relatively short period of time (say, a year) is a "feather in your cap" that I wouldn't hesitate to tout as evidence of your conviction to get your finances in hand.

 

-- Assuming you're successful with the auto acquisition, I'll suggest that 70% revolving utilization might be a reasonable point at which to reduce that utilization to under 50% by seeking a debt consolidation loan.  I have in mind a loan of $16k-$20k, a term of 3-5 years, with proceeds spread amongst all your balances, which should realize a significant FICO bump.

 

You may be challenged in the approval of this second loan, as a consequence of the debt load of the new auto loan.  But it's well worth the stab; if you're successful, this could significantly accelerate your path to a prime FICO score in time.

 

As I suggest, this is merely a little spitballing to throw some possibilities up on the board for further thought.  However you proceed, best regards!

 

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