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credit cards

Discussion in 'The OT' started by cmtar, Apr 1, 2010.

  1. Apr 1, 2010 #1 of 36
    cmtar

    cmtar Icon

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    Well amount about to pay off all my credit cards and close the accounts. Got into a little spending spree so im using taxes to pay them all off. But before i do someone told me that if you pay it all off at once the credit card company will give you a deal and cut your payment some, is this true? And if so how do i ask for them to cut it?
     
  2. Apr 1, 2010 #2 of 36
    Herdfan

    Herdfan Well-Known Member

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    Probably not.

    But unless you want your credit score to take a huge hit, don't close the accounts. It will kill your utilization factor which makes up a big part of your score. So when you go to get a car loan, you get 8.9 instead of 5.9.

    Cut up the cards instead.
     
  3. Apr 1, 2010 #3 of 36
    scooper

    scooper Hall Of Fame

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    Or put them away and don't use them except once in a while to keep the account active.
     
  4. Apr 1, 2010 #4 of 36
    cmtar

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    really? I always thought it was better to only have a few open accounts. How can more accounts with a zero balance be better? If this is the case though il just cut the cards.
     
  5. Apr 1, 2010 #5 of 36
    Scott Kocourek

    Scott Kocourek Well-Known Member

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    Herdfan is absolutley correct. Do not close the accounts. A large percentage of your credit score is based on the percentage of available credit vs. credit used. If you close the accounts your availabe credit goes down, then when you need to apply for a loan you will be in trouble.

    Also if you are able to get the CC companies to lower the payoff you will have to pay income taxes on the write off amount, really if you have it pay it all off.

    Congratulations on being able to pay off your debt.
     
  6. Apr 1, 2010 #6 of 36
    Scott Kocourek

    Scott Kocourek Well-Known Member

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    Perfect plan.
     
  7. Apr 1, 2010 #7 of 36
    paulman182

    paulman182 Hall Of Fame

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    I can vouch for the problems with having lots of accounts with high balances.

    Never late on payments, always pay more than the minimum, and still get dinged on the credit report.

    Since I'm paying in at tax time, no help there.
     
  8. Apr 1, 2010 #8 of 36
    photostudent

    photostudent Godfather

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    If you pay off your balances every month keep the cards. If you are not paying off your balances every month keep the accounts open but cut up the cards.
     
  9. Apr 1, 2010 #9 of 36
    Yoda-DBSguy

    Yoda-DBSguy Hall Of Fame

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    As others have mentioned; I wouldn't close the accounts; just p[ay them off and don't use them as it will look better credit wise.

    the only time you should close non used accounts is before a home purchase. This is to bring down your available credit to income ration. When purchasing a home; they don't look at it by how much credit balances you owe as much as how much debt you "could" get yourself into with the existing credit resources available to you.

    As far as them negotiating your debt to a lower amount if you pay them off in one lump sum goes; it's not gonna happen without a settlement amount which will really hurt your credit. Those options are typically offered to people they know are either are about to go into bankruptcy or are simply behind or late on multiple payments in order to try to recoup some of the debt is better then not collecting any and having to write it off or make it into a lawsuit.
     
  10. dpeters11

    dpeters11 Hall Of Fame

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    You'd think they'd see lots of cards with available balance as a risk. But that's not the way it works. Cut up the cards, but don't close them. This is especially true if you've had the account a long time. Closing an old card reduces your history.
     
  11. Cholly

    Cholly Old Guys Rule! DBSTalk Club

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    Don't cut up the cards! To avoid temptation, put all but one or two in a safe place. Use the one or two cards for a few purchases , but pay them off monthly. Every once in a while, cycle through the cards you have so that each gets used periodically. The rationale for not cutting up unused cards is simple. The issuers and the rating services expect that the accounts be used from time to time. Also, you may find that you need credit at some point in time, and if the cards have been cut up, it will take some time to get replacements. If you choose to close any of the accounts, close just one with the highest interest. If you have department store cards, they generally have high interest rates. It's prudent not to use them unless it's for a super sale tied to the card. Once again, pay the full balance off at the next billing cycle and tuck the card away for future use. A safe deposit box at your bank is a good place to keep the cards that are not in use.
     
  12. ProfLonghair

    ProfLonghair Hall Of Fame

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    Yes, it's true, but DON'T DO IT. What you are talking about is a cancelation of debt. Sounds nice, but next year, you will have to treat the canceled amount as income.

    Say you owe $2000 on a card, and they make you pay $1500 and cancel the rest, as you describe. Next year, you will get a 1099 C, Cancelation of Debt form, with the amount of $500 to be reported as income. Guessing around 25% tax rate for federal, that means $125 more owed, or less returned, next year.
     
  13. Lord Vader

    Lord Vader Supreme Member DBSTalk Club

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    While the advice of not closing the accounts is good, guys, you are all in error in this respect: having too many open accounts will also ding one's credit score. If he has one or two cards that he's paying off, then fine, don't close them out. However, if he has many cards open and pays them all off, he should close out some of them. He should leave open the oldest ones and close the most recent ones.
     
  14. spartanstew

    spartanstew Dry as a bone DBSTalk Club

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    But isn't it better to save $500 now and pay $125 next year?
     
  15. patman99

    patman99 Cool Member

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    Forget the cancellation of debt, it also kills your credit score. It will report on your bureau as SETTLED not PAID AS AGREED. Any lender that sees that will have all kinds of red flags go off. I am a credit analyst and its one of the things that we are trained to look for.
     
  16. Lord Vader

    Lord Vader Supreme Member DBSTalk Club

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    Pat, I should've used you to help me with my identity theft then! :p
     
  17. James Long

    James Long Ready for Uplink! Staff Member Super Moderator DBSTalk Club

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    Payment in full is better. If you pay less than you owe it will be noted and the magic number goes down.

    FICO is a mess. Having too much available credit can also hurt your score. Then again, having your available credit tied up also hurts.

    If you do anything to reduce the amount of open credit lines (which my wife did with our biggest account) make sure it is noted that it was customer initiated. We had a card that had enough open credit to buy a new car and we never put more than $200 on it at a time (hotels for vacations).

    It is good to be able to do what you want to do when you want. Open credit lines help ... but they can also be a temptation when things get tough and tough decisions need to be made instead of getting back into debt. Think ahead, and good luck!
     
  18. dmspen

    dmspen Hall Of Fame DBSTalk Club

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    My mortgage broker/financial dude told me all of the above. But he also mentioned what mortgage companies look at when assesing your 'trustworthiness'. Yes, they look at amount of credit available, but, what they are really concerned about is how much over 50% you are on each account. If you must keep debt, spread it around and don't let any one account get over 50%.

    Also, if you don't use your cards for years, the card company may want to cancel you. At that point, it's OK to let them cancel. Since they're the ones canceling, it doesn't affect you.

    Be aware though, that some credit cards are going back to the annual fee. I just got notified but Citi that my 2 cards will now have a $60/yr fee. I'm not sure how it affects credit score if you opt out in a situation like this. Gotta call my guy...
     
  19. 4HiMarks

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    I've heard that if you really can't resist using them, to put them in a plastic tub (like Tupperware), fill it with water, and stick it in the freezer. You can get to it in an emergency, but it takes a while.
     
  20. James Long

    James Long Ready for Uplink! Staff Member Super Moderator DBSTalk Club

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    And if you can't wait for them to defrost, stick them in the microwave.
     

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