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Hello. I'm new, although I used to be a member long long ago (8+yrs). My husband and I have 5 credit cards between us. He has 3, I have 2. One of his has a zero balance (limit $400), one has a $56 balance (limit $500) and one has a $200 balance (limit $500). I have two... one is almost maxed out at $390, with a $400 limit, and the other has a $50 balance with a $400 limit.

So, my questions are... we have scheduled payments so that we can get the three cards with high balances near zero in the next two months. Once we're at that low or no balance, what is the best thing to do? We have kinda crappy cards, since we're only 2.5 years out of bankruptcy. They don't have very high limits, and the interest rates are miserable, I think all of them are over 22%. except one at 18%. The zero balance card for my husband is awful. They charge a high annual fee and the interest rate is 23.9%. Since it's zero, should we either A. Cancel it, or B. Request a lower rate and lower/no annual fee? And if they refuse to alter the terms, should we still cancel? I hate paying a annual fee of $55 or $75 (can't remember) for a card we're not even using. I sent them an email, but have had no response yet... that card is www.rewardzonemastercard.com

Also, is it a good idea to pay my utility bill with my credit card, and then pay off the card? In order to show activity on the card, Assuming of course, that I do pay it and not leave a balance on the card? I want to build our credit UP as best as possible. We just re-fi'd our house from a land contract to a regular mortgage and we want to be in a good position to buy some investment property soon. So we're wanting to make our credit as good as possible.

Lastly, one of my cards offered me an increase in my credit limit of $100, but there was an associated fee. Is this normal? I declined it, since I just want to pay it OFF and not really use it again, since it is not a good card... no rewards and high fees/interest rate. I had never heard of a card charging a fee to increase your credit limit. From their website, it seems like a card for suckers (no offense intended to anyone) but the website interface is very juvenile and is always offering a new card-look (for a fee) and a new this or that (for a fee) and they won't let you schedule payments online in advance, so I have to log in each month to pay, and there's no ability to schedule or plan ahead. Anyway, I've never heard of a card charging to increase your limit. It's a credit one bank card. www.creditonebank.com
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You have crappy credit cards because of the bankruptcy. Paying for increased limit on these cards is useless. High fees for everything is not unusual.

What is your credit score?

Time is going to be required to rebuild your credit.

The next step is to obtain a "real" credit card, while avoiding whatever issues caused the bankruptcy.
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The annual fees are part of the cost if rebuilding your credit after the BK. I assume it was a joint BK since you both have such cards. I agree check your credit scores - use http://CreditKarma.com to get it free monthly - and you are right to pay off all balances as quickly as possible and to never run a balance again, but to pay them off every month without fail.

If you can be disciplined about it, using your credit card to pay your utility bills is ok provided you have the money and don't run a balance. If you pay off the balance every month, over time you will see your score improve and eventually you will see offers for better credit with no annual fees. It may take a couple years but if you demonstrate responsible credit use, your score will improve.

Fuskie
Who would not pay a fee for a credit increase you don't need and would recommend checking with a local credit union to see when you might qualify for a standard credit card and as you are able to get approved for fee-free credit, to replace those annual fee cards and finally get out from under the yoke of the BK...
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Thank you for your reply. I know why we have crappy cards. Our scores are in the low 600's. Medical bills and lack of income caused the BK. We now both have good paying, fulltime jobs with full benefits, so I think that problem is (for the moment) solved. We are wanting to pay off these cards entirely, put more money in savings, so we have at least 3mo. expenses saved, and at the same time, get better credit cards/rates. I guess that was my main question... how do we go about doing that? What do we look for? Are there websites that compare cards? Our credit scores are getting better, as we have paid off cards and made sure to pay on time each month, as well as the re-fi which is now reported to our credit profiles (the land contract was not on our credit reports). I know that time is required, we've spent two years carefully paying everything on time/paying off. Right now, we're trying to maximize our ability to increase our scores, through judicial use of the cards and/or cancelling "bad" cards. I just don't know enough about it to know whether or not to cancel the bad cards? Is it better to just have one card each, with decent rates? Or should we hold the credit cards we have and ride out the high fees for a while longer? I have read that closing accounts doesn't help your credit rating, because the remaining cards, if they have any balance at all, it shrinks your debt to credit ratio. Am I asking this in the wrong place? Is there something I should be reading instead?
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Thanks for that info. I hadn't thought of that, going to our credit union, for a fee-free card. That's a good idea, and we will do that when we pay off these cards in a month or so. I thought paying a fee for a credit limit increase sounded ridiculous, esp. since I'm already paying an annual fee! Ok, so the plan to use the card to pay the utility bill is good, provided we pay off the card. I can set this up automatically, so I don't forget, as I can set up the auto-pay for the utility, to use my credit card, and I can schedule a payment for the same or aprox. amount TO the credit card just after the payment to the utility. Being able to do this online is a big help for me, as it's much easier to see. My husband prefers the old stamp and envelope method, but I prefer to be able to track and pay everything online. How long does it usually take to see an improvement in credit, provided I do the above? (pay off all cards monthly, use some of them at least once a month) I am hoping we can save $ and improve credit so that we'd be in good shape to buy some rental/investment property by this time next year. Does that sound realistic?
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It's going to take time, how much I can't tell you. And yes, you may take a hit when you close the old cards, but hopefully that will be offset by higher credit limits on the cards you replace them with. Just get the replacements first.

Glad to hear the health and employment situation has improved and that your financial recovery is well underway, but it is going to take time and require patience. Thats why I like CreditKarma, because you can track your simulated score over time and play what-if games looking forward.

And remember, just because you do it online doesn't mean you can set it and forget it. Whether you manage your money online or using paper and pencil, you still need to read every statement and bill, verify all charges and make sure all payments are both scheduled and completed on time. That is how you rebuild credit. It ain't sexy but it works.

Fuskie
Who notes it takes 7 years for a BK to roll off and you are only a couple years in, so unless you are using all cash, buying investment real estate another year might prove to be ambitious, but if that is your goal, use it as motivation to do everything right and put yourself in the best position for when the opportunity does come...
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I've never found that using or not using one's credit card actually increases one's credit score. It seems HAVING available credit, being current on any carry-over balance, and not having a high utilization rate seems to be the thing that effects the score in relation to credit cards - but I haven't found that they care whether you don't use a credit card for 6 months or more - just as long as you have it.

So others here have given good advice on how to look for no-fee cards. Once you have them, that doesn't mean you have to charge something on them each month.

I would also say - you might want to hold off on any "investment property". It doesn't sound like you have reserves to handle if you had an investement property today and hit a worst-case scenario. I think you'd be better off focusing on more of an emergency cushion - 3 months isn't much in today's world.
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thankyou metrochick. i dont want investment property today. im planning for a year from now. and we have enough equity that i think our bank will be agreeable. we wouldnt buy anything, to start, that cost more than the equity in our primary residence. just want to start out small. how many months do you consider to be adequate for a cushion?
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Welcome back.

My husband and I have 5 credit cards between us. He has 3, I have 2. One of his has a zero balance (limit $400), one has a $56 balance (limit $500) and one has a $200 balance (limit $500). I have two... one is almost maxed out at $390, with a $400 limit, and the other has a $50 balance with a $400 limit.

So, my questions are... we have scheduled payments so that we can get
the three cards with high balances near zero in the next two months.


See, this is kind of worrisome. Why do you have balances on the cards that you were not able to pay off immediately, and have to take the next 2 months to pay it off? While you don't have a lot of debt (yours is $440, and DH's is $256, for a total of $696) - the fact that you are carrying balances at all, only a couple years out of BK is not a good thing.

Once we're at that low or no balance, what is the best thing to do?

The absolute best thing to do is to NOT charge anything to the cards unless you actually have money set aside to pay the card before you make the charge. After you get to that stage, you can start figuring out if you want to keep or ditch cards, and if you want replacements.

They don't have very high limits, and the interest rates are miserable, I think all of them are over 22%. except one at 18%.

First, check your cards to see if they have grace periods. Assuming there is a grace period, the interest rate doesn't matter, if you pay off the card each month. So don't ditch the card just because it has a high rate.

If the cards don't have grace periods, then that is a reason to start looking for replacements, and ditch the cards without grace periods once you get replacements. In the mean time, if you need to use the card, then make payments to the card before they even send you the bill, so that you can minimize the interest you pay.

The zero balance card for my husband is awful. They charge a high annual fee and the interest rate is 23.9%.

Assuming he can get a fee-free replacement card (possibly at a credit union, like Fuskie suggested), then an annual fee (or a monthly fee) is definitely a reason to ditch the card. If he can't get a fee-free card and feels like he needs more than 1 credit card, he may need to keep this one for a little while longer. He should be sure to have money to pay the annual fee set aside before it gets charged, so he won't have to carry it as a balance.

Also, is it a good idea to pay my utility bill with my credit card, and then pay off the card? In order to show activity on the card, Assuming of course, that I do pay it and not leave a balance on the card?

Assuming that the card has a grace period, and no annual fee, and the utility bill and anything else you charge to the card combined won't exceed 50% of the credit limit on the card, making a regular monthly charge and paying it off in full on time can be a good way to show responsible use of credit.

I want to build our credit UP as best as possible. We just re-fi'd our house from a land contract to a regular mortgage and we want to be in a good position to buy some investment property soon. So we're wanting to make our credit as good as possible.

Well, I would say that you need a lot more in savings before you start looking at buying investment property. In your position, with little available credit, I would say that you need at least 6 months of your monthly expenses (and 12 months would be better) in an emergency fund. And then you need to save for the down payment - generally at least 20% - 25%, sometimes 30%, because it's an investment property. Additionally, you should have at least 6 months of those expenses (apart from your other e-fund) set aside as your investment property e-fund, plus you will need to have money set aside for any changes/updates you want to make to the investment property. So, I think you will probably have plenty of time to build up your credit.

Lastly, one of my cards offered me an increase in my credit limit of $100, but there was an associated fee. Is this normal?

For sub-prime cards, it's actually quite common to charge fees for lots of things, including credit limit increases.

From their website, it seems like a card for suckers (no offense intended to anyone)

It's a sub-prime card. People who sign up for sub-prime credit, with the associated costs and horrendous terms, are generally either desperate or foolish (without the capital f).

AJ
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im planning for a year from now. and we have enough equity that i think our bank will be agreeable. we wouldnt buy anything, to start, that cost more than the equity in our primary residence. just want to start out small.

You are planning on borrowing against equity in your primary residence to buy investment property? THUNK!

Please realize, even if you improve your credit scores significantly - you are unlikely to be able to borrow more than 80% of the value of your home - there are very few lenders who are willing to provide equity loans at more than a combined LTV of 80% at all, and then only to people with stellar credit, which, with a 2.5 year old BK on your credit, you will not have for at least 4.5 years, and possibly 7.5 years, depending on the circumstances of your BK.

just want to start out small. how many months do you consider to be adequate for a cushion?

For emergency funds - a minimum of 6 months of your monthly budgeted expenses, plus 6 months of the expected monthly expenses for the investment property (12 months would be better). Then, you will need to save (not borrow) the down payment for the investment property, which is probably at least 25%, and maybe 30% of the value of the investment property, plus money for any repairs/updates you want to make to the property.


AJ
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What AJ said: do not put your home at risk to go into debt to buy something you can't afford. And that is exactly what you are proposing by trying to use the equity in your home. If you can't pay cash for the 20%+ down payment (and still have that 6 month emergency fund), you cannot afford to buy rental property.
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Also, is it a good idea to pay my utility bill with my credit card, and then pay off the card? In order to show activity on the card, Assuming of course, that I do pay it and not leave a balance on the card?

I pay as much as I can on my Amex, and then pay it off in full each month. I do this to earn the points, and I get a little float time between the date of purchase and the date of payment. It also makes my bookkeeping much easier, since I can download my statements automatically. But for people who have trouble spending less than they have, this wouldn't be a good idea, because you risk not being able to pay in full at the end of the month. For credit building purposes, "pay as agreed" (meaning no late payments, missed payments etc) helps the most.
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"Please realize, even if you improve your credit scores significantly - you are unlikely to be able to borrow more than 80% of the value of your home - there are very few lenders who are willing to provide equity loans at more than a combined LTV of 80% at all, and then only to people with stellar credit, which, with a 2.5 year old BK on your credit, you will not have for at least 4.5 years, and possibly 7.5 years, depending on the circumstances of your BK."

Thanks for your reply AJ. I owe about 55% of my home's value, currently. So I can borrow 30k and still be under the 80% LTV. I plan to save enough for 20% of that by next year. I don't think I'm being unreasonable. There are at least 12-15 properties that are available less than 10 miles from my home that are listed for 30k or less. Single family homes and duplexes. I plan to spend the year preparing, learning more about owning investment property and saving. But that's for another thread. My main question was really whether or not to cancel "bad" cards or hang on to them. I think I've gotten the answer. I'll review so others can critique as well.. I should hold the cards, keep them all at a zero balance, use them to pay utilities, or perhaps the trash bill or whathaveyou, budgeted expenses, and keep paying them off each month. Then, when I get a better offer, take the better card and get rid of the worst card. <--- I hope I got that, in a nutshell. BTW this is contrary to the advice of my loan officer at our credit union, who advised I should keep a small balance on each card, 10-15% of the limit. Confusing. Why zero, vs. a small amount? BTW, I could pay off the cards tomorrow, if needed. I was going by her advice, which was to NOT pay they all entirely off, but carry a small balance on each.... The one card that is close to max will be paid down, if not off, on thursday. I use it a lot for online purchases. It isn't always close to max..., just fyi
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Thanks Gingko. I value everyone's input here... that's why I signed up again! :) It's not exactly what I was proposing. I still wouldn't be over 80% LTV. It would be less, and I would, actually, be paying the 20% down. So it would end up being less than 78% LTV... I'm looking at properties that are between 10k and 30k. Small single family homes in a neighboring town, or in my town. They need work, I'm handy, my husband's handy and he has lots of time during the week to work on it. So, I'd be looking at 6k down, max. I know I can save that in a year. I just wanted to really get a handle on building up my credit with my cards and getting rid of the worst ones. Our income has improved significantly, our current mortgage is extremely affordable, it's less than 23% of our net income each month. Thanks again for your input. Ideas on better cards or how to find them? Is there a website for comparing cards?
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Thanks for your reply AJ. I owe about 55% of my home's value, currently. So I can borrow 30k and still be under the 80% LTV. I plan to save enough for 20% of that by next year. I don't think I'm being unreasonable. There are at least 12-15 properties that are available less than 10 miles from my home that are listed for 30k or less. Single family homes and duplexes. I plan to spend the year preparing, learning more about owning investment property and saving.

If you can save the down payment, which needs to be 30% by the way since this would be an investment property with an investment mortgage, then I would do that instead of borrowing on your own house. Why would you put your personal residence at risk to purchase in investment property? I think you are much better off saving the downpayment, and then getting the investment property mortgage that then gets paid by the income generated by the house. If you can't make enough in rent to cover all the house expenses including the mortgage, property taxes, insurance, maintenance, something for potential vacancy, AND profit, then the house is not a good investment. Visit the real estate investing board for more info on that and to help educate yourself.

BTW this is contrary to the advice of my loan officer at our credit union, who advised I should keep a small balance on each card, 10-15% of the limit. Confusing. Why zero, vs. a small amount?

I suspect you did not hear the loan officer correctly. It does not affect your credit rating at all to carry a balance. All that does is cost you more and give the bank more profit. I suspect she said to only charge up to 10-15% of the limit so that you keep the usage ratio low, and you show responsible credit card behavior. Pay the whole balance off, only charge up to 10-15% of the limit on any card, and don't charge anything for which you do not have the cash currently sitting in your checking account.
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I owe about 55% of my home's value, currently. So I can borrow 30k and still be under the 80% LTV.

Are you planning on refinancing your first mortgage, or taking out a HELOC to access the equity?

With a cash-out refi of a first mortgage, you will pay a higher rate than you would otherwise pay, increasing the payment and interest paid to more than it otherwise would have been when borrowing that amount. Additionally, by refinancing, you will be adding time to when you will actually have your home paid off.

HELOCs are generally adjustable rate, which has the possibility to increase both the interest rate and payment, sometimes without any caps. Some HELOCs have an option to fix the rate, but it's generally at a higher rate than a first mortgage, again, costing more.

Additionally, taking cash out of your equity can have impacts on the deductibility of the interest you pay, making some of it ineligible to be deducted, so you need to check with your tax advisor on that. Depending on your state's laws, there can be other impacts due to taking a cash out mortgage.

BTW this is contrary to the advice of my loan officer at our credit union, who advised I should keep a small balance on each card, 10-15% of the limit. Confusing. Why zero, vs. a small amount?

Either you misunderstood the loan officer, or the loan officer doesn't understand how credit card activity is reported to the credit bureaus for use in credit scoring.

There is no need to CARRY a balance from month to month (paying interest) in order to have an account balance reported to the credit bureaus and show the card is being used. Most card issuers report the balance that is on your statement each month, or sometimes once each quarter. There are some credit card issuers that report based on other criteria, like the highest balance that occurred each month or the balance on a specific date each month. You may want to check with the card issuer to see how they report to the credit bureaus.

Once the activity is reported, there is no need to continue to carry the balance - paying it off in a timely manner will not affect what was reported.

The one card that is close to max will be paid down, if not off, on thursday. I use it a lot for online purchases. It isn't always close to max.

In order to have the highest credit score possible, you should not use more than the 10% - 15% of the available credit on card that your loan officer mentioned. You may want to make multiple payments during the month in order to keep the balance down to that 10% - 15% level. Coming close to maxing out a credit card generally has a negative impact on your credit score, which is contrary to what you said you are trying to accomplish. Another way to manage this would be to just not charge more than the 10% - 15% per month.

AJ
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"BTW this is contrary to the advice of my loan officer at our credit union, who advised I should keep a small balance on each card, 10-15% of the limit. Confusing. Why zero, vs. a small amount?

Either you misunderstood the loan officer, or the loan officer doesn't understand how credit card activity is reported to the credit bureaus for use in credit scoring.

There is no need to CARRY a balance from month to month (paying interest) in order to have an account balance reported to the credit bureaus and show the card is being used. Most card issuers report the balance that is on your statement each month, or sometimes once each quarter. There are some credit card issuers that report based on other criteria, like the highest balance that occurred each month or the balance on a specific date each month. You may want to check with the card issuer to see how they report to the credit bureaus.

Once the activity is reported, there is no need to continue to carry the balance - paying it off in a timely manner will not affect what was reported.

The one card that is close to max will be paid down, if not off, on thursday. I use it a lot for online purchases. It isn't always close to max.

In order to have the highest credit score possible, you should not use more than the 10% - 15% of the available credit on card that your loan officer mentioned. You may want to make multiple payments during the month in order to keep the balance down to that 10% - 15% level. Coming close to maxing out a credit card generally has a negative impact on your credit score, which is contrary to what you said you are trying to accomplish. Another way to manage this would be to just not charge more than the 10% - 15% per month.

AJ"

Thank you. That is exactly what she said, that we should NOT pay them off entirely, that we should "leave a little" on each card. So, I am guessing she does not understand how it works, and neither did I. Now I am more informed, THANK you. This is the kind of information I needed. I will just use my ATM card in the future for online purchases, and maybe just use the card to buy gasoline or something, keeping everything at 15% or less. That should be easy to manage, with only 5 cards and low limits. Wow, I feel(felt) so ignorant! Oh well, live and learn. So, going forward, should I wait until my score increases and add a card, or request a credit limit increase on an existing card, to help boost my score? Credit Karma website shows I could increase my score by 35pts or so, by getting a credit limit increase of just $200-$300. Also, the same boost for adding a card with a $500 limit. Either/or??
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I do not think it is worthwhile to pay to raise your card limit so as to raise the score 35 points. It will do that anyhow if you just stay below 10% usage, and pay on time and in full,.

Your score will heal over time. Paying money to try and accelerate that is kind of a waste of your money for something that will happen anyhow if you use cards responsibly. Better to save that money.
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Now I am more informed, THANK you. This is the kind of information I needed.

You might also want to go look at the myFICO site about credit scoring to get additional information: http://www.myfico.com/CreditEducation/CreditScores.aspx (Just don't sign up for any of the 'free' credit scores being offered, unless you are really diligent about cancelling free trials and/or you really want to pay for the product that they are offering to get the 'free' score.)

So, going forward, should I wait until my score increases and add a card, or request a credit limit increase on an existing card, to help boost my score? Credit Karma website shows I could increase my score by 35pts or so, by getting a credit limit increase of just $200-$300. Also, the same boost for adding a card with a $500 limit. Either/or??

Well, there are credit score hits for each inquiry for new credit, either opening a new card, or increasing a current line, and there are hits to your credit for having new accounts. And you didn't provide us with what CreditKarma said your increase would be if you just paid off your current balances. I suspect that the increase in your credit score from adding the new credit is due to lower the overall % of credit used, not from actually adding the new credit.

So, I would suggest that first you pay your current balances off and start using the cards for no more than 10% - 15% of the available credit. Then confirm that those new lower balances are what's being reported, and see if there is a credit score improvement. After that, check to see if the advice from CreditKarma is still that you could increase your score by adding new accounts and/or getting credit limit increases.

It's a process that will take time, especially since you have a recent BK. Some things on your credit report that impact your score are only improved by increasing the number of months that you continue to pay as agreed, or by increasing the number of months since the derogatory event (like your BK discharge) occurred. So don't try to do too many things at once, without confirming what the impacts to your score actually are, if your score is what you are worried about.

AJ
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I will just use my ATM card in the future for online purchases, and maybe just use the card to buy gasoline or something,

I assume you mean a debit card and would strongly discourage this thought. First, debit cards do not carry the same consumer protections that your credit cards have, and what your bank promises takes time to resolve, during which time you could be out the money in your checking account. This can especially be a problem when buying online from a retailer with whom you may not be familiar or have built a trusted relationship.

As for gasoline, when you use a debit card at the pump or sometimes even with the attendant, your debit card as a preliminary hold placed on it fir a much larger amount than your actual total for filling up. This money is essentially withheld from your checking account until the debit transaction is cleared a day or two later. This abuse of your bank account can cause you to be hit with insufficient funds penalties even when you had enough money in the account, because the as station has hijacked your account until their payment clears.

I don't think using a credit card for larger online purchase, or even gasoline, paid in full monthly is necessarily bad. In today's world it's practically a fact of life. That said, smaller purchases paid off monthly is better for rebuilding a credit history due to a lower debt to credit ratio. You just have to find the right balance that let's you live your life while at the same time builds your future.

Fuskie
Who notes that on your credit history, even when paid off each month, the total amount charged on a credit card is what is reported as your high balance each month, not how much you paid...
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AJ, credit karma states that if I pay off my balances, only, no other changes, that my score will go up 21 points. That is just a predictor, of course, but it's already what I plan to do, so that will be helpful. If I were ONLY to open a new card with a limit of $500 it predicts an increase of 29 points. Weird. And if I do BOTH, pay off all balances and open a new card with a limit of $500, it predicts an increase of 29 points.

So, i think for now, I will just pay off all the balances, diligently only use 15% or less on each card, wait 4 months or so, and revisit the issue, meanwhile just concentrating on saving money. Then I will come back and probably have a lot more questions! LOL. I'd like to eventually get to where I have just two cards, and have no annual fee and low rates, and perhaps some kind of rewards/points for something I would actually use...

Thanks to everyone who piped up about this. I'm sure it seems boring and redundant for those more savvy than I, so I doubly appreciate the time and effort!
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On Emergency Funds:

Right now I have between 6-8 months. I say "between" because some is ear-marked for other things (like a vacation) - but if I lost my job I wouldn't be spending money on a vacation anytime soon. I would like to build that up to a solid 8 months (not including vacation or any other ear-marked accounts).

But - I'm a singleton. Not to be all "gloom and doom" but I think the sum of an emergency fund probably needs to be increased as more household members are dependent on the income of 1 or 2 members - and rarely does that get press. A lot of times we tend to thing of emergencies as happening 1 at a time, but what if one's hit with multiple emergencies? Based on your username, if you are a mom of 5, and if they're young and living with you, that's 5 plus you and your spouse who could all have health problems just at a time when the main breadwinner might have income problems. Again-I'm not trying to be all gloom-and-doom, but I do think it's a consideration that often gets missed in "average" financial advice.
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I'm looking at properties that are between 10k and 30k. Small single family homes in a neighboring town, or in my town. They need work, I'm handy, my husband's handy and he has lots of time during the week to work on it. So, I'd be looking at 6k down, max. I know I can save that in a year.

Okay, I'm trying to square this with some of your previous statements, and something isn't adding up.....

To save $6,000 for the investment property down payment (which would be a 30% down payment on a $20k property - as previously mentioned, investment properties generally require a 25% - 30% downpayment, not 20%), that's $500/month for 12 months. In savings, untouched. And if it's a $30k property, you would probably need closer to $9k. And that's not even counting closing costs.

Add to that an emergency fund of (minimum) 6 months of both your current expenses and the new expenses for the investment property, so, what, another $9000? ($1500/month expenses; 6 month timeframe). So that's another $750/month for 12 months that you need to put away in savings, untouched.

Add in another $3k in materials for you and your handy husband to fix up the small single family home that needs work, and that's another $250/month for 12 months, that you need to put away in savings, untouched.

So, all in, in order to save enough money to have the down payment, emergency funds (assuming you need $9k for this) and $3k in materials to fix up the property, within the next year, you would have to save $1500/month for a year, in savings, untouched, to save what has been suggested to you.

Yet, right now, you said that it was going to take you the next 2 months to zero out less than $700 in credit card debt. And you are working to get your savings up to 3 months in emergency funds. So are you really going to be able to come up with another $1500/month to put into savings, untouched, in order to buy an investment property in a year? If so, is there a reason you haven't been able to do that since, say, the beginning of the year? If you had been doing this since the beginning of the year, even if you started at $0, you would now have $6000 in your savings account - which, at $1500/month expenses, is 4 months of expenses, not the 3 you were originally trying to get to.

I think you really need to sit down and figure out what your available cash flow is, and how much of that you can realistically put into savings without touching it, to see if it's really reasonable to think that you could buy investment property in a year. My opinion is that you are getting way ahead of yourself.

AJ
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I think you should a big fat black line through "investment property" on your wish list.

For an investment property you a cash flow to support a down payment, closing costs, and insurance just to start. Then you will need to have a separate savings fund to cover irregular repairs, your insurance deductible, and periods of the property standing empty. Let's assume you found a property in great shape and selling for less than it's worth and you can get a tenant right away. Now let's say they sign a one year lease. At the end of the year they move out and the property sits empty for 9 months. And while it sits empty, the water heater breaks and floods the downstairs... That would be a big hit even for someone with great credit, decent cash flow, and a savings account.

Right now you are talking about paying off cards with balances below $400. How are you going to handle a $5,000 deductible on an insurance policy?

I would say your goals right now would be:
1. Pay off existing credit cards. Shop for a fee free secured card.
2. Create and track a budget to see if there are any leaks to your finances
3. See if there are ways to increase your income
4. Save up enough savings to cover your family insurance deductible or cover 6 months of expenses, whichever is larger.
5. Look into your retirement savings and see if you are setting enough aside after taking care of food & shelter.

Lara Amber
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i just got a promotion that starts in a few weeks. i will make about $500 more, net, per month. which is where the extra will come from. and i could pay off the cards entirely in a few days. the reason i hadnt was the advice of my loan officer who said i shouldnt. but here the consensus clearly is that zero is better, on all cards, all the time. which makes sense to me. and i was just reading that a 20 to 25% downpayment was just fine. i guess i'll have to ask my bank. but i dont have a problem paying them off, at all. i do agree, tho, i need to thouroughly figure out how much i can save. perhaps it will take 18months.
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i just got a promotion that starts in a few weeks.

Congratulations.

i will make about $500 more, net, per month. which is where the extra will come from.

That's an additional $500/month, net of retirement fund contributions (especially if you get a match, you are contributing to a 401(k), 403(b) or other retirement account, right?) - we'll say 6%; SS/Medicare tax - 7.65% and additional withholding at your marginal rate? - probably either 15% or 25% on the Federal level, plus state income tax, if applicable. So, your raise is for at least $820/month, assuming a 25% federal bracket and no state income tax?

Even then $500/month is only going to put $6,000 per year into your savings account. You need to save for emergency funds (both for your family and the investment property), the down payment, the closing costs, AND the fix up costs - all separately.

and i was just reading that a 20 to 25% downpayment was just fine. i guess i'll have to ask my bank.

For an investment property that is only worth $30k and needs repairs to someone who has a fairly recent BK? Or for someone who has stellar credit, could afford to pay cash and is buying a $200k invesement property? Higher risk = Higher down payment and higher interest rate.

i do agree, tho, i need to thouroughly figure out how much i can save. perhaps it will take 18months.

$500/month for 18 months is $9000. Assuming you can get a 20% down loan on a $30k property, that would require $6,000, which would leave $3000.

Does $3000 cover 6 months of expenses (including the new property monthly costs), closing costs and fix up costs?

Again, I think you are geting way ahead of yourself.

AJ
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It takes a VERY long time.

I had a mortgage that went into foreclosure (the house sold for $40K more than the loan before the bank took it) back in 2006. My FICO credit score is just now getting into the 700 territory, which is what is needed to get the best rates at our credit union. We refinanced our house a year ago, and they would not give us the 3.5% rate if I was on the mortgage. (I am on the title). They said my credit score was in the 680's and we would have to settle for a much higher interest rate.

The only negatives on my credit report was the foreclosure (90+ days late) and one settled credit card account that just fell off. It does not take a lot to destroy your FICO score, and the only thing that can really heal it is time. Lots and lots of time.
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Thanks for taking time to reply. I've paid off my cards and approved the increase offered to me. So, I guess I will have an update via Credit Karma next month as to whether or not that has an effect on my score yet.
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