Starting today and running through the week, personal finance experts at Consumer Credit Counseling Service of Greater Atlanta will answer questions that readers have submitted.
Here is the first installment. Please come back tomorrow morning for more answers.
Q: I have $12,000 in credit card debt at 5.9%, but I also have $40,000 cash. Should I pay off my credit card debt or should I keep the debt and keep the cash? I heard Suze Orman say that she is recommending NOT to pay off credit card debt because companies are now lowering limits and/or shutting down accounts after they are paid off. Any thoughts?
A: Unless you have a plan to accelerate the payoff of that $12,000, I would use part of your savings to cancel it out. If you are only making minimum payments, it could take 10-15 years for you to pay that debt off. Discipline yourself to only spend on credit cards what you can afford to pay off in a 30 day period.
Q: I was divorced back in 2007 and had to pay my now ex-wife $40k to cover equity and retirement costs. In order to to this, I had to refinance my existing mortgage. Due to a higher interest rate, my mortgage payment increased over $300 per month. With this increase and child support payments of almost $1000 a month, the $1400 increase in additional payments has caused me to have to bridge the gap of additonal payments with credit cards. I now owe almost $20k in CC debt and B.O.A. not only decreased my credit limit from $18k to $12k, but they increased my interest to 28%. I tried to get help with the HARP program the President instituted to get my mortgage reduced, but I was told that I don’t meet the 35% minimum debt requirement (they use a gross income total). I have never had credit issues before my divorce, but now that’s not the case. Can tell me what my options are here before a lose everything?
A: At this point you should make an appointment with a certified credit counselor. Debt management plans will lower your interest rate and help you get out of debt within 3 to 5 years. Your counselor can also review your housing situation and possibly refer you to a housing counselor to get some mortgage relief. Just because one lender told you that you did not qualify, don’t give up.
Q: I have a lot of credit, and with credit card a company lowering the credit limits most everything is maxed out. I got a letter yesterday from another card lowering my credit limit. I told him it was the last straw that will force me into bankruptcy. He said with a threat like that he was closing my account. Is this somewhere in the fine print? And can they now change the terms such as interest?
A: Unfortunately yes. Credit card companies can and will change credit lines and interest rates on accounts that they feel represent a high risk of default. It is usually driven by your FICO score and by your payment pattern at the specific bank.