Crazy or genious, I am not sure which.

October 3, 2006 11:23 AM

Like most Americans, my wife and I are struggling with debts. I thought of a great way to eliminate them, but my wife does not agree. What do you think?

Well, my method is very unconventional, and takes A LOT of willpower on our part.

We have about six or seven credit cards, which are all maxed out.

What I plan to do is to of course, write down everything we owe, when it is due and keep basic track of things. From this, we can glean some kind of budget.

Using the budget, my plan is to take all of the budgeted amounts and place it towards our credit card debt.

Then, using the card(s) that have newly available balances, we buy the things that were budgeted for. If we come under budget on those categories of spending, then the difference represents a debt that no longer is there.

Gradually we would pay the cards off in this manner, and then cancel them, only keeping cards that have low interest, and using them only in emergency, and paying the balance off each month and that sort of logical family financal model.

Yes, I realize it is a bit dangerous, but we would be no worse off - all our cards are already maxed.

Just as a bit of history, my wife has been in-charge of the bookkeeping for a long time, and now it's my turn. She kept everything in her head, and I keep it in Quicken.

posted by Monkey0nCrack to work & money (42 comments total)

You want to use more credit to eliminate your current debt? I can't see any way this is a good idea at all.

We were struggling with debt, and we did debt consolidation for our two credit cards. Best thing we ever did, only wish we'd started sooner.
posted by agregoli at 11:27 AM on October 3, 2006

No. I want to use money slated for something else to pay off the credit cards and use the credit cards to buy the items that that money was slated for. If those items COST LESS than the money I put on the card, then the card blance GOES DOWN.

It will take great willpower to buy less of those items and cheaper so that the balances go down.
posted by Monkey0nCrack at 11:30 AM on October 3, 2006

I think that your method doesn't get you very much (I couldn't find the benefits listed in your question -- rewards?) but has a high risk of continuing a dependancy on credit.

I think to make this work a couple would have to be very detail oriented because it's complex and confusing. But it doesn't seem like either of you are very detail oriented -- you don't know exactly how many credit card accounts are maxed out and your wife does your finances in her head.

My advice? Cancel all the accounts except 1 with a small credit limit for true emergencies. Consolidate your debt somehow into lower interest rate opportunities. Budget and pay down your debt in a conventional manner.
posted by visual mechanic at 11:31 AM on October 3, 2006

If those items COST LESS than the money I put on the card, then the card blance GOES DOWN.

And if those items cost more? As they historically have for you (considering you are in debt)?
posted by visual mechanic at 11:32 AM on October 3, 2006

I am in a similar boat, albeit one that is smaller and closer to shore (metaphor now dead).

Three possible weaknesses in your argument:

1) When the credit card bills are due.
I am not sure if they occur on close/the same dates or if they are spread out managably throughout the month. Any rent/mortgage/other large regular payments occuring nearby may make it uncomfortably tight during the first/last week of the month. This also depends on the amount and frequency of your paychecks.

2) How much you pay on each card.
This will be a balance between paying off the highest interest cards and paying on the low interest card enough to use it for purchases. In other words, if you pay them all off equally you may end up putting the same amount back on cards for other expenditures (two steps forward and one step back), which will nickle and dime you with interest. The same with paying the low interest cards off more. If you try to pay most on the high-interest cards you may not have enough on the lower interest to pay for groceries.

3) No flexibility for emergencies.
My wife and I always try to keep at least $500 in savings for an unforseen/forgotten expense. Mind you, it goes away every month, but we try to put it back again.

Quicken is a much better method for budgeting than "keeping it in the head", unless she possesses a preternaturally powerful memory.

Good luck.
posted by JeremiahBritt at 11:33 AM on October 3, 2006

The only advantage in your plan is you get to avoid talking to your creditors. You can just shift things around without having to deal with anyone.

The disadvantage is you'll end up paying far more in interest than you need to.

Consolidate.
posted by scheptech at 11:33 AM on October 3, 2006

I hate being a buzzkill, but it sounds like your method as described would require a lot of willpower, and I don't know if it would benefit you in the long run. You'll still be paying interest on the balances, and that stuff can really kill. My wife and I lived off our credit card for the better part of two years, and we paid it off twice (after a refi and selling the house), but if we'd tried to pay it down incrementally, the interest would have amounted to several hundred dollars on top of everything else.

I would recommend pulling out some equity if you have it, or consolidating the debt into one loan. You won't choke to death on the interest, you'll have one payment a month to worry about instead of six or seven, and you can get on with your life.
posted by Shecky at 11:34 AM on October 3, 2006

scheptech is right - the interest is gonna kill you.

The only way this plan makes sense is if you have enough slated in savings to put almost all of these debts to bed - since that doesn't seem to be the case, I'd advise another course of debt repayment.
posted by agregoli at 11:36 AM on October 3, 2006

Lock up your credit cards, destroy them, whatever, and use cash from your income stream to 1) purchase essentials on a tight budget and 2) pay off the cards, making the minimum on all of them if you can and otherwise paying off the highest interest rate first.

This way channels you to do the right thing and makes it difficult to continue incurring debt - requires less "willpower," in your parlance. I'm not sure why you'd want to do it another way. I see increased risk in your plan with no corresponding benefit. Do you really not see that the use of revolving debt is the problem here? What's the point of your alternative?
posted by rkent at 11:37 AM on October 3, 2006

You are making this more complicated than it should be. There is no reason to pay off the debt in amounts equal to your budgeted items.

You want the credit card debt eliminated ASAP because you are paying hundreds or thousands of dollars a year in pointless interest payments.

It's pretty simple to pay it down:

Figure out your income.
Figure out the minimum you must spend each month (this is your budget).
Use the difference to pay down the debt on the highest-interest card.

Your debt will go down every month.
You will know exactly how long it will take to pay it off.
You will not be accumulating more debt.

If your budgeted items are more than your income, you need to seriously re-evaluate. If the amount extra you have to pay off your cards just covers the interest and not significant amounts of the prinicple, then you need to figure out how to lower your interest payments or reduce your budget for purchases.

Finally, you should see if you can inexpensively balance transfer all of your debt to one or two low-interest cards.
posted by underwater at 11:37 AM on October 3, 2006

A couple of assumptions you are making are that you'll come out under budget and that you will always have low-interest debt available to you. You're also assuming that your under-budgetness will stay ahead of your interest payments, which seems like a pretty odd assumption, as you have already demonstrated that you cannot live within your means.

Your cost of living appears to be higher than your income. You have to change that.

Several close friends of mine have gotten out of your situation through non-profit debt consolidation services. One of the requirements of these places is you not hold any credit cards. You need to make a budget and stick to it. And it needs to include debt payments as a line item. They are not optional. If you don't have enough income to cover your minimal living costs and pay down your debt, I would seriously consider declaring personal bankruptcy.
posted by mzurer at 11:37 AM on October 3, 2006

Hmmm, I see where you got your nickname.

It really doesn't matter whether your income gets expended in cash purchases + minimum payments on credit cards (no new credit purchases), or credit purchases + large payments on credit cards (no cash purchases). The latter might get you some airmiles or something like that.

It is *possible* that you might be able to reduce your interest burden by taking out new low-interest credit cards, and moving balances to them (perhaps by making new purchases with the new cards, and paying off the old cards with your income). I advise against that in your case, since you do not seem to have the discipline necessary to do that.

There are other one-time measures you can take as well, such as paying off your credit cards with a home equity loan (if you own a house, of course). These are ONE-TIME things that will help you if you've truly made a commitment to live within your means, and won't help at all if you haven't.

What matters is that you decrease your monthly expenses overall, to something well below your income.

When budgeting, make sure you count all your expenses, including interest (from the credit card monthly statements):

groceries - $x
electricity - $x
interest on Visa - $x
interest on Mastercard - $x

You may find that your monthly expenses are actually rather high compared to your income.
posted by jellicle at 11:40 AM on October 3, 2006

I don't think this is a good idea. The only way to wean yourself out of this debt is to stop using credit cards altogether. Unless you are getting some sort of benefit from the cards like airline miles or cash back there is no benefit from doing this. It only reinforces the behavior.
posted by JJ86 at 11:42 AM on October 3, 2006

There's really only one good, simple way to get yourself out of debt. Figure out how much money you make (after taxes), then figure out how much money you need to spend (necessities only, rent, food, utilities, insurance). The rest of your income goes to the debt (highest interest rate first).

It's good that you want to make a budget. But instead of this cockamamie scheme you've proposed, just do a normal one. Frankly, you have a problem managing credit cards, so trying to use them as a solution is not going to work.

My girlfriend used to have difficulty keeping all her credit and store cards managed. The solution was to close them all and open one with a low interest rate and high limit. It was much easier to track what she spent and what she paid off.
posted by MrZero at 11:42 AM on October 3, 2006

What everyone else said. The trap of credit cards is the interest. By using the credit cards as a way to rearrange your budget, you're not dealing with the fundamental problem. The only way to get out of credit card debt is to stop using them and put more than the minimum payment towards them every month. I think the consolidation idea is great. Not only do you only have one bill, but you also lose some of the mental pressure of having lots of debt everywhere you look.
posted by Kimberly at 11:42 AM on October 3, 2006

Here's what we do:

1. Figure out all the bills for the month, and when they're due.

2. Estimate other expenses for the month (food, etc.) - withdraw $$$ from bank and place it in labeled envelopes (we have one for food, one for gas, etc. )

3. Pay bills via check.

4. Pretend we don't have a bank account 'til the next cycle starts up again.
posted by Mister_A at 11:43 AM on October 3, 2006

What you are talking about is a sounds like quite a juggling act.

All you really need to do is have a defined plan for eliminating that debt. Unfortunately, debt is like fat... you lose weight but without lifestyle changes, it comes back quickly. How in the world did you get here in the first place? That's worth asking once you solve your immediate problem.


Were I you (and I have dealt with monsterous corporate debt before) I would:

Get a debt counselor. Sounds like you could use one.

Either consolidate for immediate lower payment or contact each credit card company and ask them to adjust your rates down. Often, they will. (In my corporate emergency I did this by identifying non-essential creditors and advising them they'd see no money from me for a year. Things are handled a little different between companies.)

Cancel the cards and quit using them (otherwise you'll just keep increasing your debt).

Either increase your earnings (part time job / moonlighting) or decrease your expenses (no cable TV, etc.). Your post implies you're willing to begin making some sacrifices.

Apply every cent you can to the advance paydown of your consolidated debt.

If you've used high rate debt to buy a bunch of junk you don't enjoy, sell it and pay down the loans.

Have a defined time frame for debt free status and track your progress weekly. If you measure it, you can control it. Immediate feedback assists in maintaining discipline.

The upside of all of this is that you'll probably have a better credit rating by paying off the max'ed accounts and staying more than current on the consolidated one. The key to making it work is to drive it down as fast as possible so that any higher rate on the consolidation loan is in effect for as short a time as possible.
posted by FauxScot at 11:44 AM on October 3, 2006 [1 favorite]

If you had the willpower to do this, you probably wouldn't be in the problem you are now, right?

Consolidate and cancel all your cards and use only debit from now on. Don't fall into the credit trap again until you have proven to yourself/yourselves that you can use it responsibly.
posted by luriete at 11:51 AM on October 3, 2006

Don't charge the necessities. You've got an idea that isn't bad but an implementation that's flawed. Figure out your budget, which you've done and add in a small amount towards reducing credit card debt. Use a debit card or cash to pay for everything. Any surplus gets put towards additional debt reduction.

My big concern with your plan is that you're going to end up not making your budget and paying interest on food you've already eaten, gas you've already burned and end up even in more debt. The solution to credit card debt is never more credit.
posted by substrate at 12:07 PM on October 3, 2006

If you had the willpower to do this, you probably wouldn't be in the problem you are now, right?

Luriete's is the best comment in the entire thread.

MonkeyOnCrack, I have been where you are now. I've tried all sorts of credit card games. They don't work. Why not? Because you don't have the willpower. If you're in debt now, the worst thing you can do is to continue to use the debt.

Here's what I recommend (and this is based on personal experience):

1. Cut up your credit cards. All of them. Everyone. I don't care what reason you (or anyone else) comes up with for keeping one — maintaining your credit rating, emergencies, etc. — these are just rationalizations. Stop using credit. Stop thinking of credit as a viable option.

2. Choose a debt-repayment method and stick to it. Several people here have already recommended the "pay highest-interest rate first". That's keen from a purely mathematical standpoint, but there's more involved here than math. There's psychology and emotion and all sorts of other stuff. For that reason, I advocate the use of the debt snowball, which involves paying smallest balances first. This gives you some quick psychological payouts, and keeps you motivated to pay off debt. (I've written about two approaches to debt reduction.)

3. Read some personal finance books. This probably sounds dull. You probably think you don't need to do this. But guess what? You can save yourself a ton by figuring this stuff out now. Go to your public library and borrow Dave Ramsey's The Total Money Makeover. Based on your situation, I think it's best for you.

You don't get rid of debt by playing games with credit cards (or playing games of any sort). You get rid of debt by spending less than you earn, and by applying the savings toward debt reduction. It's a long haul. I know. I'm nearing the end of it. I accumulated roughly $25,000 in credit card debt in my 20s. That debt has stuck with me for fifteen years. It sucks. But I'm starting to shake it by using sound personal finance principles. And, in fact, the end is in sight. On 25 March 2008, my 39th birthday, I should be debt free (except for my mortgage).

Be smart. Don't play games.
posted by jdroth at 12:09 PM on October 3, 2006

Everyone should be "every one".
posted by jdroth at 12:11 PM on October 3, 2006

Please don't mistake this as self-righteousness, but that old "Most Americans" fallacy is just an excuse people use to convince themselves it's ok to be in debt.

Most americans don't have any credit card debt.
posted by M.C. Lo-Carb! at 12:14 PM on October 3, 2006

Most americans don't have any credit card debt.

Yes, but it's a near thing: 45% do, 55% don't. And to argue over "most" vs "a lot" is immaterial. Credit card debt is a problem, and a big one. But you're absolutely right that just because everyone else has credit debt doesn't make it okay...
posted by jdroth at 12:18 PM on October 3, 2006

MonkeyOnCrack, can you articulate the advantages you see to your method versus, say, paying for everything (including your credit card bills) with cash? As I see it, the primary difference is that your method makes it harder to keep track of your spending.
posted by mr_roboto at 12:20 PM on October 3, 2006

jdroth makes great points, as does underwater and others. There is absolutely no way to win the credit game. You cannot game the system the way you think you can. Especially with the new laws that allow credit companies to raise your interest rates if you miss a payment, not only to them...but to ANY creditor. That means your interest could go as high as 25% or more. (Don't get me started on the usurious qualities of credit card companies.)

If you have 6 cards maxed out, and you're struggling to keep everything paid, seriously consider credit counseling and a debt restructuring. If you feel capable, you can often negotiate directly with creditors, but I don't recommend it. They really do hold the winning hand as long as you carry a balance.

If you wanted to consider the credit counseling route, do your homework. There are lots of scams out there.
posted by dejah420 at 12:23 PM on October 3, 2006

Just get rid of all your credit cards. If they benefited you economically, nobody would provide them, would they?

I know, I know, you think you are smarter than all the other shmucks with credit cards. You just have to stick to your system, right?

This is gambler logic. You are gambling that no events will arise that will convince you to move off the system and go deeper into debt.

You cannot trust yourself enough to stick to the system, we are all subject to prevarication and temptation. I have never owned a credit card yet and can't see why anyone who is not using it exclusively to scam airline miles does.
posted by sonofsamiam at 12:31 PM on October 3, 2006

I was young and stupid and racked up credit debt that totalled 50% of my income. I used a debt management service called Genus*. They negotiated my highest balance card down to 0% interest! I was on a six year payback schedule with one automatic payment deduction per month, and Genus payed my creditors. Their fee was $3 per month per card (I believe there is also a one-time sign up fee of ~$25). I still received statements so I could verify that Genus was making the payments. If I had extra money, I made more payments directly to my creditors. Once one card was paid off, I maintained the same deduction and shifted that portion to the highest remaining card. My debt was gone in three years (extra income from a promotion at work) and I have great credit now.

Trust me, putting more debt on cards is not the way to go. Please do not rest your family's future on this "genius" plan.

*I do not work for Genus, I am just a satisfied former customer.
posted by killy willy at 12:58 PM on October 3, 2006

Read some personal finance books

Reproduced in it's entirety - a self-help book from a SNL parody:

Introduction
This book is based on the difficult concept that if you don't have money you shouldn't buy things. If you want something, but don't have the money, don't buy it. While this flies in the face of conventional wisdom but this radical concept could change the way you live. The basic concept of the book is this: It's okay to live on less than you make. Really.

The Problem
People like money. People also like things. When people see stuff they want they give money to get it. The desire to get stuff is strong with people. Perhaps you have had this desire. People things something looks really cool or think that they deserve it, even if they don't have money. If they don't have the money but still want it, they buy it anyway. This gets them in debt.

Debt is Bad
When you buy things you can't afford, you have to get the money from somewhere else like a bank, a credit card, or a big guy named Guido. The nasty trick that you may not know is that these lenders not only want the money back, but they will charge you more money for the privilege of borrowing money. This charge is called "interest" and it can get you. Interest grows as time goes on, and you owe more and more to those you borrowed from. Owing someone else is called debt, and it is bad. To avoid debt, you could buy things only with saved money.

"Saved Money" is Good
Some may ask where this "saved money" comes from. Unfortunately it does not grow on trees. Saved money comes from savings. To get these savings, you have to put money away so you can buy something. This saved money can be in a mutual fund, a money market account, or even under your mattress, as long as it's not spent. It is much easier to save money if you are not using it all to pay down debt. In other words, the faster you can get your debt paid off, the more money you can save. The you can afford stuff. Cool.

Conclusion
As you can see, you should not buy things you cannot afford. You should only buy things you can afford. To afford things, you need to not have debt and save money. These are difficult concepts, but hopefully this book is helpful.
posted by Bonzai at 1:04 PM on October 3, 2006 [4 favorites]

Seconding Dave Ramsey's Total Money Makeover.
posted by kc0dxh at 1:05 PM on October 3, 2006

I wonder if the 55% that don't have credit card debt are just the ones that have bad credit and cannot get credit cards.

I'm in that boat. No credit cards at all.
posted by drstein at 1:11 PM on October 3, 2006

MonkeyOnCrack (unfortunate name for this situation), I actually used a scheme like this and successfully paid off some debt I had when I first graduated college. I think the reasons it worked were:

1 - I only had about $2-3,000 in debt;
2 - My income had suddenly gone up a lot, and I had few responsibilities (no house payment, minimal rent, my 11-year-old Datsun was still running);
3 - I was 105% committed to paying off the debt;
4 - I *think* I had a definite plan with dates and everything.

What some of the respondents here are missing is that you may be able to completely pay off the balance of one or more cards very soon, and then, even if you do use the card for more purchases after that, you may not have to pay interest on the new amount. Actually, I think it could work - but make sure you do figure out the timing carefully to take into account things that have to be paid by check, like your mortgage.

So it's not completely without logic to try this - but you do have to be very, very careful, have a detailed plan with a timeline, read _all_ card offers _very_ carefully, and you _both_ would have to be completely committed to this. The amount of money you owe would have to be small enough that you can pay it off in a reasonable amount of time, before higher interest on your new cards kicked in.

If your either you or your wife don't do so well with keeping things in your heads, though, you could work out a system where you set the limit of one of your cards pretty low, after you pay off the balance. That way you can't overcharge it. I think your bank may work with you on this.
posted by amtho at 1:30 PM on October 3, 2006

Strong, STRONG recommendation: Get thee to a credit counselor. Use a non-profit credit counseling service such as Consumer Credit Counseling Service (CCCS) and enroll in their program. I've done this (actually, twice, but I hope the second time's the charm ;- ).

The way it works is this (more or less):
1. You establish an account with the company.
2. You pay them once a month, enough to cover amounts to pay creditors, plus some adminstrative fees.
3. They pay your bills for you.

Part of the agreement is that they contact the creditors, informing them you are in credit counseling and they freeze the cards to prevent new spending. The upside is that many, many creditors have standing agreements with the counselors whereby interest is reduced or even eliminated altogether. The incentive for them is that if you are that far in trouble, they would rather work with you through a structured, disciplined third party than to have you go to collections.

The administrative fees are usually very low (they are non-profit and it probably doesn't even cover their costs). But they are, in my experience, more than made up for in savings on interest that you realize by going through the counselors.

Most plans end up where your monthly payment is significantly less than current minimums, but because of the reduction of interest, they generally take 5 years or fewer to pay off.

While going through the program, don't think about buying a house; you will not be approved for a mortgage. A new car is probably out of the question too. But while we were going through it, we did finance a used car at a reasonable rate.

However, once you've completed the program, your credit score will take a hefty vertical jump. Shortly after our last payment, we got a new car loan at less than 6%.

Five years seems like a long time, but once you get over the hump, it starts happening real fast and suddenly you're debt free.
posted by Doohickie at 1:33 PM on October 3, 2006

jdroth has it, debt snowball is also sometimes called an accelerator margin. It's a good system which requires very little willpower once it gets going (that is once you pay off the smallest debt). Google it.
posted by OmieWise at 1:48 PM on October 3, 2006

Stop buying new stuff for awhile. Stop using your credit cards for any new purchases. Set yourself up on a budget to pay off the debt in a time certain. You probably lived on such a lower scale not that long ago and were perfectly happy. You can do it again.
posted by caddis at 2:18 PM on October 3, 2006

Your plan sounds like running a sausage mill backwards to make pigs. The answers you have received all sound good, no more useless spending, only buy what you need, not want you want, and pay your dept off ASAP
posted by Iron Rat at 3:29 PM on October 3, 2006 [1 favorite]

I wonder if the 55% that don't have credit card debt are just the ones that have bad credit and cannot get credit cards.

Nope. the pertinent information for this issue comes near the end of the post...

First rule of holes: when you find yourself in one, stop digging.

I'll tell ya, Monkey, giving up the credit seems impossible when you're treading water and when it's been your way of life for so long, but you can do it. It can be a looooong road back, but I can't even describe to you how good it feels to only buy things you have the cash for. And when you look back on how much those things cost you because you paid all that interest on them you'll wonder what the hell you were thinking. There's a lot of things in life that own us and we can't control it, but getting free of those plastic devil squares is something you can do something about.

Look up those debt counselors other people mentioned; they often have access to lower interest rates you can never negotiate on your own. 6% vs 16% can represent years of payments.
posted by phearlez at 3:41 PM on October 3, 2006

What phearlez said. It's scary. But.... you *will* get through it.

The scariest episode for us was when the car broke down during a trip through Canada. The shop did not accept checks and we had no credit card; only an ATM card. We wandered through the nearby mall looking for an bank that would accept our ATM card. First two: no dice. The third one accepted it. Whew!

When paying, we asked the shop what would have happened if we would not have found an ATM machine and he said would would've taken a check, "but why chance it if I don't have to?"
posted by Doohickie at 4:07 PM on October 3, 2006

I'm going to chip in a suggestion here for a Debit Card. You can get one from Visa which is accepted anywhere a Visa credit card is, but it only draws from money that you actually have (a pretty good thing, if you ask me).

I used one through college and into grad school. I have a credit card just to establish credit, but I only use it once in a great while to keep it active.
posted by craven_morhead at 4:20 PM on October 3, 2006

visual mechanic and rkent write "Lock up your credit cards, destroy them, whatever,

This is BAD advice that, worse still, was marked best answer. They're good answers only if the OP agrees that he's a worthless screw-up that can't stick to a budget. I don't think that's true, and his efforts in this respect show that he's trying, he's just a little uneducated.

Your credit rating depends in part on your total credit limit, but more on your debt to credit ratio. If you've got a lot on various cards, closing some will just increase that ratio, further hurting your credit score. The OP can do what he suggests, but only if he meets three conditions:

He's eligible for 0% or very low promotional rate cards

He can make the minimum payment on every card, every time

He can pay off those cards before the promotional rate expires, usually a year.

Keep every card you have, because if your credit score goes into the crapper, you'll have a much harder time pulling it up without them. Also, if you screw up and end up with a penalty rate on one of your cards(which can rapidly lead to all of them being jacked) you will have an easier time finding favorable balance transfer opportunities. The key is to get a net reduction of debt, while not paying interest.

posted by Mr. Gunn at 5:38 PM on October 3, 2006

DO NOT cancel a card if you still owe them money and you aren't in a position to pay it off. This is an invitation to them to raise your interest rate through the roof, and there is basically no limit anymore as to how high they can go. Plus, it will make your credit rating even worse than it already is. You can cut 'em up or put them in a freezer bag full of water, but do not do not do not cancel anything you aren't prepared to pay off immediately.
posted by spilon at 7:01 PM on October 3, 2006

I agree with Mr. Gunn -- do not actually close all your credit card accounts. Cut up the cards, sure -- do whatever it takes for you not to use them so that you don't accumulate a penny more in debt. But you need to keep the accounts themselves in order to help improve your credit score. You may find down the line that it's in your interest to close some of your accounts -- my credit score actually jumped a few years ago after I closed a couple small-balance/high-interest accounts that I'd long since paid off. But for now, just stop using them.
posted by scody at 7:04 PM on October 3, 2006

They have "six or seven credit cards, which are all maxed out." Their problems go far enough that their credit score is the least of their problems. Someone who has maxed out every card they have clearly has an issue with having a card and not using it.

There's a reason that credit card companies are cavalier about offering those 0% transfer options: they know the majority of the people who utilize them won't game them correctly such that they never pay interest. Instead, many of those people will make new purchases (which are at a different interest rate and often payments always apply to the 0% debt first) and run their credit up all over again.

Theoretically it would be possible for people with big debt to get 0% cards and transfer the debt around every 6 months while putting the extra payment money into a savings account making 4+% - turning the whole endeavor into a money maker of sorts. So why would credit card companies create this system whereby they could subsidize other people's money making at their own expense?

Because nobody does it, though plenty of people convince themselves they're going to be the one who makes it work. But embarking on a plan to use credit in a creative, challenging and profitable way when you have a proved history of using it in a sub-optimal way is a poor gamble.

If you're REALLY determined to protect your credit score at the risk of your financial freedom and in defiance of every indication of your past choices then remember that the major issue is length of credit history. Consequently the only thing you really need to do is figure out which of those cards you have had the longest. Freeze that one in a glass of water and shred the others. If you don't know which one is the oldest - which is very possible given the number you're juggling - get your free credit report and look at the date opened field.
posted by phearlez at 8:13 AM on October 4, 2006