Sunday, January 23, 2011

Retiring the high interest rate debt

First 4 digits of a credit cardImage via WikipediaAs I mentioned in my New Year's entry, I'm about to retire my remaining high interest rate debt with Citicard. They've been a little weird this year. They've been relentlessly pushing their Payment Partner Plan, which I described here.  I finally decided to sign up for it. It's a cashback program for a percentage of what you pay over the minimum balance.

My Citi account is a little confusing, which I explained in this post. I have some very low-rate balances for life due to balance transfers I made before the credit crunch hit. My other outstanding credit cards are currently at 9.99%. But in the depth of my credit despair,I transferred another balance with a rate that expired after a few months. And then they jacked up my rate. And now that the Card Act says that credit card companies have to apply excess principal payments to the highest-rate balances first, I've been paying as much as I can to retire that balance.

So I figured, as long as I'm paying down the balance anyway, why not get the Payment Partner rebate in the meantime. So I finally signed up.

That was before I checked my credit rating.

Well, my credit rating isn't as bad as I thought it would be but it isn't good. It has some late payments from those dark days. But the worst score is my debt utilization score, which is the percentage of outstanding debt to available debt.  Mine is really high. Part of the reason for that is because I got really ticked off at Discover and Chase when they jacked up my rates to 30% and I closed my accounts as soon as I paid off those balances. That wasn't smart. I should have cut up the cards but left the accounts open.

So if I ever want to refinance my mortgage, my credit rating is going to get in the way. And the Payment Partner Program is going to adversely effect my debt utilization ratio, because they'll lower my credit limit by the amount I pay down.

But wait. It turns out Citi has been lowering my credit limit every couple of months anyway, even before I signed up for Payment Partner. So maybe it didn't make any difference after all.

Let me tell you that as soon as the high-rate balance has been retired, I'm going back to paying the minimum balance on this account. I'll make higher payments on my 9.9% debts, thank you very much. Some partner.
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