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Please help


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Posted by LightAtTheEndOfTheTunnel? (24.190.192.47) on August 07, 2003 at 19:41:24:

I am in desperate need of advice. I am approximately $18,000 in debt spread amongst 5 credit cards. I will be a graduate student of mathematics during the 2003-2004 school year. I have been approved for a student loan in an amount greater than my cost of education. The excess loan amount will allow me to pay off my credit card debt completely. However, I would like some opinions on the best way to pay off the debt so that i might maximize my FICO and other credit scores. I heard something about a 3-month, 6-month, and 12-month credit score period where substantial payments (i.e. in amounts much greater than the minimum due) over any of those periods will increase the part of my fico score which considers that particular period (i am sorry for the confusing wording). In other words if i make substantial payments over any of the time periods listed above (i.e. 3, 6, 12 month) my credit score will increase; and if i make substantial payments over all three of those time periods, then my credit score will increase by a much greater amount. I have also been told that paying off 80 or 90 percent of your total credit card debt will increase your score as well.

So here is what i was considering doing:

Option #1

Pay off 15,000 of my debt in a lump sum, and pay off the remaining 3,000 over a 12 month period. Then i would spread my remaining 3,000 debt amongst each of my credit cards evenly so that the 3, 6, and 12 month periods of substantial payments will apply to each of my credit cards (i assume this may lead to a higher fico score but am not positive). My monthly payments will be substantial (with respect to the minimum payments required) so my credit score should increase since the 3,6, and 12 month periods of substantial payments will have been satisfied. Not only will they have been satisfied, they will have been satisfied 5 times (once for each credit card) and reported to the credit bureaus from 5 different sources (though three of my credit card companies have been bought out by a single credit card company)

Option #2

Do the same as in option #1 except transfer the remaining 3,000 debt to a single card and then make 3,6, and 12 month substantial payments. Since i will have paid off at least 80% of my debt in a single lump sum, my credit score will increase and since i will have followed the 3,6,12 month substantial payment rule, the result will be an even higher credit rating. However, i am not sure whether transferring 3,000 to a single card is the best thing to do since if i do so, the 3,6, and 12 month periods of substantial payments will only be reported to the credit agency by a single bank (whereas, if i spread the 3,000 evenly amongst the 5 cards, the credit agency will receive such reports from 5 banks...however, please note that three of my credit card companies have been bought out by a single credit card company so i am not sure exactly how that adds more complexity to the situation).

Option 3

Just pay off the entire debt in a lump sum. This seems like an option which will increase my credit score since at least 90% of my debt will have been paid off. However, the 3,6,12 month periods of substantial payments will not have been made and i therefore believe that my credit score will have not been maximized.

Option 4

Negotiate with my credit card companies to pay 70% or less of my debt. This will negatively affect my credit score, however, and i will only do this if it is determined that doing so will make the most sense (i.e. i have been told that credit scores can be built up again in the future and that i should try to pay as little of my debt as possible....though i will be in the job market after i graduate from graduate school and i am sure my credit history will be considered by the firms i interview with)

Option 5
Don't make any substantial lump sum. Simply make substantial payments to each credit card for the 3,6, and 12 month periods. I will be sure that the payments are great enough to ensure that the debt is paid off in full after exactly 12 months. This seems to be the more expensive route since i will be carrying a high balance throughout a 1-year period. However, i am willing to spend some money if it will result in a maximized credit score. I calculated that with my current interest rates, it will cost me about $1,000 in interest alone to carry my existing balances for a period of 1 year.

Option #6
Don't pay off my credit card debt at all. Rather, invest in stock options and attempt to turn the 18,000 into 100,000. This is the least likely route i will take but i mention it because the thought crossed my mind more than a few times in recent days

Option#7
Please fill in this option as i need some other advice. Maybe you have a strategy which i have not thought of? Your ideas will be greatly appreciated.

So that is my admittedly long question. Also, if you have any idea whatsoever on how a new student loan in the amount of $60,000 can affect one's credit rating, please let me know. As for now, I will await your responses and see what some of you people think the best course of action for me is.

Thank you very much for your time!

Yours sincerely,


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