05-24-2013 04:50 PM - edited 05-25-2013 03:58 PM
I have 4 credit cards that are maxed . 1) 1300. 2) 1400 3) 5400 4) 6300 my fico is 657 and I want to refinance asap . Is is better to pay each down to zero at a time or should I take the same amount of money I am putting towards credit cards and pay them all down at the same time . For example Im thinking Ill pay $3000 on cards over the next 2 months before I go refinance so should I pay off the 2 smaller cards to $0 and have 2 cards maxed or divide the $3000 across the cards?
Also I should add that I have a total of 10 credit cards but the other cards were the ones with the highest interest rates so I paid them off to zero already . I am currently utilizing 55 percent of my total credit .
05-24-2013 06:12 PM
05-24-2013 06:27 PM - edited 05-24-2013 06:28 PM
If you are maxed out on all of those cards your score is getting dinged twice, once for being maxed out and again for overall utilization.
Too start, I would at least pay enough on each card to bring it down to at least half, then pay them down.
The longer you utilization stays high, the longer your score will stay lower.
05-24-2013 07:50 PM
05-25-2013 03:48 AM
Since you're refinancing in two months; I'd pay off the smaller balances and see if they'll do a CLI with no HP. Being maxed-out dings the score but having 2 cards with $0 balance will help some.
05-25-2013 04:12 AM
I would pay enough on each CC to not looked maxed out which is considered 90% or more. Which was said that your getting dinged for that. Then I would pay down the highest interest CC first then second highest and soon on, because your util is high fico looks at the total so why not save money in the process Also as drkaje said I would request a CLI increase to try and get your Util lower with a SP. I really think its 50-50 if you will get a CLI but it doesn't hurt to ask.
05-25-2013 04:16 AM
I'd also get those paid before their closing dates. Waiting an extra month for scores to update is annoying.
05-25-2013 05:35 AM
05-25-2013 09:23 AM
05-25-2013 11:29 AM
Ultimate what matters is the situation at the time of application, which is 2 months from now. How much do you think you can pay toward those balances in the next 2 months at the maximum? The more you pay the better, but maxed out credit cards look terrible. Suppose you pay exactly $3k, you'll be able to bring overall utilization to around 80%. Here's my suggested plan:
Pay toward the card that has the highest APR until it hits 80%, then spend the rest on the next highest APR card until it hits 80%, then spend the leftover on the next highest APR until it hits 80%, then the leftover on the last card.
This way you minimize the interest paid but still maintain 80% overall as well as individually.
But honestly, I would much rather save every single penny for the next 2 months to pay more, as well as try to borrow as much money from friends and relatives as possible. The potential saving from a favorable refinance rate is so huge that you should utilize every source of money you have, including borrowing against your 401k account if you have one.
If you somehow manage to pay off most of the balances by the time you apply, you'll have a FICO score around 750, and with that you will shave a few hundred basis points from the interest and save tens of thousands down the road. It is worth it.
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