Paying of all CC debt using Tax Refund - Strategy Needed!

[homerunstacy]

Hi All -

I am wondering what the best way is to increase my FICO score as far as paying down debt using my tax return.

Here are the questions I hope you might be able to answer:

1) Is there any disadvantage to paying all your CC's off at once?  I have 12 of them.  The top 4 make up 50% of my debt with 90% utilization, large balances, and lousy interest rates.  Home Depot, Dell, Sears, Citi (1800mattres) all with almost 30% interest rates.  Sadly I got sucked into

promo deals that I didn't pay off by the expiration dates and all that nasty back interest was added on with that wonderful high interest rate to boot this year. NEVER AGAIN! I can't wait to get rid of these and toss them into the sock drawer.

2) Should I just pay the majority of them down including the top 4 and then leave 2 cards with decent interest rates with just under 10% utilization? Thinking about doing this with my BOA and Capital One Card.

3) Do I run the risk that all of them will end up all lowering my max if I pay them down to zero?

4)I have a car loan @ 9% with 12 payments left to go.  If I pay that off I can probably save myself around $600. Is there any advantage

to leaving this revolving account out there?

In all cases I have zero late pays on cc's and car..  However, my score has taken a huge hit because of utilization and a 30 day late mortgage payment. 

Thanks for any advice in advance! 

Message Edited by homerunstacy on 02-10-2010 05:47 PM

[homerunstacy]

Here is the specifics.  I have enough with the tax return and savings to pay everything to zero.

Would love to cut them up/sock drawer them all but thinking maybe I should keep a a couple rotating with

an under 10% utilization to maximize my score. Also not sure what to do about the car loan.  Would love

to just pay that off and be done with it but will that hurt my score not having the loan anymore?

*Listed from high to low based on interest rate

CARD            BALANCE  CL

---------------------------------------------------- 

Home Depot $5,215.38    $5,400.00
Citi              $2,961.42    $3,540.00
Sears          $2,600.00    $2,600.00
Ave                $400.00       $500.00
DELL           $1,183.03    $1,600.00
Discover       $2,950.14    $3,000.00
BOA            $2,279.83    $2,500.00
Houshold1    $1,200.00    $1,400.00
Chase             $930.00    $1,200.00
Houshold2    $1,300.00    $1,600.00
Capital One      $276.55      $500.00
Toyota              $387.10  $4,036.92

[Jazzzy]

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@homerunstacy wrote:

Hi All -

I am wondering what the best way is to increase my FICO score as far as paying down debt using my tax return.

Here are the questions I hope you might be able to answer:

1) Is there any disadvantage to paying all your CC's off at once? No...there is no disadvantage. You can go in and pay your cards off before the statements cut. That would be the fastest way to raise your score. If you want, leave a small charge to show on one of the statements, and then pay that off immediately after the statement cuts. Dragging these balances out over time is a bad idea if you can get them paid.

I have 12 of them.  The top 4 make up 50% of my debt with 90% utilization, large balances, and lousy interest rates.  Home Depot, Dell, Sears, Citi (1800mattres) all with almost 30% interest rates.  Sadly I got sucked into

promo deals that I didn't pay off by the expiration dates and all that nasty back interest was added on with that wonderful high interest rate to boot this year. NEVER AGAIN! I can't wait to get rid of these and toss them into the sock drawer. Sounds as if you have learned not to take advantage of a no interest offer unless you have the cash to pay it off at any time.

2) Should I just pay the majority of them down including the top 4 and then leave 2 cards with decent interest rates with just under 10% utilization? Thinking about doing this with my BOA and Capital One Card. You NEVER have to carry a balance in order to improve your scores.

3) Do I run the risk that all of them will end up all lowering my max if I pay them down to zero? Have any of them lowered limits yet? We've seen these limits lowered for those who carry big balances. I would hope that paying off the balances wouldn't casue them to do this. But...as with everything in life...there is no guarantee. It still makes the most financial sense to pay them off.

@4)I have a car loan @ 9% with 12 payments left to go.  If I pay that off I can probably save myself around $600. Is there any advantage

to leaving this revolving account out there? No...there is no advantage. If you can save $ by paying it off, then you should do so.

In all cases I have zero late pays on cc's and car..  However, my score has taken a huge hit because of utilization and a 30 day late mortgage payment. Your score will come up after you pay the credit card balances.

Thanks for any advice in advance! 

---

[Jazzzy]

---

@homerunstacy wrote:

Here is the specifics.  I have enough with the tax return and savings to pay everything to zero. OK...confused here...did these balances grow while you had the money in savings to pay them off?

Would love to cut them up/sock drawer them all but thinking maybe I should keep a a couple rotating with

an under 10% utilization to maximize my score. I would keep any card that doesn't have an annual fee. You may want to consider closing those with fees. Do some reading and ask some questions if you decide to close one or more. And...no...you NEVER have to pay a penny of interest or revolve a balance to help your FICO score. As I said earlier, leave a tiny balance on one card until the statement cuts...then go online and pay if off right away. In order to keep the cards active, just use each card every couple of months for a small purchase and do the same. Go online and pay the bill before the statement cuts. That is what will maximize your FICOs.

Also not sure what to do about the car loan.  Would love

to just pay that off and be done with it but will that hurt my score not having the loan anymore? There is no sense in carrying an auto loan if you can pay it off. Yes, FICO does like to see a "mix" of credit, but you will still have credit cards and a mortgage. Don't let keeping your FICO score up cost you $.

*Listed from high to low based on interest rate

CARD            BALANCE  CL

---------------------------------------------------- 

Home Depot $5,215.38    $5,400.00
Citi              $2,961.42    $3,540.00
Sears          $2,600.00    $2,600.00
Ave                $400.00       $500.00
DELL           $1,183.03    $1,600.00
Discover       $2,950.14    $3,000.00
BOA            $2,279.83    $2,500.00
Houshold1    $1,200.00    $1,400.00
Chase             $930.00    $1,200.00
Houshold2    $1,300.00    $1,600.00
Capital One      $276.55      $500.00
Toyota              $387.10  $4,036.92

---

The only consideration I would have in paying your debt would be that you don't want to run your savings to zero. You need some cash in an emergency fund so that an unexpected car repair or home repair doesn't send you back to the sock drawer to pull out a credit card.

[homerunstacy]

The majority of cash I have will come from the tax return.  I only have a $300 or so in my regular savings account. I recently started to direct deposit $200/mo into my credit union savings.  I will be using that as my emergency funds account. 

The balances grew because I didn't have the extra cash to pay them off and was very foolish with the promo periods. Had an unexpected reduction in net income for a while but ok now.  During that time I was just paying a little over the min's on the cards.  I've had most of these balances for about 2.5 years now.

"leave a tiny balance on one card until the statement cuts...then go online and pay if off right away. In order to keep the cards active, just use each card every couple of months for a small purchase and do the same. Go online and pay the bill before the statement cuts. That is what will maximize your FICOs."

- Will do!  I don't believe any of my cards have annual fees but I need to pull all my agreements with all the recent changes and take a good look at them.   

Ok - will pay off car as well. 

Thank you so very very much for your advice.  =)

[homerunstacy]

opps forgot to respond to this one.....

Do I run the risk that all of them will end up all lowering my max if I pay them down to zero? Have any of them lowered limits yet? We've seen these limits lowered for those who carry big balances. I would hope that paying off the balances wouldn't casue them to do this. But...as with everything in life...there is no guarantee. It still makes the most financial sense to pay them off

Home Depot was originally a CL of 5000 when I opened.  Then it went up to 6500 CL out of the blue for a few months.  A couple of months ago I made a larger than usual payment to Home Depot and right after my CL was reduced down to my current balance.  

 Rest have stayed the same.   I'll report back what happens after I pay everything off.