Reply
New Visitor
Posts: 1
Registered: ‎12-03-2012
0

Best Way to Pay Off Credit Card Debt Once You Have the Money to Do So?

My husband & I have combined credit card debt of about $20k. Have always paid at least the minimums on them and never made a late payment, just have never had the opportunity to pay them off before, because we were living paycheck to paycheck after college. Recently, I inherited money from a relative. We would like to pay off all our credit card debt, then in the next couple months apply for a mortgage to buy our first house. We both have 720 credit scores, but we would like those to improve so we can get the best rates. Should we pay off our cards in single lump sum payments, or make a few large payments over the next few months so it's paid down more gradually? Wasn't sure which would increase our score the most. We don't want even a temporary "ding" in our credit since we'll be applying for a mortgage soon after. 

 
Was also wondering if we should consider a debt consolidation line of credit or balance transfer before paying them off, or would that be counterproductive? After paying them off, can we ask the lenders to lower their interest rates? They wouldn't before because of high balances on them. Should we close any of them? Like say if it's a store card that's only good at one store and we don't plan to use it again. Appreciate any advice, thanks!
Regular Contributor
Posts: 157
Registered: ‎03-05-2012
0

Re: Best Way to Pay Off Credit Card Debt Once You Have the Money to Do So?


newuser22 wrote:

My husband & I have combined credit card debt of about $20k. Have always paid at least the minimums on them and never made a late payment, just have never had the opportunity to pay them off before, because we were living paycheck to paycheck after college. Recently, I inherited money from a relative. We would like to pay off all our credit card debt, then in the next couple months apply for a mortgage to buy our first house. We both have 720 credit scores, but we would like those to improve so we can get the best rates. Should we pay off our cards in single lump sum payments, or make a few large payments over the next few months so it's paid down more gradually? Wasn't sure which would increase our score the most. We don't want even a temporary "ding" in our credit since we'll be applying for a mortgage soon after. 

 
Was also wondering if we should consider a debt consolidation line of credit or balance transfer before paying them off, or would that be counterproductive? After paying them off, can we ask the lenders to lower their interest rates? They wouldn't before because of high balances on them. Should we close any of them? Like say if it's a store card that's only good at one store and we don't plan to use it again. Appreciate any advice, thanks!

If you have enough money - i would pay them all off in 1 lump sum. Only reason not to would be if you are not paying any interest. Once you pay them off you should see an increase in your score when the $0 balances report to the CR's.

I would not close any of the cards as keeping them active and open helps your credit utilization percentage. Only exception would be if any of them have an annual fee that you feel is not worth paying for the benefits the card brings.

 

For maximum FICO score purposes, most of the advice on this forum is to keep utilization to under 9% on one of the cards and $0 balance on the others.

 

Good luck with the mortgage process

FICO: EQ 769, TU 762 , EX ???

Valued Contributor
Posts: 1,058
Registered: ‎03-22-2012
0

Re: Best Way to Pay Off Credit Card Debt Once You Have the Money to Do So?

+1 Pay the cards off in 1 lump sum. Watch your scores climb! Yes, utilization is 30% of your score and is really the only thing as consumers that we can control.

 

Don't close any cards until you think long and hard about it. Having those extra cards will help with utilization and AAoA when you receive new credit in the future.



Starting Score: EQ 658 6/18/12
Current Score: EQ 705 4/16/15 - EX 707 3/8/15 - TU 707 3/8/15
Goal Score: EQ 720+
Take the FICO Fitness Challenge

Moderator Emeritus
Posts: 7,225
Registered: ‎09-16-2011
0

Re: Best Way to Pay Off Credit Card Debt Once You Have the Money to Do So?

Absolutely, pay them off in lump sum amount,  do not open a new line of credit or consolidation loan, it will not help your credit.  Once those balances are paid off, you'll see a really nice score jump!

 

Do what you can to minimize credit card use in the future, so that you're only charging what you can pay in full.  I use Amex charge card specifically for this reason.


Starting Score: 08/29/2011 TU 671 EQ 674
Current Score: TU 754 EQ 694 EX 697
Wallet: NFCU Visa Sig 25k, Amex Lowes 22k, NavCheck 15k, Amex PRG, Amex Zync, Discover It 13.5k, Amazon Visa 5k
Platinum Spade Garden Club Member: App Free since 1/1/13. No more apps til who knows when?
MyFICO Fitness Goal: 800s Club!



Take the myFICO Fitness Challenge
Super Contributor
Posts: 5,703
Registered: ‎10-06-2007
0

Re: Best Way to Pay Off Credit Card Debt Once You Have the Money to Do So?

I would also add not to take out any loan or do anyting that could produce an INQ on your CR if you are going to apply for a mortage.  I have not applied for credit in over 2 years yet I have 2 INQs on my CR.  One for a cell phone and the other for an alarm company.

11/28/2014 FICO: EQ: 796 EX:788 TU:803
Established Member
Posts: 20
Registered: ‎12-28-2012
0

Re: Best Way to Pay Off Credit Card Debt Once You Have the Money to Do So?

I would pay them In one lump sum if you can. Your score will increase greatly after that. I see no reason to consolidate or transfer- it will only cost you money and it may hurt your score. I would not close any cards as that may hurt your score as well. You can certainly ask the lenders to lower your interest rate, two of my lenders lowered the rate but one said I had the lowest I could get (which was 29.99% RIDICULOUS- Citicard if you were wondering.) Good luck!




Starting Score: 747
Current Score: 797
Goal Score: 850


Take the myFICO Fitness Challenge

Advertiser Disclosure: The listings that appear on myFICO are from companies from which myFICO receives compensation, which may impact how and where products appear on myFICO (including, for example, the order in which they appear). myFICO does not review or include all companies or all available products.
† Credit cards for FICO Score ranges: The score ranges are guidelines based on actual applicant approvals and having a FICO Score in a particular range does not guarantee you will be approved for credit cards recommended in that range.

Copyright ©2001-2015 Fair Isaac Corporation. All rights reserved.   | Terms of Use | Privacy Policy | Sitemap

IMPORTANT INFORMATION: All FICO® Score products made available on myFICO.com include a FICO® Score 8, along with additional FICO® Score versions. Your lender or insurer may use a different FICO® Score than the versions you receive from myFICO, or another type of credit score altogether. Learn more

FICO, myFICO, Score Watch, The score lenders use, and The Score That Matters are trademarks or registered trademarks of Fair Isaac Corporation. Equifax Credit Report is a trademark of Equifax, Inc. and its affiliated companies. Many factors affect your FICO Score and the interest rates you may receive. Fair Isaac is not a credit repair organization as defined under federal or state law, including the Credit Repair Organizations Act. Fair Isaac does not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit record, credit history or credit rating. FTC's website on credit.