Pay Off CC Debt Completely?

[maryellis1981]

Hi Everyone,

Sometime poster but primarily a lurker.  I am hoping for a mortgage preapproval in September. I currently owe the following balances on my credit cards:

Discover:  $1, 087

Citibank:  $426

Chase:  $43

Amex:  $430

I can take enough cash out of my down-payment savings to pay these off completely.  Should I do this?  Or should I keep paying them down and keep the savings for the down-payment?  Or should I pay most of the credit cards down and leave a small balance on each one?

What is the best course of action in terms of applying for a mortgage in the next several months.  Is it better to have no balances?  Or small balances?

Thanks!

*I should add that the overall utilization with these balances is still very small less than 10% of my total credit available.

[webhopper]

Pay off all but one and pay it down to less than 9% of your total limit for that card. Example; if you had 3 cards with 5k limits you would pay.off 2 of them.completely and leave a balance of 400 on one card

[nvrgiveup08]

I am in the same situation. I had low balances on 3 cards. I was also told to pay them all off but 1, and only use under 10% on that card and PIF each month. I just paid them off today so we shall see if this will give me the 15 pts that I need to get pre approved for September.

[pizzadude]

Do you have any idea what your FICO® scores currently are ? I'm always in favor of paying debt off, especially revolving debt. The above advice is good, and it should help your FICO® score.

The only reason that I can think that you might want to wait is if your scores are already in great shape and you think you'll need the money for down payment.

[DesertLife]

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@maryellis1981 wrote:

Hi Everyone,

Sometime poster but primarily a lurker.  I am hoping for a mortgage preapproval in September. I currently owe the following balances on my credit cards:

Discover:  $1, 087

Citibank:  $426

Chase:  $43

Amex:  $430

I can take enough cash out of my down-payment savings to pay these off completely.  Should I do this?  Or should I keep paying them down and keep the savings for the down-payment?  Or should I pay most of the credit cards down and leave a small balance on each one?

What is the best course of action in terms of applying for a mortgage in the next several months.  Is it better to have no balances?  Or small balances?

Thanks!

*I should add that the overall utilization with these balances is still very small less than 10% of my total credit available.

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I had no balance when I applied for my mortgage last Summer because I did pay off my one CC. It did put a strain on my ability to cover the closing costs, down payment, etc. but I was able to make it work. I think (and am not an expert) that your debt to income ratio (DTI) will be affected by any debt you currently carry, which means your monthly payments. So paying off those debts will improve that. They are already under 10% utilization each, so that should be helpful for your credit score. The ability to pay an extra $100 a month on a mortgage because you have zero debt seems like it would have a positive effect on the amount you qualify for a loan. That extra $100/mo is $36,000 over 30 years. I would think $300 - $400 in debt wouldn't be unreasonable to leave on there for now, saving that extra bit for your closing, down, etc.

@Anonymous my opinion having just gone through all this last Summer. With my income at that time I qualified for $170k, took out a loan for $147k @ 4.75 rate and then got a significant raise in income. My experience is that if I would have taken out a loan for the max I qualified for, it would have been a bad idea. Home maintenance, repairs & improvements add up quick so it's better to be conservative on what you take out IMHO.

[maryellis1981]

Thanks everyone for the advice!  My only hesitation to pay most of the balances off is it would make a major dent in my downpayment ~$2,000 and my lender is requiring a 10% downpayment.  So I think I will compremise and pay off the discover completely taking some of the downpayment money and then I'll throw $200 at the citibank next pay period. brining it down to $226.  I think by the time I go to apply for a preapproval in September my total balances (making payments in Aug. but continued saving for downpayment) will be:

Discover: 0

Citibank: ~$150

Chase:  0

Amex: ~$300

My total pretax monthly income is $6776 so these balances are small in my DTI ratio.  Does this seem like a reasonable and smart plan?

[JM-AM]

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@maryellis1981 wrote:

Thanks everyone for the advice!  My only hesitation to pay most of the balances off is it would make a major dent in my downpayment ~$2,000 and my lender is requiring a 10% downpayment.  So I think I will compremise and pay off the discover completely taking some of the downpayment money and then I'll throw $200 at the citibank next pay period. brining it down to $226.  I think by the time I go to apply for a preapproval in September my total balances (making payments in Aug. but continued saving for downpayment) will be:

Discover: 0

Citibank: ~$150

Chase:  0

Amex: ~$300

My total pretax monthly income is $6776 so these balances are small in my DTI ratio.  Does this seem like a reasonable and smart plan?

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I think it is reasonable and you are on your way to home ownership!