09-08-2009 01:07 PM - edited 09-08-2009 01:10 PM
I currently owe about $13k in dreaded credit card debt. I have about $5k to put towards this debt. I have been paying the MINS on all these accounts for a long time, and the major factor bringing down my score right now is high utilization on these cards.
So, my question is this- when I pay down the $5k, is it best to put it towards the cards with highest interest rate? Highest utilization? Spread over all cards to lower overall utilization? I know that in money terms, I'll get the most bang for my buck by paying down the highest interest card first. But in credit terms, will it help or hurt me to pay off like 3 cards without touching the balance on the others? Would it best to consolidate this debt with a low-interest personal loan?
Please advise as I would like to pay down this debt, but also maximize the boost to my credit score as much as is feasible while doing it. I can't afford to take major hits for "doing the right thing".
Thanks in advance for your help!!!
09-13-2009 10:35 AM
09-13-2009 11:11 AM
09-14-2009 07:02 AM
Opinions will vary, but, IMO, pay the smallest balance first. FICO likes to see mostly $0 balances and certainly your $5k will go a long way in hitting that goal thereby resulting in a higher score sooner vs. paying the largest balance first. Psychologically, if you do pay some CCs to $0, then you'd have less payments to worry about. Finally, because your min. payments are less, you'd have extra to roll over into your other CCs and you can pay those down much faster.
09-14-2009 10:54 PM
That's the strategy I'm using. Working great!
09-15-2009 12:00 AM
How to pay off CCs has two different, and quite often contrary, components.
For financial reasons, you would pay the higher interest rate cards off first.
But for FICO reasons, FICO does not care about money out of your pocket.
FICO plan is kinda simple. FICO scores % util scores overall % util at approx 50% of its scoring under this category, so who you pay first doesnt matter in overall % util.
But FICO also scores the other half of its % util scoring by looking at the % util of individual cards, along with the percent of cards showing balances, at any level. So for FICO reasons, pay off the higher % util cards first, try to get all below 10%, and try to get more than half reporting no balances.
Copyright ©2001-2013 Fair Isaac Corporation.
All rights reserved.
IMPORTANT INFORMATION: All FICO® Score products made available on myFICO.com include a FICO® Score 8, along with additional FICO® Score versions based on Experian or Equifax data (additional FICO® Score versions based on TransUnion data are not currently available on myFICO.com). 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.