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Pay off revolving debt all at once or over 6 months?

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Anonymous
Not applicable

Re: Pay off revolving debt all at once or over 6 months?



@Lel wrote:

@Anonymous wrote:
I've got about $39k in revolving debt. With the sale of my house, I can pay off that entire amount from our equity. Here's my question: Is it better to pay that off all at one time, or should I spread the payoff out over six months? It would seem to me that paying it off immediately would be the best bet and then continue to have my utilization below 1% (currently, I'm maxed).
When I play with the FICO simulator, I seem to get a better projected score by paying $6,600 each month for six months.






My question to you would be: do you want the points or do you want the money? By money I mean the savings in interest payments that would come along with paying off your revolving debt all at once. Even if you had a relatively low interest rate of 10%, you'd still end up paying several hundreds of dollars in interest if you choose to pay off your revolving debt over 6 months.

One could argue that if you're a savvy investor, you might be able to invest the money and get returns that exceed your interest payments, but that's always a risky assumption.


It's not really a choice between gaining points and saving interest.  It's possible to get the points and save the money by paying it down right away, and then letting everything age for six months.
 
As stated above, when you simulate paying off a debt over time, the simulator takes into account the reduction in debt as well as the aging of your accounts.  You will get the points for reduction in debt regardless of whether you pay it down right now or over six months.  The net result (for reduced utilization) will be the same.  Similarly, you will get the points for aging regardless of whether you pay down your debt or not.
 
For FICO scoring purposes, there is no reason to pay off revolving debt over time as opposed to right away.
 
Message 11 of 12
marty56
Super Contributor

Re: Pay off revolving debt all at once or over 6 months?

TU finally reported my Visa card at $15 instead of $1103 via True Credit.  So I pay for my TU report here and no change it score.  The simulator still says 0 - 20 points for paying down my $15 balance.
 
Now I know why I dont like slot machines in Vegas.
 
At least I know the answer to my question that paying down a card at 11% to 1%  util and total util  goes from 3% to 1% has no effect on my FICO score.
1/25/2021: FICO 850 EQ 848 TU 847 EX
Message 12 of 12
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