Scoring for Credit Card balances

[Anonymous]

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@Red1Blue wrote:

I have paid $38k towards 9 accounts in full and 4 accounts 50%....

I have a balance of $9k on two installment loans with 10 months to pay off... My question is should I pay off $9k towards the installment loans and save my self from large payments even though I would be paying some interest on higher credit cards?

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When you say that you have 4 accounts at 50%, do you mean that your balance is exactly half of the card's credit limit?  If so, you would likely benefit from paying down those cards a tiny bit further.  You want all your cards at less than 49%.  A reasonable target (given that you have interest charages each month as well) might be 47%.

As far as the 9k balance you have on your two installment loans, can you confirm that these are the ONLY two installment loans you have?  If so, I would not pay them off immediately.  That will cause a score drop if you do that.  Paying them down further (without paying them off) will by contrast help your score.

Of course, the loans need to be paid off eventually.  To protect yourself from a score drop when you do, there is a cool trick that you can do.  It's called the Share Secure Loan technique.  It's basically to take a little $500 loan at Alliant and then pay most of it off, while keeping it open for 60 months.  It's totally painless to do.  If you were to get the little Alliant loan in place first (with almost all of it paid off) then you can pay off your other big loans and you will actually get a score boost.

This link will explain the process.  The guidance is written assuming that a person has no loans and needs to gain points, but the principle works just as well as a thing to put in place to prevent you from losing points.  You only need to read the first 2-3 posts:

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Adding-an-installment-loan-the-Share-Secu...

[Red1Blue]

Besides those to installment loans, I also have an installment car loan that I am planning on keeping it for another 20 months or so. At least there will be one installment loan. I might add another car loan in the near future that would count as another installment loan. I do want to raise the scores but also want to reduce the burden of high interests that I am paying on the credit cards and also monthly amount of payment. After having a good job went back to higher educaton to become an MD/PhD. Not sure how much it is going to help with my income but I am planning on getting back to a good job and pay down the remaining debts. Two kids soon going to college, I would have to help them or co-sign for their educaitonal loans. I just want to be prepared for the future and have a good credit rating and scores in case if I need to.

[Anonymous]

Then the advice you need to hear is really simple:

(1)  Keep as much spare cash on hand as you need to in order to feel comfortable.  Nobody here can help you with that.  There's no right answer.  It's all about your finances, expenses that might be coming up, income that will or won't be coming in, and most crucially your own level of inner comfort, which is not a "logical" assessment but one based on feelings.

You are the best person to assess what #1 needs to be.

(2)  Of the reminder, continue to pay down your credit cards, especially your high interest cards.  I hear you say that your loans may be high interest, but there are likely a couple cards that are even higher.  The high-vs. low interest isn't a credit scoring factor.  It's just an issue of trying to save yourself money.

It is true that as long as your total CC utilization (all cards together) is 9% or higher, you will probably be getting more of a score bonus for paying down CC debt than you will get for paying down installment debt.

If you do decide you want to pay down installment debt, the best decision from a scoring perspective is to pay down those loans that the lender will still let you keep open for a long while, not the loans that will be coming to an end very soon anyway.  The goal should be to keep all loans open for the full term -- if you are trying avoid the score hit that comes with paying off loans.

[NRB525]

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@Red1Blue wrote:

I have paid $38k towards 9 accounts in full and 4 accounts 50%. Now that leaves a balance of $35k on 6 accounts. This gave me Free Available credit of $45k on my accounts. I have $22k cash and $35K credit card balance on 6 accounts. I have a balance of $9k on two installment loans with 10 months to pay off. But the monthly payment is $950/month, which is affecting my cash flow. My question is should I pay off $9k towards the installment loans and save my self from large payments even though I would be paying some interest on higher credit cards? I am trying to juggle between the high interest loans, monthly payments, cash flow and also improve scores. Hopefully I’ll pay off the remaining balances soon and have a decent / debt free life soon.

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If you have $22k in cash and known obligations of $9k over the next few months, I would stop for a bit. Keep the cash available, so you are certain to be able to work down the installment debt to zero on the appropriate schedule.

Which cards do you have? Now that you have freed up some of the credit limits, it is time to look at what your options are to reduce the interest cost. It's nice to be debt free, but if you get to a nearly debt free situation, and then don't have cash for unexpected expenses, or the cash for the $950 monthly payments, that can put you right back in the debt situation, or worse lead you to miss a payment.

Depending on the cards you have, BT options to move those balances around may help you reduce the interest cost to make better progress on the CC balances.

[Red1Blue]

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@NRB525 wrote:

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@Red1Blue wrote:

I have paid $38k towards 9 accounts in full and 4 accounts 50%. Now that leaves a balance of $35k on 6 accounts. This gave me Free Available credit of $45k on my accounts. I have $22k cash and $35K credit card balance on 6 accounts. I have a balance of $9k on two installment loans with 10 months to pay off. But the monthly payment is $950/month, which is affecting my cash flow. My question is should I pay off $9k towards the installment loans and save my self from large payments even though I would be paying some interest on higher credit cards? I am trying to juggle between the high interest loans, monthly payments, cash flow and also improve scores. Hopefully I’ll pay off the remaining balances soon and have a decent / debt free life soon.

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If you have $22k in cash and known obligations of $9k over the next few months, I would stop for a bit. Keep the cash available, so you are certain to be able to work down the installment debt to zero on the appropriate schedule.

Which cards do you have? Now that you have freed up some of the credit limits, it is time to look at what your options are to reduce the interest cost. It's nice to be debt free, but if you get to a nearly debt free situation, and then don't have cash for unexpected expenses, or the cash for the $950 monthly payments, that can put you right back in the debt situation, or worse lead you to miss a payment.

Depending on the cards you have, BT options to move those balances around may help you reduce the interest cost to make better progress on the CC balances.

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Thank you very much for your advice. I'll preserve as much cash as possible. I want to get rid off all the debt and live a peaceful quiet life. I do make good income and pretty soon, I am done with my school and I'll be a Doctor soon and hopefully make more money than I used to make before. I have paid off about $38k. Let us see in couple of months how my score will improve and based on it I can take other required steps to keep boosting my scores.