topic Re: better to pay off revolving debt or installment loans? in Credit Cards

better to pay off revolving debt or installment loans?

waqaszm1 — Sat, 12 Mar 2011 00:13:53 GMT

just some advice needed here; which would have the best impact on my credit score ... (1) pay 4k towards revolving credit card debt or (2) payoff finance company installment loans. i have 17k in card debt, and 4k in "finance company" installment loans. I can pay 4k towards this debt. where would this money have the best impact on my fico score?

Re: better to pay off revolving debt or installment loans?

Creditaddict — Sat, 12 Mar 2011 00:14:41 GMT

Revolving debt.. pay as many to $0 that you can with the 4k

Re: better to pay off revolving debt or installment loans?

waqaszm1 — Sat, 12 Mar 2011 11:26:34 GMT

i was leaning towards the finance company installment loans since they have higher interest charges, and most lenders dont like to see finance company accounts. any other ideas? anyone?

Re: better to pay off revolving debt or installment loans?

smallfry — Sat, 12 Mar 2011 12:20:03 GMT

Your choice. You will save money paying off the higher interest installment loans but it won't do anything for your score. Depending upon where you end up on your revolving utilization number of accounts with balances yada yada your score would improve by paying down credit card debt. Up to you.

Re: better to pay off revolving debt or installment loans?

android01 — Sat, 12 Mar 2011 15:38:23 GMT

In all honesty, forget about your score for now. Pay down the accounts that are costing you the most money. Money you don't have to pay out in interest is far more beneficial to you than a few FICO points.

Re: better to pay off revolving debt or installment loans?

DI — Sat, 12 Mar 2011 15:48:23 GMT

Best to pay revolving debt in full monthly and pay down installment loans for higher FICO scores.

Re: better to pay off revolving debt or installment loans?

Anonymous — Sat, 12 Mar 2011 18:10:08 GMT

what will free up the most money per month?

Re: better to pay off revolving debt or installment loans?

waqaszm1 — Sun, 13 Mar 2011 08:06:54 GMT

I have 23 active credit cards. 9 of them have been paid to a zero balance. total minimum payments add up to $685 a month spread out on the 14 revolving credit card accounts on which i currently have a balance. if i do the snowball thing where i start with the lowest balance and work my way up, i should be able to pay off 8 accounts before my $4k runs out leaving me with 6 accounts with a balance and min. payments of 491 a month.

plus, i have three installment "finance company accounts." the minimum payments on these three add up to $387. with the $4k, i can pay them all off.

my goal is maximum score increase !! so ... what should i do ....

Re: better to pay off revolving debt or installment loans?

Anonymous — Sun, 13 Mar 2011 12:12:12 GMT

@waqaszm1 wrote:
I have 23 active credit cards. 9 of them have been paid to a zero balance. total minimum payments add up to $685 a month spread out on the 14 revolving credit card accounts on which i currently have a balance. if i do the snowball thing where i start with the lowest balance and work my way up, i should be able to pay off 8 accounts before my $4k runs out leaving me with 6 accounts with a balance and min. payments of 491 a month.

plus, i have three installment "finance company accounts." the minimum payments on these three add up to $387. with the $4k, i can pay them all off.

my goal is maximum score increase !! so ... what should i do ....

I think that a reasonable answer to your question still hinges upon a few 'still unknowns'. So, you need a maximum score increase, but for what end, and how soon? What's your credit score now? I know you're probably going to grit your teeth at this request, but...uh... can you list our all 23 revolving accounts by issuer, credit lines, balance, and APRs? Here's an example (and why it matters, follows that):

	Credit Card	Limit	Balance	APR
1	First Mutual of Idaho	5000	395	10.99%
2	Montana Mutual	3500	1025	23.99%
3	Silly Bands Store	100	0	14.99%

Very generally speaking, paying down revolving debt would give you more bang for your score increasing buck than paying down installment debt. BUT, giving you opinions without knowing what it is that you need "maximum score increase" for, or what your timeline is may steer you in the wrong direction. Knowing more about who you're paying, and how much your individual and overall utilization will be reduced by, and how much $$$ might be freed up by paying what will help members give you more focused and realistic advice that might help you reach whatever goal you're pursuing. Moreso than very generic opinions based upon the general idea that, in FICO scoring, revolving debt weighs more heavily than installment debt. For example, someone might recommend that you pay two cards, and balance transfer two. Or, warn you that (in their experience) an issuer CLD'd or closed after a certain action (which might impact your utilization as well). There are too many variables, unknown, that could influence what people would recommend, so a little more info, could procure the advice that you're seeking.

Re: better to pay off revolving debt or installment loans?

waqaszm1 — Sun, 13 Mar 2011 13:26:51 GMT

@lilmirth and others: okay below is the list, and it follows the issuer / limit / bal / apr sequence.

01. Bofa Amex Accelerated Rewards: 7500 / 2675 / @ 5%

02. Discover More: 5500 / 2885 / @ 13.99 %

03. Capital One: 2500 / 1452 / @ 10.99 %

04. HSBC Platinum cashback: 2500 / 2106 / @ 18.99%

05. HSBC Platinum: 2000 / 156 / @ 18.99%

06. Barclays Apple: 3500 / 800 / @ 22.9%

07. Redstone FCU: 5600 / 400 / @ 7.99%

08. Amex Hhonors: 2500 / 800 / @ 13.99%

09. Redstone FCU: 3600 / 0 / @ 12.99%

10. USAA Mastercard: 7000 / 0 / @ 8.9%

11. Reeds: 2000 / 885 / @ 24.99%

12. Macys store card: 7900 / 2500 / @ 24.50%

13. Bloomingdales store card: 9000 / 2463 / @ 24.50%

14. Cfna Firestone: 3000 / 250 / @ 22.8% **** (this card i am paying off anyway since the 6 month promotion is almost up).

15. jcp store card: 1500 / 0

16. spiegel: 1300 / 0

17. kohls: 2000 / 600 / @ 21.90%

18. Victoria's secret: 1240 / 0

19. Walmart: 1000 / 0

20. Chevron: 840 / 360 / @ 26.99%

21. Zales: 2000 / 0

22. Macys joint store card: 4600 / 0

23. Express: 1700 / 0

Re: better to pay off revolving debt or installment loans?

Anonymous — Sun, 13 Mar 2011 13:34:14 GMT

A few quick questions--

Are you planning to pay off the highlighed Firestone card with $250 of the $4k that you mentioned earlier, or is that 'in addition to' the $4k?
Are you planning to apply for credit (e.g. a new car, mortgage, credit card) soon? Is that the purpose of focusing on actions that will raise your credit score?
Do you know what your current score is? And, how soon are you looking to see an increase?

Re: better to pay off revolving debt or installment loans?

waqaszm1 — Sun, 13 Mar 2011 13:38:50 GMT

answers:

1. the firestone is besides the 4k - i was planning to pay it off anyway before the accrued interest hit me.

2. somewehere around june i plan to get into navy fed, and apply for a credit card with pentagon fed. after that, in august, i am planning on a car ..

3. current equifax fico is 645, transunion is 639 ... i am trying to get past 700 as soon as i possibly can .... but i can give it till june ...

Re: better to pay off revolving debt or installment loans?

Anonymous — Sun, 13 Mar 2011 15:01:08 GMT

Okay, here's my $.02, given consideration to your overall goals. And, please remember that this is an opinion based on the limited information provided, and the goals that you've mentioned. You may, very likely, get differing opinions from other members.

Goal 1: Debt Paydown + Score Increase

Here are some of the issues that may be hurting your scores the most: You're starting out with 23 cards, more than half (14) with a balance, and 23% utilization. One card would be considered to be maxed out. Three are over 50% utilization. My suggestions (below) are based on the $4k that you have for immediate payoff + $250 for Firestone. My idea is that you get below 20% utilization, less than half of all cards reported, no cards "maxed-out" and as few cards as possible over 50% utilization. Then, I considered cards that were costing you the most $$$ (based on the APRs that you documented), and would, by paying off, free up the most money to put towards your remaining debt in a snowball approach.

	Card	Limit	Balance	Current UTI%	$4250 Fund Distribution	Updated Balance	Updated UTI %
1	BoA Amex	7500	$ 2,675.00	36%		$ 2,675.00	36%
2	Discover More	5500	$ 2,885.00	52%	$ 82.00	$ 2,803.00	51%
3	Cap1	2500	$ 1,452.00	58%	$ 1,452.00	$ -	0%
4	HSBC Cashback	2500	$ 2,106.00	84%	$ 2,106.00	$ -	0%
5	HSBC Plat(2)	2000	$ 156.00	8%		$ 156.00	8%
6	Barclays Apple	3500	$ 800.00	23%		$ 800.00	23%
7	Redstone FCU	5600	$ 400.00	7%		$ 400.00	7%
8	Amex HH	2500	$ 800.00	32%		$ 800.00	32%
9	Redstone FCU(2)	3600	$ -	0%		$ -	0%
10	USAA MC	7000	$ -	0%		$ -	0%
11	Reeds	2000	$ 855.00	43%		$ 855.00	43%
12	Macy's Store	7900	$ 2,500.00	32%		$ 2,500.00	32%
13	Bloomingdales	9000	$ 2,463.00	27%		$ 2,463.00	27%
14	CFNA Firestone *	3000	$ 250.00	8%	$ 250.00	$ -	0%
15	JCPenney	1500	$ -	0%		$ -	0%
16	Spiegel	1300	$ -	0%		$ -	0%
17	Kohls	2000	$ 600.00	30%		$ 600.00	30%
18	VS	1240	$ -	0%		$ -	0%
19	Walmart	1000	$ -	0%		$ -	0%
20	Chevron	840	$ 360.00	43%	$ 360.00	$ -	0%
21	Zales	2000	$ -	0%		$ -	0%
22	Macys(2)	4600	$ -	0%		$ -	0%
23	Express	1700	$ -	0%		$ -	0%
			*$ 18,302.00*	*23%*	*$ 4,250.00*	*$ 14,052.00*	*18%*

Re: better to pay off revolving debt or installment loans?

Anonymous — Sun, 13 Mar 2011 15:03:12 GMT

...Continued because I actually reached the limit of charcters for 1 post!

Goal 2: Membership to NFCU & PenFed

Just a bit of food for thought, based on the "tribal knowledge". PenFed is very likely to consider the number of cards that you have, and the amount of of your remaining debt (revolving & installment) and raise the flag of "Debt Pyramiding". NFCU is pretty liberal with credit, but if you've got a lot of debt (your overall utilization isn't so high, but the number of individual accounts & dollar figures may make them blink), or the account history is fairly young with so many accounts, even they might get a little squeamish. I'd suggest that you put off a PenFed app for credit until you get any Consumer Finance accounts paid in full, and your overall utilization under 10%.

Goal 3: Auto Purchase

If you're planning to app for an auto purchase with PenFed, see my comments under "Goal #2". If you're planning to app with NFCU, get your debt down as low as possible, and make sure that your income + remaining debt will be in line with your proposed purchase.

My final thoughts are this-- You've got a lot of accounts (are they all open?), but your overall utilization isn't terribly high. Are a lot of these accounts new(ish), because your scores seem more impacted than the utilization might warrant. IMO (and take it for what it's worth) you might want to slow down on your apping. If it's not derogs holding you back, then you may be experiencing the effects of too much credit, too close together. And, only time is going to fix that. I'm not sure that any kind of debt paydown combo is going to to get you to 700 by June or July, but the more of your money that you can keep in your pocket is worth more than FICO points any day.

Good luck!

Re: better to pay off revolving debt or installment loans?

waqaszm1 — Sun, 13 Mar 2011 15:27:21 GMT

@ lilmirth, thank you for your help. Its really appreciated especially the chart is awesome, i was'nt expecting someone to put in so much of their time into this. shows you care, whch is really nice of you.

i could not agree more with every word you said. and i am off to making payments as you set them in the chart;

i think i am suffering from too many new accounts. went though a divorce a couple of years ago that cost me some of my nicest cards. ended up closing most to get out of the mess and safeguarding my credit. most of these accounts are after 2008. bank of america is closed; i reached an agreement with them to reduce apr to 5% and allow me to pay it off. i am way ahead of schedule on that one.

with penfed, i am already a member. and i will take your advice and wait it out till things get better overall, perhaps till jan 2012.

with nfcu, not a member yet, but will also wait till jan 2012. the car can wait as well. unless it suffers a breakdown before jan 2012, (in which case i could try usaa).

my goals are, pay off balances down to maybe 2 to 3 cards. sock every thing else. get rid of the hsbc and capital one stuff, and other banks, and convert all my credit cards to a credit union product., with the exception of usaa. reduce uti to under 10%, boost scores over 700, get a better, more reliable car, and then just let it all sit and enjoy the view ... no more apping after that for atleast 2 years.

Re: better to pay off revolving debt or installment loans?

waqaszm1 — Sun, 13 Mar 2011 15:30:29 GMT

@ also, currently i have 3 inquiries on experian, 3 on transunion, and 6 on equifax. by november this year, all on experian and transunion would fall off, and equifax would be left with 1 inquiry.