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Best Method for Paying Down Cards?

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Anonymous
Not applicable

Best Method for Paying Down Cards?

So at this point, between my husband and I, we've got our overall utilization below 30%.  I think mine is somewhere around 15% and his is 29%.  We do have a couple of small credit cards that have higher individual utilization.  Are we better off paying off the low balance (lower utilization) cards first or would we be better off reducing the balance of those few cards we have that are higher individual utilization?  Also to note, the higher utilization cards are 0% APR right now whereas the lower balance cards have a higher APR rate.  Which is the better route to go?

Message 1 of 12
11 REPLIES 11
Anonymous
Not applicable

Re: Best Method for Paying Down Cards?

For me it is straight foward. Start paying down the cards that are charging your the most intrest first and pay the minimun payment on the rest. And I would pour all extra money into one card at time and get a few cards reporting zero.

 

Make the most of the intrest free money and put it into your other cards.... If it is 20% intrest your paying, then thats 20% more to pay down your bills faster. Save money and achieve your aim faster! And the quicker you knock out some of those higher intrest ones the better you will feel.

 

Overall utilization for your score sake is averaged over all your cards CL.

 

I don't think I would add anymore cards for some time.... Just work on paying them down and then see if you can get some CLI's happening to help yur scores towards your UTL portion.

Cheers!

Message 2 of 12
HeavenOhio
Senior Contributor

Re: Best Method for Paying Down Cards?


@Anonymous wrote:

So at this point, between my husband and I, we've got our overall utilization below 30%.  I think mine is somewhere around 15% and his is 29%.  We do have a couple of small credit cards that have higher individual utilization.  Are we better off paying off the low balance (lower utilization) cards first or would we be better off reducing the balance of those few cards we have that are higher individual utilization?  Also to note, the higher utilization cards are 0% APR right now whereas the lower balance cards have a higher APR rate.  Which is the better route to go?


You've mentioned that your husband is at 29% overall utilization. Note that percentages don't round down. Several credit monitoring services get that wrong. If he's at 29.0000000001%, he's actaully at 30% rather than under 30%. That's why we often mention 28.9% or below.

 

The good news is that overall utilization is the most significant factor in the revolving portion of your score. Any plan of attack you choose will bring that down.

 

It's less clear whether individual card utilization or number/percentage of cards with positive balance is more important. However, if you have cards with very high utilization, particularly cards that are maxed (over 88.9% of their limits), those should be brought down first.

 

How important is an immediate scoring gain? If it's not all that important, I'd make sure that your high utilization cards aren't maxed, then attack interest. If it's important to see a point gain sooner than later, I'd prioritize individual card utilization until all cards are at 28.9% or below, then bring one card at a time to zero.

Message 3 of 12
AverageJoesCredit
Legendary Contributor

Re: Best Method for Paying Down Cards?

Eliminate the cards you can then attack the bigger ones. If they are at 0% , even better. Sometimes just seeing a card paid off, any card, can be a huge ego boostSmiley Wink
Message 4 of 12
SwarthyOgre
Regular Contributor

Re: Best Method for Paying Down Cards?

What AJC said. Keep making at least your min payments on the higher balance card but go after those low balance cards aggressively. When you knock those low balance ones out you can divert those payments to the next highest balance and so forth. I can tell you it's a great feeling getting a card to zero and saying "Who's next?!" to the rest. Smiley Happy




Starting scores: 5/15 - EQ: 546 | TU: 580 | EX: 554
Current scores: 4/23 - EQ: 750 | TU: 750 | EX: 750
Message 5 of 12
Kforce
Valued Contributor

Re: Best Method for Paying Down Cards?

Probably more methods than this but I have seen five.

 

1)  The “Snowball”.   Start with the lowest balance, and work your way up.  You see progress and this makes it easier to stick with the plan than the other methods.   Drawback is some loss of money from interest and a little longer to get to the finish line. 

 

2)  The “Highest Interest”.  Start with the card that has highest APR and work down.  Save the most money and payoff in shortest time.  Progress can be harder to see because it is looking at balance numbers, as compared to seeing early accounts zeroed out

 

3)  “Optimizing Fico" for a soon needed loan, or CC.  Requires balancing payments to control overall util, per card util, and number of card with balance to help keep scores as high as possible.   Not as easy as "Snowball" or save as much money as "High Interest " but best for "Fico Score".   More work to set up and manage. 

*** Does not sound like you need this option  ***

 

4 )  "Least used card” to most used card
Like "Snowball" but by "CC Use" instead of balance.  Probably a little harder to see progress but easier to not put spend back on zeroed out cards.

 

5)  “Make Bank Happy” Aka  “Least likelihood of CLD or Closure”.
Making CC issuer happy with out worrying about money loss or paying off fast or seeing early progress.  Making largest payments to CC issuer you want to keep happy and maybe lessen chances of CLD or closure.  "YMMV" depending on profile.  ( Not possible for some and not necessary of others )

*** With your "Util" numbers I do not think this is necessary. ***

 

*****  My Opinion  *****

This forum is about 50/50 on "Snowball" vs "High Interest" from reading other post for years.   I believe those with lower balances and only a few cards are best off with “High-Interest Plan”, and those with large balances on a lot of cards should use the “Snowball”.   I see no need with your numbers to use “Optimize Fico”,  “Least Used”,  or “Make Bank Happy” versions. That has you between the two most popular and also most argued and controversial methods.     Smiley Sad

 

Message 6 of 12
longtimelurker
Epic Contributor

Re: Best Method for Paying Down Cards?


@Kforce wrote:

Probably more methods than this but I have seen five.

 

1)  The “Snowball”.   Start with the lowest balance, and work your way up.  You see progress and this makes it easier to stick with the plan than the other methods.   Drawback is some loss of money from interest and a little longer to get to the finish line. 

 

2)  The “Highest Interest”.  Start with the card that has highest APR and work down.  Save the most money and payoff in shortest time.  Progress can be harder to see because it is looking at balance numbers, as compared to seeing early accounts zeroed out

 

3)  “Optimizing Fico" for a soon needed loan, or CC.  Requires balancing payments to control overall util, per card util, and number of card with balance to help keep scores as high as possible.   Not as easy as "Snowball" or save as much money as "High Interest " but best for "Fico Score".   More work to set up and manage. 

*** Does not sound like you need this option  ***

 

4 )  "Least used card” to most used card
Like "Snowball" but by "CC Use" instead of balance.  Probably a little harder to see progress but easier to not put spend back on zeroed out cards.

 

5)  “Make Bank Happy” Aka  “Least likelihood of CLD or Closure”.
Making CC issuer happy with out worrying about money loss or paying off fast or seeing early progress.  Making largest payments to CC issuer you want to keep happy and maybe lessen chances of CLD or closure.  "YMMV" depending on profile.  ( Not possible for some and not necessary of others )

*** With your "Util" numbers I do not think this is necessary. ***

 

*****  My Opinion  *****

This forum is about 50/50 on "Snowball" vs "High Interest" from reading other post for years.   I believe those with lower balances and only a few cards are best off with “High-Interest Plan”, and those with large balances on a lot of cards should use the “Snowball”.   I see no need with your numbers to use “Optimize Fico”,  “Least Used”,  or “Make Bank Happy” versions. That leaves you with the two most popular and also most argued and controversial methods.     Smiley Sad

 


As a hard-core "High Interest" believer, I am obviously biased, but if you deviate from the one true path, I don;t think number of cards  is really the decision point, it's more APR differences.    If all the cards are in say the 13-18% range, while I would always pay the higher APR first, if someone wanted to snowball for whatever (misguided!) reason, that's fine.   But if some are 10% and others are 28%, not attacking the higher APR first is just wrong.

Message 7 of 12
Kforce
Valued Contributor

Re: Best Method for Paying Down Cards?


@longtimelurker wrote:

As a hard-core "High Interest" believer, I am obviously biased, but if you deviate from the one true path, I don;t think number of cards  is really the decision point, it's more APR differences.    If all the cards are in say the 13-18% range, while I would always pay the higher APR first, if someone wanted to snowball for whatever (misguided!) reason, that's fine.   But if some are 10% and others are 28%, not attacking the higher APR first is just wrong.


You and I are both "High Interest" believers, however we are also logical, like spreadsheets, calculators, and numbers.  Even looking at APR differences is something many people with CC balances have never dreamed about.  Those that have balances on many or all of their cards are not looking at numbers, logic or money loss. They are purchasing more than they can afford. (Emergency, job loss, medical, etc exceptions noted). More "anti-logical", "short term gratification" "fly by the seat of you pants" personality.  Spend by what feels good not what is financially sound.  The "Snowball is for the people that need "sort term gratification", can see results and it makes them "feel good" and stay on the path. (Even if they are losing money).   I believe the same personality type is in the group of people that run up massive balances on dozens of cards. (They do not work by logic, or numbers they dance to another beat)

 

Message 8 of 12
wasCB14
Super Contributor

Re: Best Method for Paying Down Cards?

Some people do need assistance and/or encouragement in budgeting and paying off debt.

 

But financially, paying off the highest APRs first is really the only sensible strategy. Paying more in interest for feel-good games is still a waste of money.

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Message 9 of 12
Kforce
Valued Contributor

Re: Best Method for Paying Down Cards?


@wasCB14 wrote:

Some people do need assistance and/or encouragement in budgeting and paying off debt.

 (The reason for the "Snowball")

 

But financially, paying off the highest APRs first is really the only sensible strategy. (That's too logical for many)   Paying more in interest for feel-good games is still a waste of money. (Only a waste if the person can pay it off with the HI method, or the S is better because he/she can stick to the plan.  Lose a little interest but get it paid off, or fall off the wagon and never get it accomplished.)

 

However you are invited to join me and "longtimelurker" in the "Math Club".    Smiley LOL

Message 10 of 12
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