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Credit Card payoff questions

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Credit Card payoff questions

First off, thank you to everyone who has assisted me with my questions about Credit Cards, gave me Kudos for getting approved, and assisting me with mortgage questions/milestones. I appreciate these forums.

 

This may be a general math question but I want to know what the best way to approach credit card payoffs.

I get paid weekly. I have 3 CCs left to pay off. I usually save 25% of my rent out of each check, however I'm teetering on the idea of just dumping a whole check into these, and half of the following check to pay them off in full, then save what I need for rent out of the following checks. I plan to close CC #1 and 2 after PIF. Here are the CC bal and their rates:

CC #1 $396 (25.9%)

CC #2 $286 (28.5%)

CC #3 $672 (28.5%)

 

Question 1: Should I distribute a full check amongst the 3 evenly, or tackle the largest balance and wipe it out?

Question 2: Should I pay off the highest interest first, highest balance first, or lowest balance?

Question 3: After PIF a CC, how long should a person wait to actually call and close their card acct?

 

Once again, THANK YOU for helping me figure out the best path.

CLs:
Discover It (blue): $2000
Discover It (red): $1200
Shell Mastercard: $750
Message 1 of 14
13 REPLIES 13
Community Leader
Mega Contributor

Re: Credit Card payoff questions


@Itgem679 wrote:

First off, thank you to everyone who has assisted me with my questions about Credit Cards, gave me Kudos for getting approved, and assisting me with mortgage questions/milestones. I appreciate these forums.

 

This may be a general math question but I want to know what the best way to approach credit card payoffs.

I get paid weekly. I have 3 CCs left to pay off. I get paid weekly and usually save 25% of my rent out of each check, however I'm teetering on the idea of just dumping a whole check into these, and half of the following check to pay them off in full, then save what I need for rent out of the following checks. I plan to close CC #1 and 2 after PIF. Here are the CC bal and their rates:

CC #1 $396 (25.9%)

CC #2 $286 (28.5%)

CC #3 $672 (28.5%)

 

Question 1: Should I distribute a full check amongst the 3 evenly, or tackle the largest balance and wipe it out?

Question 2: Should I pay off the highest interest first, highest balance first, or lowest balance?

Question 3: After PIF a CC, how long should a person wait to actually call and close their card acct?

 

Once again, THANK YOU for helping me figure out the best path.




I would pay off higher interest ones first.

Those are relatively small amounts, so difference between interest on 25.9% and 28.5% if we're only talking about a couple of months wont be huge. 

You can close on the same day you pay, but there might be trailing interest on the next statement, so I'd close when statement balance reflects $0.00 owed. 

Message 2 of 14
Established Contributor

Re: Credit Card payoff questions

@Remedios wrote:

I would pay off higher interest ones first.

Those are relatively small amounts, so difference between interest on 25.9% and 28.5% if we're only talking about a couple of months wont be huge.  You can close on the same day you pay, but there might be trailing interest on the next statement, so I'd close when statement balance reflects $0.00 owed.

+1

Wait for each to report a zero balance before closing card's

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Message 3 of 14
Moderator

Re: Credit Card payoff questions


@Remedios wrote:

I would pay off higher interest ones first.

Those are relatively small amounts, so difference between interest on 25.9% and 28.5% if we're only talking about a couple of months wont be huge. 

You can close on the same day you pay, but there might be trailing interest on the next statement, so I'd close when statement balance reflects $0.00 owed. 


Agreed; pay off the highest interest first.  If all of the interest rates are pretty much the same and it's a choice between paying off cards #1 and #2 rather than card #3, pay #1 and #2 off.  That's two less accounts to worry about and you may even see a score improvement.  If you have no monthly fees or an annual fee coming due on them soon, not only would I suggest waiting a full statement cycle prior to closing in case of trailing interest, but I would enjoy the benefit of reducing your overall utilization and number of cards reporting a balance for as long as it makes sense to you.  But certainly close any fee harvester cards as soon as possible.


Message 4 of 14
Valued Member

Re: Credit Card payoff questions


@K-in-Boston wrote:

@Remedios wrote:

I would pay off higher interest ones first.

Those are relatively small amounts, so difference between interest on 25.9% and 28.5% if we're only talking about a couple of months wont be huge. 

You can close on the same day you pay, but there might be trailing interest on the next statement, so I'd close when statement balance reflects $0.00 owed. 


Agreed; pay off the highest interest first.  If all of the interest rates are pretty much the same and it's a choice between paying off cards #1 and #2 rather than card #3, pay #1 and #2 off.  That's two less accounts to worry about and you may even see a score improvement. 

 

Thank you all for your guidance on this! 

 

@K-in-Boston, I went ahead and paid off the two cards that were smaller balances based on your suggestion. I noticed on my calendar that Card #1's payment would be due in a few days, anyway, so I PIF. With Card #2 I left a small balance to report. Card #3 has a higher balance, which I'll be able to pay off next week. 

Feels so good to be (almost) Free & Clear!

CLs:
Discover It (blue): $2000
Discover It (red): $1200
Shell Mastercard: $750
Message 5 of 14
Established Contributor

Re: Credit Card payoff questions

I am going to go against the grain a little.

I would not worry so much about paying off credit cards until you have 3 months of expenses in savings. I understand cc's charge much more interest than savings provide. I have lived through 2 terrible economy downturns. Debt is bad, ill-liquidity is worse.



“If you don’t know, the thing to do is not to get scared, but to learn.” – Ayn Rand
Message 6 of 14
Established Contributor

Re: Credit Card payoff questions


@mikesonthemend wrote:

I am going to go against the grain a little.

I would not worry so much about paying off credit cards until you have 3 months of expenses in savings. I understand cc's charge much more interest than savings provide. I have lived through 2 terrible economy downturns. Debt is bad, ill-liquidity is worse.


I would pay off the cards before building an emergency fund. If you paid off two cards and an emergency occurred , you have those open lines to use that have had a 0 balance where you stopped paying interest. If you build the emergency fund first, you definitely will be paying interest while doing so.

 

Bottom line,  if no emergency occurs after paying off and building an emergency fund, you saved interest. If one did occur, you are paying 25-28% either way.

Scores:
    Experian FICO Score 8 = 847
    TransUnion = 839
    Equifax = 839

Cards (hover over for CL & Rate):
Message 7 of 14
Established Contributor

Re: Credit Card payoff questions


@CardNut wrote:

@mikesonthemend wrote:

I am going to go against the grain a little.

I would not worry so much about paying off credit cards until you have 3 months of expenses in savings. I understand cc's charge much more interest than savings provide. I have lived through 2 terrible economy downturns. Debt is bad, ill-liquidity is worse.


I would pay off the cards before building an emergency fund. If you paid off two cards and an emergency occurred , you have those open lines to use that have had a 0 balance where you stopped paying interest. If you build the emergency fund first, you definitely will be paying interest while doing so.

 

Bottom line,  if no emergency occurs after paying off and building an emergency fund, you saved interest. If one did occur, you are paying 25-28% either way.


I feel it is a grave assumption to assume a credit line will be there for you in times of economic distress.

Why buy insurance? If nothing happens you wasted your money.



“If you don’t know, the thing to do is not to get scared, but to learn.” – Ayn Rand
Message 8 of 14
Established Contributor

Re: Credit Card payoff questions


@mikesonthemend wrote:

@CardNut wrote:

@mikesonthemend wrote:

I am going to go against the grain a little.

I would not worry so much about paying off credit cards until you have 3 months of expenses in savings. I understand cc's charge much more interest than savings provide. I have lived through 2 terrible economy downturns. Debt is bad, ill-liquidity is worse.


I would pay off the cards before building an emergency fund. If you paid off two cards and an emergency occurred , you have those open lines to use that have had a 0 balance where you stopped paying interest. If you build the emergency fund first, you definitely will be paying interest while doing so.

 

Bottom line,  if no emergency occurs after paying off and building an emergency fund, you saved interest. If one did occur, you are paying 25-28% either way.


I feel it is a grave assumption to assume a credit line will be there for you in times of economic distress.

Why buy insurance? If nothing happens you wasted your money.


The point is, you pay off the cards and then build an emergency fund,  then close account(s). If nothing happens during that time, great,, you saved interest. If something does happen, you are paying interest regardless. Either by charging your cards again or by paying out of your emergency fund you created, and without paying down any balances on your cards you are paying interest on. 

 

You can't assume anything. That's why you build an emergency fund in the first place. 

Scores:
    Experian FICO Score 8 = 847
    TransUnion = 839
    Equifax = 839

Cards (hover over for CL & Rate):
Message 9 of 14
Established Contributor

Re: Credit Card payoff questions

100 at of 100 times, I would rather owe a bank money than have no money. In 2008 credit lines vanished. This profile would have been one.



“If you don’t know, the thing to do is not to get scared, but to learn.” – Ayn Rand
Message 10 of 14
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