Helping a friend with two maxed out credit cards

[Anonymous]

Hey folks.  What would you folks advise?  Friend has two maxed out credit cards in addition to othen not-so-desirable credit marks.  He has the ability to either 1) pay off one credit card while leaving the other maxed or 2) pay down both credit cards to 50%.  He would prefer option #1 since that leaves him with one less payment, though he intends to pay more money towards the one CC thats still maxed, but if he's tight on cash one month, he has the ability to pay less toward his monthly expenses.  Of those two options, what's the best way to improve his credit score this moment?

[Slabenstein]

Assuming no other cards are maxed, 2) should result in greater score improvement, since it reduces both agg util and highest individual util.  But, unless he has a major credit app like a mortgage coming up, it probably makes more sense to focus on finances than FICOs, so his preference for 1) seems more reasonable to me.  Paying off the card with the higher interest of the two will also be of most benefit in that regard.

[pinkandgrey]

I think the other answer was pretty spot-on, but my PERSONAL choice would be option 1. 

[TheCreditCount]

In terms of paying the least in interest it's most efficient to focus on taking down the balance of the card with the higher interest rate. I get where you're coming from with maximizing score and the second option would be more effective for that but it depends on how you prioritize improving credit scores vs mitigating interest.

[Anonymous]

I guess my question would be why is score optimization more important than finances at the moment?  If there's a good reason (upcoming mortgage, for example) I get it, no doubt.  If not, my suggestion would be to worry less about the score impact and more about saving money.  That being said, taking down the card with the greatest interest rate would make the most [financial] sense. 

Overall, it probably isn't going to make a huge amount of difference in Fico points.  One option may result in perhaps a 14 point Fico gain, where the other results in a 21 point Fico gain.  X months later once the end goal is achieved (all cards paid down to Y amount) the Fico scores would be identical in the end, so is it really "worth" the financial losses associated with the (say) 7 point difference out of the gate based on picking one option over the other?  Only the individual can make that call based on what their immediate focus is.

[rostrow416]

Knock out the higher interest rate card completely first.  One less payment to worry about, and lower interest on the amount still owed.  

Scores bounce back once utilization is lowered, but for someone in a tight spot, every dollar needs to count.

[SecretAzure]

Nobody has mentioned the possibility of a balance chasing situation here. If these are their only cards or even just the majority of their cards, there's a good chance one or both credit cards will react negatively upon receiving payment.

If your friend pays down both to 69%, they will quickly find out if they're being met with negative action. One or both could lower their total available credit limit to either exactly their balance or very close to it.

• If it's just one that lowers his limit, they should focus on paying down the other card with the remaining cash and make only minimum payments on the lowered card for as long as possible.
• If both lower his balance they're boned.
• If neither lower his balance, go ahead and use the remaining cash on whichever card has the higher interest.

I'm aware that this method accomplishes neither the goal of optimizing score nor lowering the amount of interest paid. But I would call this option the safer way to get through a difficult situation in the long run. 

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[Anonymous]

Wow interesting, SecretAzure. Never thought about that

[Credit12Fico]

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@SecretAzure wrote:

Nobody has mentioned the possibility of a balance chasing situation here. If these are their only cards or even just the majority of their cards, there's a good chance one or both credit cards will react negatively upon receiving payment.

If your friend pays down both to 69%, they will quickly find out if they're being met with negative action. One or both could lower their total available credit limit to either exactly their balance or very close to it.

• If it's just one that lowers his limit, they should focus on paying down the other card with the remaining cash and make only minimum payments on the lowered card for as long as possible.
• If both lower his balance they're boned.
• If neither lower his balance, go ahead and use the remaining cash on whichever card has the higher interest.

I'm aware that this method accomplishes neither the goal of optimizing score nor lowering the amount of interest paid. But I would call this option the safer way to get through a difficult situation in the long run. 

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I don't think balance chasing is a big deal if the goal is to protect immediate finances. Assuming the balanced chase card doesn't get closed, then when OP's friend pays off the balances, he/she will still have 2 open cards with history, and the ability to app a new card or CLI the existing ones.  As it is, balance chasing doesn't mean anything because if the cards are currently maxed out, then the owner will never be able to put new charges on it whether they pay them and are balanced chase, or they don't pay them and they remain maxed out.

Seems like this is Finances over Fico moment.

[SouthJamaica]

The best way would be to pay both down to 48%.