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How to best apply lump sum pmt to CC

extra300
New Member

How to best apply lump sum pmt to CC

 I have two credit cards both maxed and have enough money to pay one completely. Would it be better (score wise) to pay one completely and work hard to knock down the other one or pay both down to half. I know 50% is still very large utilization but which would be better while I work on paying it all off. (Assuming CC Co. doesn't balance chase me of course).

 

Thanks

13 REPLIES 13
FinStar
Moderator

Re: How to best apply lump sum pmt to CC

Hi @extra300, welcome to the forums.

 

To provide some guidance on the best approach, can you share the balances, APRs and limits on the 2 cards in question?

Message 2 of 14
extra300
New Member

Re: How to best apply lump sum pmt to CC

    Bal/CL.              APR

  

1. 9000/10000.    17.9%

2. 10000/11000.  19.9%

 

10K to apply to balances.

 

Thanks!

Message 3 of 14
Bradac56
Valued Member

Re: How to best apply lump sum pmt to CC

I've always found the best method is the simple one.  Paying down debt is rarly about brains it's about brawn (brains got us to this point). 

 

  1. Pay the smallest bill down first.
  2. Pay the new smallest bill down next.
  3. Rinse, repeat. 

This feels better and forces you to look at the small picture verses overthinking the bigger picture.

Plus a CC company tends to report the payoff to the fico companies.


Message 4 of 14
ImTheDevil
Community Leader
Super Contributor

Re: How to best apply lump sum pmt to CC

If you paid $4300 on card #1, you'd be at 47%. Pay the remaining $5700 on card #2, and you'll be at 39% on that one. Overall you'd be at significantly less risk than now, and this gets you out of the danger zone on both cards. You won't want to let them marinate at this level but it's a much better look than current.



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Message 5 of 14
thornback
Senior Contributor

Re: How to best apply lump sum pmt to CC

@extra300 wrote:

    Bal/CL.              APR

  

1. 9000/10000.    17.9%

2. 10000/11000.  19.9%

 

10K to apply to balances.

 

Thanks!


If it were me, I'd put 5K on each.  Bring both out of max territory and they'll sit at 40% and 45.5%, respectively (assuming you're not balance chased).  

 

You could pay off one card and leave the other maxed but if your payoff will be somewhat slow, that may not be the best idea depending on the lender's risk tolerance.

 

Scorewise, point gains will probably be about equal (or difference negligible) whichever option you choose - but your red flag won't fly so high if you bring both balances down significantly. 

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Message 6 of 14
BrutalBodyShots
Super Contributor

Re: How to best apply lump sum pmt to CC

Assuming a mortgage isn't on the horizon, I agree with those that have suggested paying down both to roughly equal sub-50% utilization levels.

Message 7 of 14
KLEXH25
Valued Contributor

Re: How to best apply lump sum pmt to CC


@ImTheDevil wrote:

If you paid $4300 on card #1, you'd be at 47%. Pay the remaining $5700 on card #2, and you'll be at 39% on that one. Overall you'd be at significantly less risk than now, and this gets you out of the danger zone on both cards. You won't want to let them marinate at this level but it's a much better look than current.


What he said ☝🏼





Message 8 of 14
HeavenOhio
Community Leader
Senior Contributor

Re: How to best apply lump sum pmt to CC


@Bradac56 wrote:

I've always found the best method is the simple one.  Paying down debt is rarly about brains it's about brawn (brains got us to this point). 

 

  1. Pay the smallest bill down first.
  2. Pay the new smallest bill down next.
  3. Rinse, repeat. 

This feels better and forces you to look at the small picture verses overthinking the bigger picture.

Plus a CC company tends to report the payoff to the fico companies.


Welcome, @Bradac56. Smiley Happy

 

You're describing the snowball method. The other main paydown method is to go for high interest first. If a mortgage or other important credit application is involved, you would usually go for some kind of hybrid that will hopefully tack on the most points to your score.

 

In this case, the advice has been geared toward avoiding adverse action (credit limit decreases). This tack seems to be a slam dunk in this situation because the balances and interest rates are close to identical.

Message 9 of 14
extra300
New Member

Re: How to best apply lump sum pmt to CC

Thank you everyone for all the quick replies and advice. @HeavenOhio are you saying that using the snowball method paying the lowest balance off first completely and leaving the other one where it is would give me better odds not to be balanced chased? Because that is something I am hoping to avoid.

 

Thanks again

Message 10 of 14
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