Payoff order - how should I

[radfam]

I'm weighing options for how to pay down my debt.  I am using Undebt It so I can see a few ways to do this, but I want to get community opinion on options to maximize score rise.  1 collection, no accounts are late or even potentially late, but I have heavy utilization on my CCs.  My goal is to get credit cards paid off by end of 2022.  I have a 30k bonus coming on Friday.  Thinking of allocating 15-20k towards debt paydown, and putting 10-15k in savings.  Undebt It says if I pay down 15k, the rest I can get paid off by Oct 2022 based on my income and what I can throw at this debt.  I just want to make sure I am strategic in HOW and WHAT I pay down to maximize score impact.

15 active debt accounts in credit cards, in order from smallest balance - 

**Overall credit utilization, regardless of account type, is 88%

 VS - 140.75 (already paid) / 1000 SL - Now 0% utl

Ulta - 182.64 / 960 SL - 19% utl

Amex CC - 244.55 / 1000 SL - 24.5% utl

Amazon - 831.75 / 1000 SL - 83.2 % utl
Cap1 - 1346.72 / 1700 SL - 79% utl

Amex Charge - 1585.61 - NPSL

Education Collection - 2556 - COL (I can see if the Uni will recall the debt and pay them directly)

Care Credit - 3521.38 / 3030 SL - 116% utl

Disco - 3934.68 / 4200 SL - 94% utl

Apple - 4343.86 / 4500 SL - 97% utl

GS - 4431.83 / 5000 - 89% utl

Chase FU - 4837.32 / 5100 - 95% utl

Lowes 1 - 6081 / 6820 - 89% utl

Chase SP - 7557 / 8000 - 94% utl

castle - 8182 / 10000 - 82% utl

Lowes 2 - 9965 / 12000 - 83% utl

[FireMedic1]

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@radfam wrote:

I'm weighing options for how to pay down my debt.  I am using Undebt It so I can see a few ways to do this, but I want to get community opinion on options to maximize score rise.  1 collection, no accounts are late or even potentially late, but I have heavy utilization on my CCs.  My goal is to get credit cards paid off by end of 2022.  I have a 30k bonus coming on Friday.  Thinking of allocating 15-20k towards debt paydown, and putting 10-15k in savings.  Undebt It says if I pay down 15k, the rest I can get paid off by Oct 2022 based on my income and what I can throw at this debt.  I just want to make sure I am strategic in HOW and WHAT I pay down to maximize score impact.

15 active debt accounts in credit cards, in order from smallest balance - 

**Overall credit utilization, regardless of account type, is 88%

 VS - 140.75 (already paid) / 1000 SL - Now 0% utl

Ulta - 182.64 / 960 SL - 19% utl

Amex CC - 244.55 / 1000 SL - 24.5% utl

Amazon - 831.75 / 1000 SL - 83.2 % utl
Cap1 - 1346.72 / 1700 SL - 79% utl

Amex Charge - 1585.61 - NPSL

Education Collection - 2556 - COL (I can see if the Uni will recall the debt and pay them directly)

Care Credit - 3521.38 / 3030 SL - 116% utl

Disco - 3934.68 / 4200 SL - 94% utl

Apple - 4343.86 / 4500 SL - 97% utl

GS - 4431.83 / 5000 - 89% utl

Chase FU - 4837.32 / 5100 - 95% utl

Lowes 1 - 6081 / 6820 - 89% utl

Chase SP - 7557 / 8000 - 94% utl

castle - 8182 / 10000 - 82% utl

Lowes 2 - 9965 / 12000 - 83% utl

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The ones next to maxed need to get paid down below 89% to start off with. Spread the rest to each one. Get them paid and dont use the cards. You have swipe fever and the interest your paying is out of control. In fact give the cards to someone to hold so they wont get used until all debts have been paid.

[radfam]

Thanks for the feedback

[coldfusion]

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I would agree with first attack those cards with 88%+ utilization and pay them down to 88%, but I would then also immediately pay off your AMEX charge card and put the money aside to pay off that open collection while you work through the terms of payment.  Using back-of-paper-napkin math, that would take about $6K out of your allocation. 

I would suggest to then switch to using a version of the snowball technique and right now pay off in their entirety the Ulta, AMEX CC, Amazon, Cap1, Care Credit, GS, and Chase cards, so you end up with a number of cards reporting a 0 balance. 

Again, if my paper-napkin math was reasonably accurate that would leave you with somewhere around $9K to put into savings. 

Moving forward, make $5 over the mininum payment each month on every remaining card except the one with the lowest remaining balance and with that particular card pay every last cent you can toward it.  Once that card has been paid off follow the same procedure except now targeting the remaining card with the lowest balance, rinse and repeat.   As you pay off a given card, the amount you are paying each month against the remaining lowest-balance card will increase, it's like having a snowball get larger and larger as it rolls downhill.  (You wouldn't have to implement exactly as how I describe it here, it's the technique that is most important

One thing to note is that while you're in the process of paying down and paying off all of these cards you're going to be at risk of having some of them balance-chased and potentially ultimately closed by the issuer.  

[MarkintheHV]

Last year, I had over 40k in credit card debit.  I used the tradional snowball method, and attacked the lowest balance first, then moved my up the ladder until everything was paid off.  Took me 8 months, but got it done.

[MrT_521]

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@radfam wrote:

I have a 30k bonus coming on Friday.  Thinking of allocating 15-20k towards debt paydown, and putting 10-15k in savings.

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This is the common recommendation, but I have a different point of view. While it is good to have savings available for an emergency, this savings becomes very expensive if it is parked while you are paying interest on credit cards. To me, paying credit card interest is an emergency, and a proper use of emergency funds.

If another emergency arises while you are paying down your debts, you can use a credit card. You'd be no worse off than you are now, and because chances are you will not need any emergency funds, you'll likely end up ahead.

I would put every penny of the $30k bonus towards paying down your debts. After the debts are gone, take the payment money and put it into savings. You'll (likely) end up way ahead.

[radfam]

Thank you for saying that.  My spouse and I have been debating this very thing.  Get closer to wipe out the debt by throwing all 30k at it, or stick some in savings.  After redoing our Undebt It plan, the difference of payoff is only 2-3 months sooner.  So my options are to pay 15k and payoff all by 12/2022, or pay 30k and payoff all by 09/2022.  In the short term, 100% yes, paying off faster is highly important and we want to pay this off as quickly as feasible.  It is our goal to pay off all our credit card debt by end of 2022.  However, the interest footprint is minimal if you think about 2-3 months, compared to the safety net in savings.  So this is my biggest struggle in terms of thinking how to pay this effectively in terms of score management.  

[SouthJamaica]

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@radfam wrote:

I'm weighing options for how to pay down my debt.  I am using Undebt It so I can see a few ways to do this, but I want to get community opinion on options to maximize score rise.  1 collection, no accounts are late or even potentially late, but I have heavy utilization on my CCs.  My goal is to get credit cards paid off by end of 2022.  I have a 30k bonus coming on Friday.  Thinking of allocating 15-20k towards debt paydown, and putting 10-15k in savings.  Undebt It says if I pay down 15k, the rest I can get paid off by Oct 2022 based on my income and what I can throw at this debt.  I just want to make sure I am strategic in HOW and WHAT I pay down to maximize score impact.

15 active debt accounts in credit cards, in order from smallest balance - 

**Overall credit utilization, regardless of account type, is 88%

 VS - 140.75 (already paid) / 1000 SL - Now 0% utl

Ulta - 182.64 / 960 SL - 19% utl

Amex CC - 244.55 / 1000 SL - 24.5% utl

Amazon - 831.75 / 1000 SL - 83.2 % utl
Cap1 - 1346.72 / 1700 SL - 79% utl

Amex Charge - 1585.61 - NPSL

Education Collection - 2556 - COL (I can see if the Uni will recall the debt and pay them directly)

Care Credit - 3521.38 / 3030 SL - 116% utl

Disco - 3934.68 / 4200 SL - 94% utl

Apple - 4343.86 / 4500 SL - 97% utl

GS - 4431.83 / 5000 - 89% utl

Chase FU - 4837.32 / 5100 - 95% utl

Lowes 1 - 6081 / 6820 - 89% utl

Chase SP - 7557 / 8000 - 94% utl

castle - 8182 / 10000 - 82% utl

Lowes 2 - 9965 / 12000 - 83% utl

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If I were you I would apply the entire amount to paying down your debt.  The amount you would earn in savings would be miniscule compared to the large amount you would save in credit card interest.

I would use the snowball method.
1. Stop using cards.
2. Pay off smallest balance first, then next smallest, and so on.
3. On other cards pay minimum + something each month.
As each balance turns to zero, that will free up your remaining monthly cash to apply to the next smallest balance.

[MrT_521]

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@radfam wrote:

However, the interest footprint is minimal if you think about 2-3 months, compared to the safety net in savings.

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This is true. My reasoning is that if you put $15k aside into savings and therefore pay interest on $15k more credit card debt, you are guaranteed to pay that penalty. If you put the entire $30k towards credit card debt, and meanwhile encounter a $15k emergency, you can use a credit card for the emergency. You are then at exactly the same place you would have been had you put $15k aside for an emergency, and then used that for the emergency.

To summarize, you cannot lose by putting all of your $30k towards your debt, even if an emergency arises. You can, however, gain. And considering how often emergencies come along, your chances are good. If the chance of needing emergency funds is less than 100%, you stand to gain.

[longtimelurker]

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@radfam wrote:

Thank you for saying that.  My spouse and I have been debating this very thing.  Get closer to wipe out the debt by throwing all 30k at it, or stick some in savings.  After redoing our Undebt It plan, the difference of payoff is only 2-3 months sooner.  So my options are to pay 15k and payoff all by 12/2022, or pay 30k and payoff all by 09/2022.  In the short term, 100% yes, paying off faster is highly important and we want to pay this off as quickly as feasible.  It is our goal to pay off all our credit card debt by end of 2022.  However, the interest footprint is minimal if you think about 2-3 months, compared to the safety net in savings.  So this is my biggest struggle in terms of thinking how to pay this effectively in terms of score management.  

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I would be surprised if the difference between using half to pay off and all to pay off was only 2 or 3 months....  That's certainly possible if income is high enough (and then using none of it would also be OK, pushing payoff out maybe 4 more months!).   Just double check.