Whats the best CC payoff method?

[kd081708]

I came into some extra money but not a lot. I have two store credit cards with very little balances and some major CCs with high utlization. Should I split the money up and pay a little towards each card  to help bring the overall utilization down? or should I pay off the two store cards first?

[WillTeasle]

Are you paying interest on any/all of these cards?  If so, at what rate?

[kd081708]

Yes the store cards range from 24-29% interest. I have 3 other cards and one has no interest and the other two are 17 and 22%.

[WillTeasle]

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@kd081708 wrote:

Yes the store cards range from 24-29% interest. I have 3 other cards and one has no interest and the other two are 17 and 22%.

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I would start with the highest rate cards first.  Do you have enough to pay the store cards and put some at the others?  Or just enough for the store cards?

Also, planning on applying for anything in the near future?  If you're going to app that answer may change in order to drive UTL down accross all cards.

[kd081708]

Yes I have enough to pay two of the 3 cards PIF. So it seems like I should pay off the two cards to have two cards at 0?

[bch238]

• Stop using your credit cards, and spend cash or debit
• Add up all your minium payments, and subtract that number from what you believe you can afford to pay every month on credit card payments.  Try to pay at least your minimums x 125%, if possible, more if you are able.
• Pay the minimum payment on every card, except on the highest interest card which will be the minimum plus what you figured you could pay in excess of your total minimum payments.
• As each card is paid off, apply that card's total payment to the next highest interest card plus that's card's minimum and so on.  Eventually you will have everything paid off.

[Crisis]

For help and support along the way, check out this thread, The Great CC Payoff Challenge

[bada_bing]

If you plan on running your regular spend through the cards as you pay them down,

then put all monthly spend on the card that currently has no interest. Pay that card

down enough extra every month to make room for anticipated monthly spend. The 

reason for this is that your other cards with balances won't have a grace period and

interest will start accruing as soon as charges post.

I'm not recommending you continue to use your cards for monthly spend though. Many

people will spend more when using a card than they will if they use cash. The psychological

effects of credit are a bit damaging to many people's finances. If you can control your spending

to just what is required, then credit cards can offer convenience, rewards and a free grace

period. You have to have an honest assessment of your own behavior and self control in 

order to make that decision. "Know thyself" and formulating a plan based on that knowledge

are the most important part of any payoff plan.

[kd081708]

Thanks everyone for the great advice. I have a lot to think about. Whats best for FICO scoring with regards to utilization? Having a card at 0 or the overall total debt? I think that will help me make my decision.

[bch238]

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@kd081708 wrote:

Thanks everyone for the great advice. I have a lot to think about. Whats best for FICO scoring with regards to utilization? Having a card at 0 or the overall total debt? I think that will help me make my decision.

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Credit scores take into account (1) global utilization = total credit debt / total credit available; and (2) per card utilization = balance on each card / CL on that card.  Both are important.

If you have high gobal utilization, I think your priority should be to pay down your global debt starting with the highest interest cards.  There is no logical reason to pay off the lower balance cards first (unless they happen to be the highest interest).  Hit your highest interest card with as much as you can afford, then move to the next highest interest card.  Unless you are applying for a loan or something, your credit scores during the pay-off period are immaterial.  Nobody (but you) will be looking at them.  Paying off your global debt will have a huge impact on your score, but it will take as long as you take to pay it off.  At one point in the not-so-distant past, I had 50% global utilization with some high CL cards bumping 90%.  I have the kind of job where I get very large annual bonuses, so I was fortunate enough to pay off the whole thing in one billing period.  My scores jumped from +/- 730 to +/- 800 in one month.  My point is, global and per-card utilization can be a major drag on your score, but the score comes back as soon as you improve the utilization.  So don't worry needlessly about today's score.  Keep your sights on your goal of low utilization for the day you need a great score to get a loan.

In short, don't be a slave to the score.  The score is a means to an end.  Rational debt management does not mean maximizing your credit score in the short term, so don't worry too much about the per-card utilization at this time.