pay off higher interest rates first or get util down on each CC

[SouthJamaica]

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@Sk323i wrote:

I have a limit of 9500 with 7350 in current debt = 77% util. 

I have 1 card at 100%. 4 cards at 80% and 1 card at 40%. 

I want to apply for my first mortgage soon. 

I have 0 expenses currently as I just moved back in with my parents. I net about 3200 a month. Should be able to pay debt off in full within less than 6 months. Depending on other factors such as the loan, etc. 

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1. It would be a mistake to apply for a mortgage until you get your credit card utilization down.

2. Get all cards down to below 30%, then start paying them down to zero based on highest interest rate.

3. Then let all but one of the cards report at zero, with the other reporting at 9% or less.

[Sk323i]

How low should my util be before applying for a mortgage?

I'm only seeking to borrow ~200K. 

I have 0 expenses currently and net 3200/mo. 

I figure it is now or never for buying a house -- given that interest rates might go up and the market may decline under a new president's administration over the next quarter/year/decade.

[Anonymous]

Your utilization ideally would be at 1% when applying for a mortgage.  Lenders like to see that you're a Transactor, not a Revolver; Transactors that PIF every month and never carry balances are far less risky.  Keep in mind that lenders also can look back at your balances over time, so your utilization at the moment you apply for the mortgage while important isn't all that they will see.  While I don't know if lenders are doing it yet, I know that the plan is that they will be looking back a full 24 months to see a long history of utilization and/or whether the potential customer was a Revolver at all during that time.

[Anonymous]

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@Dalmus wrote:

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@Sk323i wrote:

I have a limit of 9500 with 7350 in current debt = 77% util. 

I have 1 card at 100%. 4 cards at 80% and 1 card at 40%. 

I want to apply for my first mortgage soon. 

I have 0 expenses currently as I just moved back in with my parents. I net about 3200 a month. Should be able to pay debt off in full within less than 6 months. Depending on other factors such as the loan, etc. 

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 What are the balances on your other cards?  If they are low-ish limit cards, I'd pay those off first, and then you can apply all the money that would go towards that minimum payment to the remaining cards.

 Since money doesn't really seem to be an issue ($3,200 with no expenses...) I guess I would pay the high interest cards off first.  If money WERE an issue, I would pay off low balance cards first, as the montly minimum payment "savings" would be more than the reduction in minimum payment I would see by paying the same amount towards a high balance card.

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Yes, three classes of case:

1) Score is an issue (immediate plans for major app).   Then try to pay down very high util cards 

2) Cash flow is an issue.  Payoff smaller balance cards to reduce need for min payments on all, even though this costs more in interest

3) Save money: pay off highest APRs first

[Appleman]

As far as a mortgage, your DTI level is likely fine (.36 to .4 X your gross monthly pay). This will equal the total a lender will allow for monthly payments (mortgage, car, student loan, CC)

The score is going to hurt your interest rate and may require more strict financial requirements.

By getting the score into the 700's you will be in a much better position.

If you qualified for a personal loan to cover your revolving debt your scores would also take a boost. You would just need to make sure the personal loan payment would not jack with your DTI ratio. You can check out SofI.com etc and see if they have any prequalified offers (soft pull)

Revolving debt is scored differently than a personal loan. It can be a risky move for some if you continue to create debt and run up the cards.

(There will likely be others on the board that would advise against this approach, just my opinion) 

[Sk323i]

i'm getting an FHA loan and an AZ grant for 1% and am stuck with 4% interest.

My score was 640 on 9/25. I payed 20% of my util down since then. I have not check my score since.

I am applying for the loan this Friday.

My parents are going to give me 15K for down payment, closing costs.

I gross 3975/mo.

I have 5K in credit debt.

0 expenses otherwise.

Debt to income ratio is 43%

The homes I am seeking are around 225K which at 30 years I estimate would come out to $1100 a month. 

[Anonymous]

I agree with fordguy89. Almost all financial experts (credit and otherwise) believe the snowball effect is the best method for paying down debt. Unless your interest rate is zero on a low balance debt focus on paying down the lowest balance cards first. The key is after the low balance cards are paid to use those same payment amounts to your next largest debt and so on. I am using that method myself. I had several large balances on closed cards when I went on a DMP (which I left and I can explain why never to do a DMP). I have paid off 2 and 2 more are close to being paid off. I'll have 3 left with larger balances. Paying down my debt allowed me to get new cards and increase my scores the most - nearly 200 points.

[Anonymous]

As others have mentioned, your focus should be on paying down/off your debt, not utilization. There are 2 theories for paying off/down debt: snowball effect and paying off the card with the highest interest rate first. Now, all you have to do is select the option that works best for you and your plan. It's that simple. Good luck to you!

[r34dy2fly]

As others have stated, pay down all your cards before apply for a mortgage. Honestly, you're going to be stuck with that mortgage for years to come so you need to get a good rate right from the getgo. That won't happen with high utilization.

If I were you, I'd just pay the card with highest interest first and work my way down. This is with the assumption you won't apply for a mortgage until you're sitting at 1-3% utilization. You'll save money this way. Money that you'll need to pay for closing costs. 

[NRB525]

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@Sk323i wrote:

i'm getting an FHA loan and an AZ grant for 1% and am stuck with 4% interest.

My score was 640 on 9/25. I payed 20% of my util down since then. I have not check my score since.

I am applying for the loan this Friday.

My parents are going to give me 15K for down payment, closing costs.

I gross 3975/mo.

I have 5K in credit debt.

0 expenses otherwise.

Debt to income ratio is 43%

The homes I am seeking are around 225K which at 30 years I estimate would come out to $1100 a month. 

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With those terms, go for the mortgage.

you've only got $5k of CC debt. That's manageable.

You do indeed want to continue to pay down the CC debt. You will need to budget closely to do that, but getting the mortgage sets you up with a stable living location and you can focus on saving money, routing that money to the CC and then the mortgage after the CC are under control. Avoid eating out, as a first step to making funds available. Cook at home in your kitchen

Do check on the quality of your vehicle. If you can make any key repairs to keep that vehicle in good condition, even if it means some repairs of several hundred dollars, that keeps you out of the new car ( or used car ) showroom, and the associated monthly payment that often goes along with that. Eventually you will need a new / newer vehicle, but the longer you can postpone that, the more felxibility it leaves in your budgeting.

Good luck!