Pay off small or pay down large?

[LXRM36]

Good morning,

So about a year ago I went into business for myself. Slow start, racked up some debt. So I’m at a point now where I have a high utilization on a card with a sizable limit. Would it be more beneficial to make a large payment on the large balance, or pay off completely a card with a lower balance AND lower rate?

Paying off the one card will eliminate a bill altogether, although I only pay $350-500/mo on that account. But every little bit helps, right?

Thanks for any advice!

[Anonymous]

It depends what your goal is.  Is your goal to optimize your Fico scores, or is you goal to pay as little interest as possible? 

In 99% of cases, finances are more important than scores, but to give you the best advice everyone would need to know what your goals are.

[LXRM36]

In a perfect world, both! Of course! Haha!

Seriously though, first goal is getting some debt paid off. Right now, that’s more important than score optimization.

[Anonymous]

Could you list the two cards, their lenders, balances and utilizations, and their APRs? Depending on which banks we are talking about, one plan may immediately be the better of the two.

[LXRM36]

DESCO: $4.8K, 48% util, 12.9% - Pay Off
AMEX: $23.4K, 73% util, 20.74% - pymt would take me down to appx 57.5% util.

[RSX]

Disco is costing you $51 in interest per month

Amex is costing you $404 in interest per month

put the $4800 on the Amex. It will drop your interest by $79 per month

which is better than dropping only $51

[zerofire]

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@LXRM36 wrote:
DESCO: $4.8K, 48% util, 12.9% - Pay Off
AMEX: $23.4K, 73% util, 20.74% - pymt would take me down to appx 57.5% util.

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Holy. That is quite a difference in APR. I recommend that you see what you can about lowering the AmEx as that is costing you a small fortune. I hope Discover has that APR as standard because aside from minimum payments most of the spare cash should go to AmEx. The goods news is that both lenders are not that skittish as long as you pay them as agreed. I also hope that the AmEx is not a charge card as that would be very bad.

[FlaDude]

I'd pay off the Discover and refinance the Amex balance to a reasonable rate, preferably a 0% balance transfer.

[zerofire]

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@FlaDude wrote:

I'd pay off the Discover and refinance the Amex balance to a reasonable rate, preferably a 0% balance transfer.

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Which lender do you expect to offer up ~$25,000 SL? I cannot think of one based on the accounts they already have.

[FlaDude]

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@zerofire wrote:

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@FlaDude wrote:

I'd pay off the Discover and refinance the Amex balance to a reasonable rate, preferably a 0% balance transfer.

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Which lender do you expect to offer up ~$25,000 SL? I cannot think of one based on the accounts they already have.

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I wouldn't expect any lender to give them that entire amount on a single card with good balance transfer rates. I should have clarified that it would probably need to be a combination of cards and possibly loans. In my case I refinanced 75k in high interest credit card debt to a combination of 0% BTs and loans at 6-7% so it can certainly be done.