Paying off CC in lump sum?

[Anonymous]

I currently have two credits :

1. BOA - AMEX credit limit $13K, with a balance of $9K (12% APR)
2. USAIRWAYS Mastercard credit limit $12K, with a balance of $5K  (13.2% APR)

I have enough cash in my saving accounts that would pay off both cards and leave me with about $3K in my saving account. I am wondering whether it's a good idea to pay off these cards in lump sum? How would that reflect on my  FICO score? I am currently at EXP 660, TU 730, EQ 698 with a 5 year credit history.

I once heard that it might do me a deservice in case I paid off these Cc, apparently a constant, regular payment that will pay off in the next 6 months might actually make more sense. My only concern is the interest that I have to pay monthly (it usually varies between $60 and $140 for both cards).

Any advice?

Thanks-

Financier

[Lel]

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Financier wrote:

I currently have two credits :

1. BOA - AMEX credit limit $13K, with a balance of $9K (12% APR)
2. USAIRWAYS Mastercard credit limit $12K, with a balance of $5K  (13.2% APR)

I have enough cash in my saving accounts that would pay off both cards and leave me with about $3K in my saving account. I am wondering whether it's a good idea to pay off these cards in lump sum? How would that reflect on my  FICO score? I am currently at EXP 660, TU 730, EQ 698 with a 5 year credit history.

I once heard that it might do me a deservice in case I paid off these Cc, apparently a constant, regular payment that will pay off in the next 6 months might actually make more sense. My only concern is the interest that I have to pay monthly (it usually varies between $60 and $140 for both cards).

Any advice?

Thanks-

Financier

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Right now, you are at 56% utilization of your available revolving credit.  If you get you utilization down to 9% or less, then you should see an increase in your scores.

Your payment history - making on-time payments consistently over time - is more important than the amount that you pay each month (assuming that you at least make the minimum payment due).  If you can pay off/pay down your credit card debt in one fell swoop, then it will save you a lot of money in interest payments, and will result in an increase in your score, especially if you get below that 9% utilization threshold.

It is generally accepted that letting a small balance report to the CRAs is good for your credit score.  This does NOT mean that you have to carry a balance and pay interest on the balance.  You just need to have a billing cycle close with a balance that will be reported to the CRAs.  Your credit report will reflect your recent use of credit cards.  You can then pay your bill in full before the due date and avoid any interest charges.

Credit card companies have been rate-jacking people left and right.  Your interest rates are okay, but could get a lot worse soon as the CCCs try to position themselves before the new rules go into effect.  So, if you feel you can comfortably pay off your credit cards now, without putting yourself into other financial difficulties, then it wouldn't be a bad idea to do so.

[MarineVietVet]

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@Anonymous wrote:

I currently have two credits :

1. BOA - AMEX credit limit $13K, with a balance of $9K (12% APR)
2. USAIRWAYS Mastercard credit limit $12K, with a balance of $5K  (13.2% APR)

I have enough cash in my saving accounts that would pay off both cards and leave me with about $3K in my saving account. I am wondering whether it's a good idea to pay off these cards in lump sum? How would that reflect on my  FICO score? I am currently at EXP 660, TU 730, EQ 698 with a 5 year credit history.

I once heard that it might do me a deservice in case I paid off these Cc, apparently a constant, regular payment that will pay off in the next 6 months might actually make more sense. My only concern is the interest that I have to pay monthly (it usually varies between $60 and $140 for both cards).

Any advice?

Thanks-

Financier

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I care more about not having CC interest than any temporary change up or down to my FICO, But that's just me. I would pay them off and keep them paid in full each month and never worry again about interest rates.

(myfico)
7/09        8/09
TU-742
EQ-779   783

CC interest free as of 8/09
Time can heal all wounds and a low FICO.
"Hello my name is Sandy and I'm a recovering crediholic".

[slarano]

Weigh the interest charges versus the interest you gain by leaving your savings in your savings account. Then, consider the reasons and/or benefits of having a higher FICO score (i.e., extremely important if you're looking into purchasing property, new auto, etc.). If it's just to get a higher score, it might be better to pay a little bit off, and still let the majority of your savings collect interest in its savings account.

[Anonymous]

I would take a hybrid approach here. Pay enough on the CC's in a lump sum to get your UTIL under 30% and then continue to pay the balances down aggressively over time. Do not deplete your savings completely to kill off the CC balances. You may save a few dollars interest but at the cost of sacrificing your financial flexibility.

[smallfry]

I would keep the money in the savings account and stop charging. Aggressively start to pay the credit cards down now out of weekly earnings.

[marty56]

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@smallfry wrote:
I would keep the money in the savings account and stop charging. Aggressively start to pay the credit cards down now out of weekly earnings.

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Viewing the money in savings as an Emergency Fund, if my job was 100% secure, I would PIF the cards otherwise I would do what smallfry says.

[iDShaDoW]

I'm with marinevietvet.  Personally, I'd pay both off completely or leave a bit on each, like even $50 on each.  That would cause you to have a monthly payment of like $10 which is still showing you as paying your CCs off each month.

Is there really a need to have almost $20k in your savings accounts for yourself at the cost of like $200-400 in interest each month on your CCs?

Do you have any big plans anytime soon where you'd need access to large sums of cash?  If something were to happen, you could just start living off credit again (seems like you already are at the moment so it wouldn't be a big change).

Just save yourself from all those unnecessary finance charges in the meantime and start growing your savings account with your weekly/bi-weekly earnings.

If you leave those high balances, you're just throwing away your money.

Message Edited by iDShaDoW on 08-19-2009 09:58 AM

[Anonymous]

I appreciate all the feedback I have so far received. Being in IT, the industry as whole is doing ok overal- No massive layoff so far. However, I can't guarrantee that my job is secure 100%. I am leaning towards the idea of paying this down gradually. I think having $15K in my saving gives me some psychological relieve should anything happen. I recevently found out that Barclays Card (US) which owns my USAIRWAYS Mastercard has set a cash available limit to $5K inspite of my credit limit, it means even if I have a credit available of $10K, I won't be allowed to access more than $5K in cash.

I guess keeping the cash in my saving would be okay in this instance but I will have to go on paying interest in the next several months before they are all paid off. 

[Anonymous]

I think you've got it. Just attack the balances aggressively over the next few months and you'll be fine. You don't want to get involved with cash advances on CC. The fees and APR's are sickening. Plus cash advances are just bad business.