Tomorrow I Can Pay Off All My Debt of $130,000 - Help Me Do It Right Please

[Anonymous]

I am lucky, and tomorrow I can pay off all my debt. I was just going to pay it all off, but then I started Googling, and it seems that may not be the best for my score! I want a high score, because I want to buy a home soon (in NYC yikes!).

Do you guys think you can help?

Here is my profile:

FICO Score: 716 (was 742 one month ago, but debt has increased since)

1 late payment 52 months ago

0 public records

0 collection accounts

Stated debt levels:

Credit Debt $105,511.00

Total Credit $74,700.00

These figures are not quite right, and I think they may be confounded by American Express. I have about $130k of debt:

Amex Platinum charge card (due November 7): $80k (not behind ever but over spend limit, only $66k is due 11/7)

Chase CC: $13k (revolving CC, 20+% rate, horrible)

Citi CC: $19k (this was a 0% promo that I maximized)

Best Buy CC: $3k (all under 0% promos)

Amazon CC: $3k (all under 0% promos, one due soon for half of the balance)

Lenders Club loan: $9k (that's what's left, payed on time everytime, about 5%, I think, started at $14k)

So that totals $127k. I'm getting more than that amount tomorrow to pay off all this crud. I was just going to ZERO it, but now I'm concerned I'll hurt my credit, which seems crazy. None of this credit will GO AWAY if I pay it off. It's not like closing a mortcage or car loan (except Lending Club, which is small).

What do I do? I am so appreciative of any help!!!

Thanks,

BJNYC

[AverageJoesCredit]

As for your scores, ill leave that to the experts but no matter what, if i had the money to pay off all my debt, id pay it off to zero and celebrate like it was my last day You can always start to manage your credit once its at zero but not everyone gets to restart at zero.

[Anonymous]

Thanks! That was my plan, but I got scared that I would make my score worse. I've been reading some more, and it seems that I might only make it worse if I CLOSED accounts (mortgage, car loan, etc.)

Since none of these accounts will be closing, I'm inclined to pay off.

I mean, Lending Club will be closing, but as an installment loan, that's not helping anyway....

[woodyman100]

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@AverageJoesCredit wrote:
As for your scores, ill leave that to the experts but no matter what, if i had the money to pay off all my debt, id pay it off to zero and celebrate like it was my last day You can always start to manage your credit once its at zero but not everyone gets to restart at zero.

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+1 BILLION.

Pay it all off and then charge a pack of gum and let it report. That ought to do the trick.

Congrats!

[simplynoir]

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@woodyman100 wrote:

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@AverageJoesCredit wrote:
As for your scores, ill leave that to the experts but no matter what, if i had the money to pay off all my debt, id pay it off to zero and celebrate like it was my last day You can always start to manage your credit once its at zero but not everyone gets to restart at zero.

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+1 BILLION.

Pay it all off and then charge a pack of gum and let it report. That ought to do the trick.

Congrats!

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Ditto as well. Pay it all off and buy a soda and snack at a local store and watch your scores recover. And major congrats on paying off that debt.

[Kenny]

Just pay it all off. The points will not make a difference, honestly.

[Ardecko]

[Third edit, geez:] AMEX, pay it, of course.

Chase CC, pay it off. No reason to pay that much in interest, and if 13k is > 29% of you limit, you're taking a score penalty.

Citi CC, Best Buy, and Amazon: the balance is > 29% of your limit, at least pay them down, you're taking a score penalty here as well.

There are at least two scoring penalties/bonuses at play here, one is the utilization of the cards(individually and over all your cards), and the number of cards you're reporting a balance on. The optimum positions for those two scoring penalties/bonuses are <9% utilization on each card, <9% utilization over all your cards, and less than half(rounded up) of your cards reporting a non-zero balance. Unless you have pretty high limits overall right now, and cards you didn't tell us about, your scores will bounce back after paying these down.

The Lender's Club loan is actually a benefit as long as it stays open and you're not paying too much in interest on it. Don't pay it off until you read the first few posts in this thread: http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Adding-an-installment-loan-the-Share-Secu...

Other than that, I guess it depends on how often you come into $100k. If it's pretty regular, just go about your business and try to keep your balances paid, preferrably before your statements hit, to maximize your scores. But then, if I had 100k coming in extra every now and then, I probably wouldn't care much about my credit score.

[Anonymous]

Thanks so much everyone!!!

Most of the cards I reported are near their limit, so I will being them down to zero, and then start to use them sporatically for small purchases.

About the installment loan, the limit is $14k, the interest rate is about 5%, and the balance is $9k. I would like to bring it close to zero because of the interest.

Should I leave it at $1000, and pay that over time?

[HeavenOhio]

There are significant scoring dings for two things:

• All cards reporting a balance of zero.
• Having no installment loans.

You're going to need to bring all of your card balances to zero to reset their grace periods. And you're going to need to check the following month's statements for "trailing interest." Once the grace periods are reset, make sure one card reports a small balance (from current charges), with the rest reporting zero, to optimize the revolving credit portion of your score. If you get the "all cards at zero" ding for a short period, consider that to be a necessary step to making interest stop. Those points will come right back after you leave your small balance.

Ideally, for scoring purposes, you have a loan reporting less than 9% of it's original amount. If you can bring your Lending Club loan down to this level and keep it open until you apply for your mortgage, that would be ideal. If not, you could replace this loan with a share secure loan from Alliant (read the first three posts of the thread), Or you might find that your score is high enough to absorb the approximately 30 point difference between having a loan that's mostly paid off vs. having no loan at all.

[Anonymous]

I've read that paying off big debt in lump sum can sometimes lower your score, I think it's called a windfall. I would care less if I lost a few points, however,  as long as I was debt free.