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What is best way to pay down cc?

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willswim
Valued Member

What is best way to pay down cc?

Hi posted this on a different board then realized should have posted here. I have several maxed out cc's. I'm getting 4k bonus next month. Should I pay it all on one card and pay it off or should I spread it out over a couple of cards? Which would help my scores the most? Thanks so much!
Dennis
Message 1 of 13
12 REPLIES 12
Anonymous
Not applicable

Re: What is best way to pay down cc?

You indicated you want to improve scores- 
Post your Balances, CL's, APR  so we can help guide you-

 

willswim wrote:
Hi posted this on a different board then realized should have posted here. I have several maxed out cc's. I'm getting 4k bonus next month. Should I pay it all on one card and pay it off or should I spread it out over a couple of cards? Which would help my scores the most? Thanks so much!


Message 2 of 13
willswim
Valued Member

Re: What is best way to pay down cc?

CL, BAL, APR
Discover 5400, 4439, 29%
Cap 1 700, 678, 22.3%
Fashion Bug 2150, 575, 24%
Merrick 750, 745, 27.95%
Chase 6500, 5984, 6%
Cap 1 4000, 3358, 6%
JcPenney 1300, 1250, 24%
Target 200, 170, 23%
Dennis
Message 3 of 13
Anonymous
Not applicable

Re: What is best way to pay down cc?

 
There are two ways to approach this.
 
1: Immediate savings. Send your money to the card that has the highest interest rate. Whatever's left over, send to the card that has the next highest rate, etc.
 
2: Increasing your score, (and saving on new credit, by getting lower rates). This is a little tricky, because the scoring formula (and therefore, all factors and their impacts)  is unknown.
 
There's a definate relationship between score  and revolving accounts with balances. Less is usually better, none is not good. 2 revolving accounts with balances is probably ideal. One store card, and one major credit card is probably best. 3 revolving accounts probably does not change things a whole lot, but you may see a benefit from paying in full one of your four. (If you happen to have 1 high rate card, so much the better). Do not close any cards!
 
Having cards maxed out is probably not good, even if your overall utilization is low enough. For overall utilization, it does not matter whether you spread the money around, or put it all towards one card.
But this is where it gets fuzzy. I don't really know what the impact on your score is for utilization that is calculated for individual accounts.
 
My gut feeling is that it is best to reduce your number of revolving accounts that cary balances. You will definately get a monetary gain If you have cards with different rates, and you will definately get more scoring potential by having an open card with no balance.
 
 
Message 4 of 13
llecs
Moderator Emeritus

Re: What is best way to pay down cc?

I guess it would depend on your goals, I suppose. If your goal is to pay down debt, then I would do this with $4000:
 
I would pay my debts from smallest to largest.
 
I would pay off Target, CapOne ($678), Fashion Bug, Merrick, and JCP. That would total $3,418.00 in CC debts and you would have $0  balances on 5 of your 8 CCs with $572 left over! I would the take the balance and pay the other CapOne.
 
In addition to paying these, you will have eliminated cards of individual utilization of 97%, 27%, 99%, 96%, and 85%. The 2nd CapOne will reduce to 70% from 84%. Your overall utilization will reduce from 83% to 64% (approx a 20 pt jump in scores).
 
Here's the biggie: you were paying minimums all the while on the other two cards. Prior to the $4k, you had minimums each month. With 5 cards at $0, I bet you are saving $150 monthly in minimums (at least!). Take the $150 and rebudget. By cutting the restaurants, coffe breaks, cable, movies, etc., could you come out with an extra $350/month?
 
If so, take the $350 plus the $150 plus in minimums you would have paid the 2nd CapOne minimum and I bet you'll have $575 plus. Take that and throw it at CapOne 2 until that is paid off. Then take all of those payments and throw it at Discover and then Chase. You'll be out of debt in no time.
 


willswim wrote:
CL, BAL, APR
Discover 5400, 4439, 29%
Cap 1 700, 678, 22.3%
Fashion Bug 2150, 575, 24%
Merrick 750, 745, 27.95%
Chase 6500, 5984, 6%
Cap 1 4000, 3358, 6%
JcPenney 1300, 1250, 24%
Target 200, 170, 23%


Message 5 of 13
Anonymous
Not applicable

Re: What is best way to pay down cc?


@willswim wrote:
CL, BAL, APR
Discover 5400, 4439, 29%
Cap 1 700, 678, 22.3%
Fashion Bug 2150, 575, 24%
Merrick 750, 745, 27.95%
Chase 6500, 5984, 6%
Cap 1 4000, 3358, 6%
JcPenney 1300, 1250, 24%
Target 200, 170, 23%




If you have $4000 to pay, I'd pay off these in full. There are too many balances to start with so you should worry about this first before higher interest in your case.

PIF Cap 1 700, 678, 22.3%
PIF Fashion Bug 2150, 575, 24%
PIF JcPenney 1300, 1250, 24%
PIF Target 200, 170, 23%
PIF Merrick 750, 745, 27.95%
3418 Total (and there will be int)

Then make the min payment to Cap and Chase.
Apply what ever is left to Discover since it is the highest int card.

Discover 5400, 4439, 29%
Chase 6500, 5984, 6%
Cap 1 4000, 3358, 6%

This looks pretty scary when you skim the edges of your credit lines. Your interest rates on Discover may indicate a late payment not too long ago. Try to keep the number of debts lower and balances higher rather than spreading it around over 8 cards in your case. Using the pay off method I gave above will throw your credit score way way up. I am glad you got this bonus!!! Good for you. Smiley Happy

There is a potential near or just greater than a 50 point gain with this $4,000 payment if you have no other accounts with balances. But even with this pay off your score will still be low compared to a higher payoff. You have more room for your score to climb after this. Just pay off debt and watch it go up! It was a toss up between too many balances and too many maxed out cards. I choose to gain you the points from too many balances and UTL. You're going to gain points either way. I like to reduce the number of bills sometimes.

Message Edited by ilovepizza on 04-03-2008 02:08 PM
Message 6 of 13
Anonymous
Not applicable

Re: What is best way to pay down cc?

Not enough $ here to make FICO happy-
You have 4 maxed cards-
I would pay Merrick 100% and the rest on discover-
 
Your overall UTL will go from 82% TO 63%
 
How much are you putting monthly towards these balances?
You need a plan-
 
 
Name CL  BAL UTL  APR
Discover 5400 5400 4439 82% 29%
Cap 1 700 700 678 97% 22.30%
Fashion Bug 2150 2150 575 27% 24%
Merrick 750 750 745 99% 27.95%
Chase 6500 6500 5984 92% 6%
Cap 1 4000 4000 3358 84% 6%
JcPenney 1300 1300 1250 96% 24%
Target 200 200 170 85% 23%
21000 17199 82%
Message 7 of 13
Anonymous
Not applicable

Re: What is best way to pay down cc?

I agree with Timothy here. If you get charged any kind of fee on the Merrick card, You will spiral into big trouble. (This is true for a few others as well...)
Pay off your discover too. You pay a little over $100 per month in finance charges on this card alone!
 
If you need some motivation, setup an excel file that calculates your monthly interest. You'll be amazed wat that does for your willingness to pay off.
 
Also, you probably need to change your attitude towards credit cards alltogether. You are flirting with a potentially very bad situation. Best is to stop using them now.


Forgot to say, Once you get the big discover out of the way, you can easily knock off the smaller ones to keep you motivated. Don't worry about the Cap1 4000 and the chase 6500 for now. just pay minimums on those.

 

Message Edited by hdj on 04-03-2008 11:22 AM



Message Edited by hdj on 04-03-2008 11:30 AM
Message 8 of 13
Anonymous
Not applicable

Re: What is best way to pay down cc?

This is why I choose to reduce the smaller cards. Usually I choose highest int. Not in your case.

Score Wise..
I am guessing reducing the number of balances to 3 and debt reduction will benefit you more. You are also wiping out 3 maxed out card at the same time. You have 5 things to your scoring advantage.
1. Lower debt.
2. Reducing number of debts to fewer than 4. (max of 4 effects many people)
3. PIF a maxed out card.
4. PIF a maxed out card.
5. PIF a maxed out card.

And financially speaking..
If you direct all $4,000 to the Discover card you will only save about $15 a month -vs- paying off all the smaller bills. You have far too many bills to keep track of. The interest on these smaller cards is about 24%. Directing $3,418 + int will wipe out their interest and payment responsibility. Unless you have a great system for tracking payments monthly you are risking a $30 late fee which wipes out your savings of $15. The other people are correct, mathematically paying off the highest interest cards will pay off your debt faster. But from a human stand point and I rarely ever tell people to pay lower int cards fist, I honestly believe this is best for your situation. Imagine if you are late on the Chase or Cap1 with 6% int because you have too many other bills in the pile. If you are perfect with your finances, put it all to the Discover bill. Otherwise you are risking too much. Just my opinion.

Next. Can you afford $2,000 a month in credit card payments? If not after you pay off all the smaller accounts if you choose my method, you can also consider an installment loan when your score goes a bit higher from this payment. You can move your Discover card in to an installment loan and reduce that interest. Pay the installment off as fast as possible just to get out of debt. The other 2 CCs are at 6% which is good. But if the APR offer runs out, consider moving all 3 in to an installment.

Please post what you choose to do. I am interested to know which payment method you choose and why. Thanks. Smiley Happy

Message Edited by ilovepizza on 04-03-2008 07:10 PM
Message 9 of 13
Anonymous
Not applicable

Re: What is best way to pay down cc?

Great logic PIZZA -
 
I like the Pyche game after kicking those balance down-
 
Message 10 of 13
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