debt to credit ratio

[jake37]

Hi,

I could greatly appreciate some advice. 

I currently have one credit card with debt to credit limit ratio 65%, another with debt to credit limit ratio 63%, another with debt to credit limit ratio 17%,  another with debt to credit ratio of 10%, and another one with zero balance. I have been carving away at the balances on the first two (they were nearly maxed out) to try and get the debt to credit limit ratio on both cards less than 50% before paying off the other two with the lower ratios. My overall debt to credit limit ratio is 51% so by the end of the month, I'll be less than 50% overall. Am I going about it the best way, or is it best to pay off the two accounts with the lowest balances first so that I only have 2 instead of four accounts showing a balance? Plus, the two with the higher balances (and ratios) have higher APRs. 

Thanks so much!

[Anonymous]

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@jake37 wrote:

Hi,

I could greatly appreciate some advice. 

I currently have one credit card with debt to credit limit ratio 65%, another with debt to credit limit ratio 63%, another with debt to credit limit ratio 17%,  another with debt to credit ratio of 10%, and another one with zero balance. I have been carving away at the balances on the first two (they were nearly maxed out) to try and get the debt to credit limit ratio on both cards less than 50% before paying off the other two with the lower ratios. My overall debt to credit limit ratio is 51% so by the end of the month, I'll be less than 50% overall. Am I going about it the best way, or is it best to pay off the two accounts with the lowest balances first so that I only have 2 instead of four accounts showing a balance? Plus, the two with the higher balances (and ratios) have higher APRs. 

Thanks so much!

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There a couple of different ways to go about it and people have different views on the best way.

I would pay off the card with the lowest balance first and keep making the minimums on the others.  Once that card is paid off, use that money to pay off the card with the next lowest balance.  Keep doing it like that until they are all paid off.  One of the reasons I perfer this way is the sense of satisfaction you get when the card is paid off.  Also, the results of your score going up will be quicker.  Those two things alone would make me not want to stop paying on them,

Another way would be to pay the one with the higher APR first, then the next, the next etc, until all paid.

[bicknar]

I think Guiness and I are on the same page as this one.  Not sure what the balances are or how much you have available to invest in credit card payments at the moment, however bottom up is a good way to go.  It is a happy feeling seeing the 0s add up.  I understand what you are saying about the APRs though.  From a scoring standpoint, if I understand correctly it will look at your ratios on each account as well as a total, so anything you get down will help the overall ratio.  I could be wrong, but it sounds good at least. 

Guiness still owes me a beer (or vice versa) so I'm thinking with a clear head.

A

[RobertEG]

I agree generally  with the plan offered by Guiness, but it all boils down, in the short term, as to whether your payment strategy is to avoid monthly interest, or to secure inreased FICO scorng.

FICO does not give one whit of consideration to your interest rates on each account, and thus your montly out of pocket expense.

From a purely financial consideration, it is money out of pocket each month.  That mandates paying your higest APR cards first.

From a purely FICO consideration, it is about half of scoring to first get overall % util as low as possible, preferably under 10%, and then, for the other half of util of revolving credit, gettng each indiv card as low as possible, with again the goal of under 10%, with at least half of your cards reporting no balance.

In my opinion, if you are not planning to apply for new credit in the near future, take the financial benefit plan, and not the Max-FICO plan.  Money in my pocket is a lot more meaningful to me than a FICO score I dont intend to use now.