Credit Card Pay Off

[Kinglord]

Finally secured a loan and will pay off ALL $12K in credit card debt. While I know my monthly payments now go to the loan, please share your best advice for staying debt free and any advice on what do do with the credit card. Here’s a breakdown with CL....

Discover $3100
Citi Costco $2100
Cap 1 Quicksilver $2100
Cap 1 Platinum $1600
Cap 1 GMC $1250
US Bank $1000
Chase Freedom Unlimited $1000
AMEX Optima $500
Merrick Bank $500

[Anonymous]

Pay them off but leave one card with a small balance, like $10 on Discover. Once it reports and the statement cuts, pay it off to avoid interest. Make sure one card reports this way each month. Use your cards however you see fit, as long as you can pay them off monthly. Only way to avoid going into debt again on them is by not spending more than you can pay off each month. Keep up on your loan payments, pay off what you spend on adds, and start saving money. Pick a target - $3000 to start for example - and save each pay period to achieve it. Then pick a new target and save to hitvthat. Rinse and repeat. Keeping balances near zero and having money saved for emergencies is how to avoid having to rely on cards of an emergency hits.

[Kinglord]

Awesome thank you, question tho.. why the $10 or small balance? Any reason to leave that for the statement?

[Anonymous]

Yes, FICO will penalize you for having all zero balances. Essentially you get a 15-20 point sucker punch to your score for having no credit in use. I think the logic behind it is “how can we accurately assess your credit management if you’re not managing any in-use credit?” By reporting a small balance, greater than $5 (since some banks will forgive $5 or less and report you at zero) but less than 8.9% of the limit of that card, you are keeping some of your total credit line in use and the algorithm will not penalize you.
Note that experimentation by some of our members here has indicated that the one non-zero card should be a major bank card such as any of the cards you have, rather than a store/retail card like Target or Lowe’s. For some reason retail cards aren’t recognized the same way by the scoring formulas.

That 8.9% is a known and proven scoring threshold. Keeping your aggregate credit usage below that amount, with no individual card above the next tier at 28.9%, you’ll maximize your scores as they relate to card balances.

[Kinglord]

Thank you, knowledge is power.

Just to confirm, the one card is sufficient or around $10 on alll major?

[Brian_Earl_Spilner]

He's talking about AZEO (All Zero Except One). Only one card should report a balance and it shouldn't be by a bank that reports when you pay it off, like Chase. Never use a Chase card.

[Anonymous]

^^^ I always forget that about Chase since I don’t have their cards.

OP, if you search “AZEO” on here you’ll get the full rundown on it, including how, when, and why you do it, its effect on your scores, and more info on the various scoring thresholds. Very, very worthwhile reading as the info in that strategy will give you the foundation for understanding how FICO scoring works, what it likes and doesn’t like, and how it responds to changes in your profile.

[FireMedic1]

Just to chime in. Think of your credit cards as a debit card. If you dont have to money in the bank. You cant use your debit card. Same applies to credit cards in your case for now until you pay down the consolidation loan. If you dont have the cash. Dont charge it. After that loan is paid. Keep doing as you will be doing for now. If you have cashback cards. Why pay interest? Defeats the purpose to make money. Good Luck!