Payoff Full Balance or Make Regular Payments?

[Anonymous]

Hi, new to the forums here (I've been observing for a while now and have found them to be very helpful). 

I have 28K in credit card debt, but have been saving money like a mad man while making regular minimum payments on my cards. I should have about 25K saved by July. 

Utilization:

Jpmcb - 20% on $19,800

citicard - 57% on $10,500

amex - 38% on $1,000

citicard - 91% on $5,500

jpmcb - 72% on $17,800

Current Scores: Equifax 659, TransUnion 685, Experian 671

I ran a simulation in my Fico credit report with 2 different scenarios:

1) Make regular payments of $1100 each month for 24 months

Equifax 769, Transunion 825, Experian 766

2) Payoff majority of balance at once

Equifax 729, TransUnion 795, Experian 731

My question is, how accurate are these simulators and if I have the cash to pay them off nearly entirely, would it make sense to pay 1100/ month for 24 months?

Other debt:

25K Student loan - on time 310/month

2.4K car lease - 6 months left, on time

I would like to apply for mortgage in about 18-24 months and would of course like to get he best possible rates that I can. 

Many thanks!

[FireMedic1]

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@Anonymous wrote:

Hi, new to the forums here (I've been observing for a while now and have found them to be very helpful). 

I have 28K in credit card debt, but have been saving money like a mad man while making regular minimum payments on my cards. I should have about 25K saved by July. 

Utilization:

Jpmcb - 20% on $19,800

citicard - 57% on $10,500

amex - 38% on $1,000

citicard - 91% on $5,500

jpmcb - 72% on $17,800

Current Scores: Equifax 659, TransUnion 685, Experian 671

I ran a simulation in my Fico credit report with 2 different scenarios:

1) Make regular payments of $1100 each month for 24 months

Equifax 769, Transunion 825, Experian 766

2) Payoff majority of balance at once

Equifax 729, TransUnion 795, Experian 731

My question is, how accurate are these simulators and if I have the cash to pay them off nearly entirely, would it make sense to pay 1100/ month for 24 months?

Other debt:

25K Student loan - on time 310/month

2.4K car lease - 6 months left, on time

I would like to apply for mortgage in about 18-24 months and would of course like to get he best possible rates that I can. 

Many thanks!

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Welcome @Anonymous 

Simulators are for entertainment purposes. Dont go by them. The biggest impact right now would be get those red accounts below 28.9%. SL's and lease wont do much for now. Then pay them down one by one below 8.9%. Until only one reports a balance of <8.9% and the rest zero. Since applying for credit will come in time. You'll be set with the max score you can get.

[Jnbmom]

You didn't state what your interest rates are but if you will have the money by all means pay them off. Why drag out payments if can pay them off?

I think sometimes we tend to focus solely on scores and not our financial well being .

[FireMedic1]

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@Jnbmom wrote:

You didn't state what your interest rates are but if you will have the money by all means pay them off. Why drag out payments if can pay them off?

I think sometimes we tend to focus solely on scores and not our financial well being .

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+1

[Anonymous]

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@Jnbmom wrote:

You didn't state what your interest rates are but if you will have the money by all means pay them off. Why drag out payments if can pay them off?

I think sometimes we tend to focus solely on scores and not our financial well being .

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Interest rates are around 24% for all of them. I should have been more specific about the cash I have saved as well:  There are some other purchases that I would like to make in the next 24 months as well (engagement ring and then down payment for a house), so I guess I am trying to understand what would put me in the best position. 

From a strictly financial sense, you make a great point and I appreciate your advice, but then when I factor in these other things, it's less cut and dry. Perhaps it's a matter of what I want to prioirtize.

[Anonymous]

Best thing then is to state exactly how much of this money you want to put toward the debts. The advice above is solid and paying these debts down/off will help tremendously at mortgage time. If it's a matter of paying debts or saving this money for a down payment, I'd pay the debts and push back the mortgage app. Your scores will determine your rate on the mortgage so the less you owe elsewhere, the higher you'll score. If that means a half point better over 30 years, that's thousands saved over the life of the mortgage.

[Jnbmom]

24% yeah I would pay down as much as you can with those rates . I realize you need/want other things, so maybe snowball your cards and start that avalanche while still setting aside  for things you need to save for .

[RSX]

always tough to balance your down payment versus paying off debts

however - here is what the debt is costing you per month in interest - $586!

i did a rough estimate on the minimum payments

since you have the skills to save up to almost $25k already (which is great), then you will still be able to start saving again - after the debt payoff, while having an additional $586 per month - and all the minimum payments back from all the CC's - so your savings will be greatly accelerated!

you should have an extra $740 +586 = $1326/mnth

Creditor	Balance	Rate	Payment	Custom	Interest-only
jpmc	3,960.00	24.00%	100.00		79.20
citi	5,985.00	24.00%	150.00		119.70
amex	380.00	24.00%	25.00		7.60
citi	5,000.00	24.00%	140.00		100.00
jpmcb	12,816.00	24.00%	325.00		256.32

[Anonymous]

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@RSX wrote:

always tough to balance your down payment versus paying off debts

however - here is what the debt is costing you per month in interest - $586!

i did a rough estimate on the minimum payments

since you have the skills to save up to almost $25k already (which is great), then you will still be able to start saving again - after the debt payoff, while having an additional $586 per month - and all the minimum payments back from all the CC's - so your savings will be greatly accelerated!

you should have an extra $740 +586 = $1326/mnth

Creditor	Balance	Rate	Payment	Custom	Interest-only
jpmc	3,960.00	24.00%	100.00		79.20
citi	5,985.00	24.00%	150.00		119.70
amex	380.00	24.00%	25.00		7.60
citi	5,000.00	24.00%	140.00		100.00
jpmcb	12,816.00	24.00%	325.00		256.32

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Wow! Thanks for cruching those numbers and for the advice! I'm overwhelmed with the gernosity of everyone's time on this forum!

Looks like the answer is clear. With those accelerated savings of ~$1,300/ month, it wouldn't take too long to get back to having that nest egg saved up!

[FireMedic1]

Agree with @Jnbmom & @Anonymous 

We always say finances over FICO. But in this case. The higher your scores. The lower your interest rate on the house. The ring is a one time payment thing. A mortgage is 360 payments.

So at 3.92% for a $200,00 house. 30 years @ 946.00 a month or a total of $340,427

At 5.92% same price same amount of payments. $1149.00 a month for a total of $427.980

So which is more beneficial over the lifetime of getting higher FICO scores?