Should I pay off my CC or make a large payment to personal loan?

[mariekristi86]

Tax season is here, horray! Didn’t expect to get that much of a refund this year but surprisingly the husband and I are getting back $4600. I have a nearly maxed out CapitalOne card that has a $4300 balance on it (23% interest) and a OneMain personal loan I got last summer due to a family emergency. I owe $5800 on the loan. $216 a month at 35%! I hate the loan, it really bugs me and I’d love to be rid of it as soon as possible. I’m not quite sure what to do or what is going to help my credit more. I have no mortgage, my home is paid for. Only a car payment and a few other cards with small balances so I can keep good payment history. That CC is the only one with a high balance. My scores are mid-600’s. What should I do? Pay off the CC completely? Or make a large lump payment towards the loan? Thanks for any help you can give!

[jlitnns]

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wrote:
Tax season is here, horray! Didn’t expect to get that much of a refund this year but surprisingly the husband and I are getting back $4600. I have a nearly maxed out CapitalOne card that has a $4300 balance on it (23% interest) and a OneMain personal loan I got last summer due to a family emergency. I owe $5800 on the loan. $216 a month at 35%! I hate the loan, it really bugs me and I’d love to be rid of it as soon as possible. I’m not quite sure what to do or what is going to help my credit more. I have no mortgage, my home is paid for. Only a car payment and a few other cards with small balances so I can keep good payment history. That CC is the only one with a high balance. My scores are mid-600’s. What should I do? Pay off the CC completely? Or make a large lump payment towards the loan? Thanks for any help you can give!

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There are a few different options. I would take the $4600 and you should be able to save another $1000 and pay off the loan. Some may say to pay off the lowest balance the credit card and normally I would except that loan at 35% is a tough pill to swallow. Do you have any penalties or do you get a break if you pay it off early? Without a mortgage you should be able to save some money each month and have an emergency fund so you don't have to do a high interest loan. You need to budget. You can really get personalized plans here if you post all of the debt/income you have. How much in total credit card debt do you have?

[Kree]

I would say put 1000 on the C1 so that you report below 80% . I believe being over 80% is practically as bad as being at 100%. Then apply the reast to your loan to cut down on that interest.

Your loan would be paid off in 12ish months instead of 50ish, and you would save over 5000 in interest over the life of the loan.

Note:  This does depend on your budget. Can you afford you minimum card payments and the loan comfortably. Or does getting your DTI down help remove financial strain?   Worst scenario is you get your loan down, but then have to open another one because your washing machine broke.  Even at high interest having savings is important. Even just 1000 put away is beneficial.

Note2:  If you have no immediate need for credit, it might be worth not paying the C1 card. Even if they take adverse actions and balance chase you down later, credit can always be grown again. This also depends on your score. But mid 600s should be safe based on my annecdotal experience with C1.  The extra 1000 gets you to 6 payments left.

OPTION 2: Risky but rewarding.

Theoretically you could pay the c1 and other cards down to AZEO.  Recieve a 50-100 point boost. Use your new credit to apply for a new card.  Then balance transfer the loan to your CCs. Discover will often offer 3% balance transfers for 24 months.  Giving you a 250 payment for 24 months to finish paying off all debt, versus the 216 + whatever your paying cap1. RISKY because nothing is guaranteed.  Probably not the right choice. You might not get a 6000 starting limit. You might get no other card at all. etc.

[mariekristi86]

Just under $7k in credit card debt. My utilization is at 19%. Getting rid of that one CC would make a huge impact in lowering my utilization. I have 4 CC’s I pay on every month, and several store cards at a zero balance that I use every so often to make a small purchase and pay off in full at the end of the month. Not sure if OneMain negotiatiates a lower payoff for paying off early. I’d have to call and ask after I get off work. My finances are separate from my husband’s, though. We bank separate, pay our own bills, have our own spending money, own savings accounts, etc. Just works better for us. So I know getting rid of that huge payment every month as soon as possible on my part helps me greatly and would allow me to save more.

[mariekristi86]

My income is about $1400 a month, sorry, forgot to include that. I get paid biweekly. $700 twice a month. Car payment and that loan are my largest expenses. My car payment is $472, loan $216, husband pays all utilities. I just pay my small CC bills.

[jlitnns]

Ok, so you basically have $700 tied up in the car and loan, so can you put the other $700 toward debt? The options I provide are always strictly to get out of debt, I'm not worried about maximizing your credit score until you are in a position to do so. Getting rid of debt is priority over trying to maximize your score. You have a debt/spending problem, once that is solved you can maximize credit to position yourself for better rates and cc options. 

If getting out from under your debt is not priority then I would look at the options Kree has suggested. There are people way more experience than I at maximizing credit scores while paying down debt. Your utilization at 19% overall util is not terrible but getting individual cards below 28% should be next step, or below 80% as suggested.

[wa3more]

Pay off or down the loan. This is the best use of your money. Its strictly a financial decision. 

[Shooting-For-800]

I would make large payments on both so you dont end up needing money again if something happens.

Maybe $500 to each for the next 5 months or so.

That way you have some savings just in case.

I sure hope that 35% loan is simple interest with no early pay penalties.