Pay all to 25% or PIF one card at a time?

McNugget · ‎03-20-2019

I have some credit card debt I'll be PIF within a year's time, so I'm looking into which option is best to improve my score. Paying each card down to the next lowest utilization category will be better than paying one card in full at a time correct, due to the average utilization being used vs overall utilization?

I'm so excited to get this paid down, but seeing my budget and how doable this is has made me anxious and impatient. I just want to get this done!

Anonymous · ‎03-20-2019

Congrats on the plan/ability to pay off your CC debt within a year!

Your best bet here would be to list out all of your cards with their balances/limits and then more concrete advice can be given. One of the most common methods is to pay all cards down below each utilization threshold, like 88.9%, 68.9%, 48.9%, 28.9%, 8.9%. Since you're paying interest on them, though, you'd want to lower each of those to probably 87%, 67%, 47%, 27%, 7% so that after interest you're still below the threshold point. Once you get them all down low just pay them off 1 at a time, presumably the one with the lowest balance first as that's easiest financially.

Of course this method above does not take into consideration interest at all. If you have a card you're paying 25% interest on with a $1000 balance and another card that you're only paying 15% interest on with a $1000 balance, rather than pay both to $500 the argument could be made in terms of saving on interest to throw the entire $1000 at the high interest balance and pay it right off. There are also people that have 0% terms for a period of time, so while carrying a [high] balance on them may hurt a FICO score a bit, it won't hurt financially in terms of interest. Many people are all about score, others all about saving money (interest) where many find a balance in between; It's important to identify where you stand before you really devise you plan. Definitely start by listing out your accounts with balances/limits though when you get a chance and the members here will be very helpful.

SouthJamaica · ‎03-20-2019

@McNugget wrote:
I have some credit card debt I'll be PIF within a year's time, so I'm looking into which option is best to improve my score. Paying each card down to the next lowest utilization category will be better than paying one card in full at a time correct, due to the average utilization being used vs overall utilization?

I'm so excited to get this paid down, but seeing my budget and how doable this is has made me anxious and impatient. I just want to get this done!

It depends.

It also depends on which scoring model you're trying to influence. E.g., mortgage scores are more interested than classic scores in number of accounts reporting zero balance, while classic FICO 8 scores are more interested than the mortgage scores are in overall utilization.

But as a rough general rule I would say

1. try to make sure no individual card is higher than 28%

2. then try to make sure overall utilization is at 8.9% or less and

3. then try to zero out as many as possible