Right way to pay off debt in lump sum?

[Ragnar375]

I know just enough about credit scoring to know there's a right way and a wrong way to pay off debt without decreasing scores.  I looked for a thread, but can't find anything. 

I'm selling a rental property I've owned for 20+ years.  Closing next week. (Capital gains suck.) 

First mortgage with BOA was paid off years ago. 
There's a $2000 HELOC balance with BOA (in repayment phase) that will be paid with closing funds and closed (no choice in that). 

I plan to use around $50k of the proceeds to pay off all cc debt (currently 90% - 95% usage. Number in ($x) is credit limit). 

Balance is going to a high yield savings for 6-12 months. Plan to sell current primary residence and use combined proceeds plus a small mortgage loan to buy the forever home. (Yea retirement!) 

All cards are min 15 year old accounts. 
DTI is under 30% 

One 30+ late pay with BOA HELOC on reports. (Oops.)
Scores: EQ 714, TR 706, EX 717  

It's only in the last 6-9 months my scores toppled over into the 700 mark. I don't want to screw up the forward movement! 

BOA signature: $23,400 ($23,600) 

BOA: $3150 ($3200)

Discover more: $5050 ($5100) 

AMex Optima: $3600 ($5200) 

Taeget MC: $12k ($12,500) 

HD: $715 ($4200) 

Kohls: $175 ($1500)  

[GreatLife]

Sounds like a reasonable plan, but unfortunately after age 65 and retirement things don't work the same way as when employed and younger. My advice is to consult a financial planner and tax expert that at least specializes in retirement strategies. For example you might be better off getting a regular mortgage before retirement and putting the property sale proceeds into a retirement fund, then withdrawing from those retirement funds to pay the monthly mortgage. You need to understand any future tax implications going forward for your post retirement plans. Good Luck!

[FicoMike0]

I think the best bet is the simplest. Pay each account in full, in one payment. If you go from 90% util to 0%, there's no balance to chase. You might keep the cl that way. getting rid of all that cc debt should help your scores and dti. Good luck. 

[Ragnar375]

You're not wrong about consulting with a tax and financial advisor. Spoke briefly with both last week and nothing I can do about capital gains. Have appointments set up for 2 weeks from now re the remaining. 

But the immediate issue is paying off the debt properly. Is there a thread on that somewhere? 

[Ragnar375]

Isn't there something about paying off all but x% on at least some lines? Or maybe it's all? 

I was under the impression a DTI under 30% was good. What should I be shooting for? 

[FlaDude]

Your best score is going to come from All Zero Except One (AZEO), which means pay off all cards to zero but leave a token balance on one. I'm not aware of any advantage to paying in stages, if you have the money, make payments in full. If you're carrying balances you will likely have trailing interest, so you will have a small payment to make the month after PIF. As @FicoMike0 said, if you pay down in stages, you run the possibility of balance chasing. Even if you PIF, there is a chance of CLD if your cards are currently maxed. You will also save interest PIF rather than in stages.

[SouthJamaica]

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@Ragnar375 wrote:

Isn't there something about paying off all but x% on at least some lines? Or maybe it's all? 

I was under the impression a DTI under 30% was good. What should I be shooting for? 

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I think you're mixing up installment loans with revolving debts.

With installment loans it can be better for scoring for aggregate installment loan utilization percentage to be below 10% but not paid down to zero.

With revolving debts it's better for scoring to have most of the accounts reporting zero balances. The absolute optimum is to have all but one revolver reporting at zero.

As to HELOC's, there have been mixed reports as to whether they are reported as revolvers or as installment loans (even though they are clearly not installment loans).

Bottom line:

Pay off your credit cards. The sooner the better. If you want to let one or a few report a small balance each month before you pay it off, fine.

Pay off your loans if you can. Forget about scoring. If you want to get points for having an open loan, do it with a small fake loan -- a share secured loan.

[FicoMike0]

As far as dti, you are correct. According to advice from WF app, they have three categories, the best is 0-35%. You make the cutoff. I think the big thing here is, finances over fico. You must be paying runious interest on those card accounts. You want to stop that as quick as possible. The reduction in utilization should give you a nice score boost, but even if it didnt, Id quit paying the interest.

[Ragnar375]

Just minimum payments and interest were over $1000 per month! 

Everything now 100% paid off. 
So I'll likely be back in a month saying

my credit score  dropped or didn't go up as much as I though it should have, 

At that point people will jump on and declare how I should have left $x on card(s) A, B,C.  

[SouthJamaica]

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@Ragnar375 wrote:

Just minimum payments and interest were over $1000 per month! 

Everything now 100% paid off. 
So I'll likely be back in a month saying

my credit score  dropped or didn't go up as much as I though it should have, 

At that point people will jump on and declare how I should have left $x on card(s) A, B,C.  

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Congratulations. I think your scores will be just peachy