Which Installment Loan (s) to Pay Off With $25k without Negative Effect on Fico Scores

[Gifty16]

I must first thank all the great contributors on this forum for sharing your experience, valuable time, and providing recommendations and support. I have been a memeber since 2016, and I have learned a lot from this forum.

The real estate meltdown, care of a terminally ill father, and loss of income led to my financial loss and poor credit scores about 5 years ago. After going back to work full time in 2014, I took several loans including secured credit card and personal loan installments,  to rebuild and re-establish credit history. I took an auto loan in 2014 at a high-interest rate and paid it off in 2016, but my score dropped by 80 points. I then decided to trade it back for another one, so that I could continue to build my credit (Not a wise decision).

I am now at a point where my priority is paying off all my installment debts within the next 24 months and mortgages within the next ten years. I currently have $25k to $30k that I want to apply to my obligations. I need advice on which one to pay off without a negative impact on my credit scores. I also welcome any additional guidance on how to maintain and manage my credit more efficiently.

My financial summary:

Loan 1: Bal = $355      Original Loan = $5K (Opened 7/2016)

Loan 2: Bal = $312      Original Loan = $5K (Opened 7/2016)
Loan 3: Bal = $1012     Original Loan = $15K (Opened 4/17)
Loan 4: Bal = $18,000  Original Loan = $24K (Opened 4/18)
Loan 5: Bal = $24,000  Original Loan = $27K (Opened 5/18)
Loan 6/Auto: Bal = $37k Original Loan =$56k (Opened 10/16)
Revolving/CC: Bal = $811 Total Credit Cards = $20k
Late Payments: 2  Mortgages: Last Late 57 months ago -12/2013

Starting Score: 10/21/2016 Score 8:  EQ 663 TU 670 EX 670
Current Score: 9/20/2018 Score 8:     EQ 759 TU 764 EX 768
Current Score: 9/20/2018 Score 9:     EQ 762 TU 803 EX 797
Mortgage Score: 9/20/2018:                EQ 715 TU 737 EX 757  

[Anonymous]

Are you paying interest on the $811 dollars of CC debt?  If so, be sure to pay it off first.

Next step I would take is talk to the handlers of all your loans and find out:

(a)  When is the due date for the next payment?  (I note that loans 1-3 are almost entirely paid off.  If you made large payments early on that might mean that the due date for the next payment is not for another year or two.)

(b)  For loans 4-6, how would the handler deal with you making a very large payment, like 10k?  Would the handler push the due date of the next payment way into the future?  Or would it still require that you still keep making the same monthly payment?

(c)  What is the interest rate on loans 4-6?

[Gifty16]

Hello @CreditGuyInDixie,
 I must thank you for replying to my post. Actually, you made the greatest positive impact on me when I first started on this forum. You could imagine my excitement to see your response to my post.

Answers to your questions:

All my credit cards are paid in full every month. The $811 is combination of 6 cards. My overall utilization ratio is 3% to 4% across all my CC. In most cases, I am at 2%.

a. Loans 1-3 were taken out to build my credit (per one of your old thread about Pen Fed credit union installment loan – though I went with my credit union). Once approved, I paid lump sum to bring my balance to below 8.9%. Then it got pushed to the future. I am now paying about $5 to $7/month to maximize the loan terms of 4 to 5 years.

 b. Due Date for payments:

• Loan 4: Lump sum payment does not push it to the future. Regardless of how much I pay, I am still required to make the same payment per month. (I think they figured out my trick on the previous loan). I am thinking of making large payment, but also keeping it open for at least 24 months to maximize the effect of the credit score.  Should I pay it off, keep it open for 12 or 24 months? What is the best solution, because I can actually pay it off within the next 4 months if it would not affect my Fico score?
• Loan 5: Lump sum payment pushes it to the future.
• Loan 6: Lump sum payment pushes it to the future.
• c. Interest Rates:
  • Loan 4: 8.99%
  • Loan 5: 5.99%
  • Loan 6: 1.99%

My overall future goal:

To continue buy more investment properties within the next 1 to 2 years, after all debts paid up. I have large equity and large monthly cash flow on my investment property, but the negative reporting on my mortgage will not fall off until 12/2020.  

Thank you so much.

[Anonymous]

Here's my thinking, for what it is worth...

I would leave loans 1-3 untouched.  They are mostly paid off and probably have low interest rates on top of it, so you are paying almost no interest on them.  No reason not to keep them open since the due date of the next payment is not for quite a while.

I would also avoid making much of an extra payment on loan 6.  That is because its interest rate is so much lower than any of your other loans.

That leaves loans 4 and 5.  You could pay off all of loan 4 which from a strict financial perspective makes sense since it is the highest interest loan.  But a high priority for you (as you describe it in your first post) is ensuring that there won't ever be a score dip due to loans being paid off.  So maybe the right compromise is to pay down a big chunk of loan 4 (to reduce monthly spending on interest) but still leave enough so that you keep it open for a total of 25 months.  And then make all future extra payments on loan 5 and then loan 6. 

Eventutally loan 4 will get paid off but by then you'll have made a big dent in loans 5 and 6, right?

[Gifty16]

Your recommendations make alot of sense.

Thank you for your time.

[Anonymous]

Very welcome.  And thanks for your kind word earlier.