Questions and Answers

Hi there– I know it’s against the whole points philosophy to rack up credit card debt, but nonetheless that is my scenario, and while I realize that may have been a poor decision in some respects, I am glad it offered me the opportunity to expand my business. So, I have a question that I can’t find a good answer for.

I recently was paid a substantial fee for a project I worked on, and I am wondering if it would be better to fully pay off a couple of cards, or to spread that out among several? My assumption is that spreading it over several cards would lower my utilization rates on all of them, which would have more of a positive impact on my credit score than having 0% utilization on some but still high % utilization on others.

Thanks!

Hi there– I know it’s against the whole points philosophy to rack up credit card debt, but nonetheless that is my scenario, and while I realize that may have been a poor decision in some respects, I am glad it offered me the opportunity to expand my business. So, I have a question that I can’t find a good answer for.

I recently was paid a substantial fee for a project I worked on, and I am wondering if it would be better to fully pay off a couple of cards, or to spread that out among several? My assumption is that spreading it over several cards would lower my utilization rates on all of them, which would have more of a positive impact on my credit score than having 0% utilization on some but still high % utilization on others.

Thanks!

Welcome [USER=2275]@GTP[/USER] – there are several approaches, as you’ve noted:
1. Get your utilization percentages down
2. Pay off the ones with higher interest rates first
3. Pay off the ones with low balances first

Personally I’d be less worried about the utilization than with getting the balances paid off. You’re not going to want to apply for new cards while you’ve got debt on your existing cards anyway so utilization percentage is the least of your worries, IMO.

I’ve heard people say to choose option 2 before option 3 and vice-versa. I think it depends on how high and low the balances are on your various cards. Dave Ramsey (of Financial Peace fame) tells folks to pay off the low balances first. You might just calculate one month of interest for each of the cards and see how they all stack up against each other. And of course don’t use these cards until they’re completely paid off. If you don’t have a card with a zero balance that you can use for things that MUST be paid for with a credit card then completely pay one of them off first before adding new charges.

I would use the money to pay down (or off) the cards costing you the most each month (interest rate X balance). Not sure the specific card utilization threshold rate of 30% is still a big factor in scoring, believe it’s overall utilization rate. At any one time, I might have a 50% utilization rate on a single card for a month of travel expenses and I’ve never been dinged on my credit score.

50% might not ding you but I’ve been running one at nearly 90% (though keeping it paid off) and I have gotten a little ding for it. I wouldn’t normally run so high a percentage except it’s my ArrivalPlus and I’m trying to offset some travel charges I’ve put on it. But now that’s biting me a little so I want to pay it down before applying for the CSR.

The thing that irks me the most is now that I’ve paid off my house I’m getting dinged because I only have one type of credit outstanding! Go figure!

[USER=184]@MidSouth Skier[/USER] sounds like its time for a new house ;):D

Believe me, I have PLENTY of things to fix around this one before I go buying a new one. I think it’s time for a HELOC (regardless of whether or not I actually use it).

Have you considered something like the Slate product from Chase to do a no-interest balance transfer and hopefully get yourself some breathing room? This hobby can be addictive so hope you are making sound long term decisions.