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Good morning.

I'm looking for some suggestions. Thanks to a job loss a couple years ago, we've racked up about $90k in credit card debt. Thanks to a recent $$ windfall, we have enough $ in the bank to pay this all off.

Any recommendations on how to pay this down as quickly as possible without killing our FICO scores?

Thanks for the help!
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No. of Recommendations: 4
Paying your debt off will increase your FICO score. Write checks for the full balances as soon as possible.
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Thanks to a job loss a couple years ago, we've racked up about $90k in credit card debt. Thanks to a recent $$ windfall, we have enough $ in the bank to pay this all off.

Any recommendations on how to pay this down as quickly as possible without killing our FICO scores?


How do you think it would 'kill' your credit scores if you just pay off the debt all at once?

In actuality, just paying off the debt, and doing nothing else, will probably improve your credit scores, since your credit utilization (% of credit limit being used) will go down significantly. Since credit utilization has a high impact on your score, and lower is better, this will probably improve your scores significantly.

That said - the key is "doing nothing else" - meaning - you need to leave the credit card accounts open, keep the credit limits where they are at, continue to use the cards regularly and then (MOST important): pay them off completely every single month.

If you do want to close some of the credit card accounts, and/or lower the credit limits of some of the accounts, after you pay off the debt, you can start to do that. But if you are concerned about your credit scores, you need to do this gradually - and check your scores after each action you take is reported to the credit bureaus, BEFORE you take another action.

Closing newer cards will have less impact on your credit score, because it will not impact your "average age of accounts" as much as closing your older cards.

Closing an account with a high credit limit has the potential to impact your score more negatively than closing a card with a low credit limit, since it will decrease your available credit, which will, in turn increase the utilization of your available credit for the same amount of usage. As already discussed, lower utilization is better for your credit score.

Lowering credit limits on accounts, but keeping them open will have a similar negative impact on your credit score because of the utilization issue. To get the best credit scores, your credit utilization should be less than 10% on an overall basis, and less than 25% of any individual card. So if you will spend a total of $2000/month on credit cards, you should have credit limits of at least $20k across all of your cards. If you are going to spend all of the $2000 on a single card, that card should have a credit limit of at least $8000.

And as already mentioned, you have to continue to use all of your open cards on a regular basis - at least one time every 6 months or so. Otherwise, the unused cards will no longer be considered active, and won't count toward your credit utilization.

I would also strongly urge you to take some of your windfall and put it away for an emergency fund, so that if you suffer another job loss, you don't have to fall back on credit cards.

AJ
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Are you planning on applying for major credit in the near future?

There are reports that paying off all of the balances at one time has caused a reduction in credit scores. It isn't clear if this is real. Closing accounts or not using them can result in a lower score and having accounts closed by the issuer.

A theory which has been suggested is that part of your credit score is relative the class of creditors that you are assigned. Your rating might be higher in the current class than the better class you are compared against when you have no outstanding credit.

If you are planning on applying for major credit, then paying off a 1/3 each month and watching your credit score might be worth the interest. Otherwise, just pay off the cards. keep the accounts active with routine transactions, and pay them off every month
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