Which debt should I pay off first? old student loan with 10% APR - or - credit cards with 4% APR?

Question

I now make a higher salary and can focus on chopping away at the debts and improving my credit score. The debt includes 1 student loan with a 10% APR and 3 maxed out credit cards with APRs under 4%. I estimate I can rid myself of the entire debt over 2 years. Paying off the highest APR debts first would seem the smartest, however, I also know that maxed out credit cards look bad so maybe those should be cleared first.

My question: in what order should I pay off the debts to best improve my credit score?

Answer 1

A major reason peoples credit is so bad is often because the proportion of balances to their high credit limit (HCL) is above 30%. This seriously affects you negatively the closer you get to your HCL.

For example; If you have a credit card with a $1,000 HCL and you have placed more than $300 on it (30%) it will lower your score. The closer your balance is to the HCL, the lower your score will be.

Most people don't know/understand this, and refuse to believe it when I tell them about how their credit is affected by their credit cards.

But, scores can bounce back quickly if this is the only thing bringing you down. Are your scores that important to you? Do you plan on buying a house soon (next 2 to 3 years)? If not, pay off the higher APRs first. Who cares what your scores are if you don't plan to utilize them right away. Just make your payments on time, and pay off whatever makes sense to you sooner.

Credit - pay off the cards
Being debt free earlier - student loans.

Answer 2

In order to improve your FICO score pay all the debts on time and pay more than the minimum due, in this way not only will your overall debt come down gradually but your credit scores will shoot up. Good luck.

Answer 3

The best strategy to increase your credit score under the circumstances presented is to pay down the credit cards first. The FICO scoring model penalizes you more and more as your balance approaches your credit limit.

Answer 4

Pay off Highest APR debts. I am surprised that when you file you income tax that your refund has been offset to the school loan.

good luck in paying off your debt.

Answer 5

I'd pay off that student loan first. After all, it does have the higher APR.

Answer 6

If it was me I would slam as much money as possible on student loan, and just keep up the minimum monthly repayments on your credit cards, that should keep your credit score ok

Answer 7

I have placed this in the source box. There is a wealth of information there and a great free debt management software program. I bookmarked the site as I return to it often for the advice it offers. I hope this helps you.