Suppose you were given $500 (friendly relative), you have three cards with debt. On two of them you owe $250 and the last you owe $3,000. Is it better to pay off two credit cards that are $250 each,or pay the minimum on those cards and the rest towards your $3000 debt?
2007-09-18 08:13:12 · 7 answers · asked by Tim L 1 in Business & Finance ➔ Credit
That's funny you mention this question on here, becuase I'm going through the same thing myself. I have 3 credit cards that I'm paying down, and I'm coming into some money that would pay off 2 completely and a portion of the 3rd, or ½ of the larger one and none of the other 2.
It would depend on how much you're at the limit on each card. If you're maxed on all 3, what you may need to do is split the $500 between all three. $175 each on the $250 ones, and the rest towards the $3000 one. At least on the 2 $250 accounts, you would only need to pay $75 each and then you're done with those cards. But in all reality it's up to you on which way you want to go. Even if you pay $500 towards the $3000 one, your minimum payment would be at least $75 in addtion to paying the minimum on the other ones. At least by
paying at least 70% on the 2 smaller ones, it gets you closer to paying both of them off and then focusing your attention on the bigger one.
If the bigger one has a higher interest rate, then it may be in your best interest to pay it down.But like I said, it's really up to you how you want to do it. Pay off 2 and then concentrate on another, split it up between the 3, or pay on the big one and leave the other 2. It your money, therefore it's your choice
2007-09-18 09:29:40 · answer #1 · answered by Anonymous · 0⤊ 2⤋
As everyone else is saying, what does it cost you to maintain this debt? You want to put your money to best reduce your monthly cost (interest rate).
But secondly, your creditworthiness is based upon your current debt to debt capacity ratio. In other words, how much of your entire line is tied up? In a perfect world, all your cards would be added up and you'd just have a total debt compared to your total limit.
It's not a perfect world. If interest rates are the same, then pay toward the card that has the highest balance on it.
Also, like I said, your credit score is based largely upon your credit balance compared to your total available. If you have say $5,000 available with a balance of $5,000, your score goes down because your credit is used up.
But if you have a limit of $5,000 with a $0 balance, your score still isn't much better because there's no record of credit USAGE. For that reason, it's better to pay down the larger balance, while leaving the smaller balances on the other cards. It makes your score better in both ways.
2007-09-18 16:23:49 · answer #2 · answered by Marc X 6 · 0⤊ 0⤋
If you have been making the minimum payment, you are in luck. Because that means it hasn't hurt your credit score yet. I would get a new credit card that offers 0% interest on balance transfers for up to 12 months. Transfer the balances from your 3 credit cards into this new one. Once you are approved and transfer your balance, use your $500 to make the mininum payments until you have enough money to pay it off. This way, it gives you 1 year to pay it off without paying any interest. To learn more or apply for a balance transfer credit card, u may go here: http://www.creditcardondemand.com/balance-transfer-credit-cards.asp
2007-09-19 16:00:27 · answer #3 · answered by cymakk 3 · 0⤊ 1⤋
Pay off any amount that is over 30% LTV. In other words, if you have a $4,000.00 credit limit on the one you owe 3k on, you would be at 75% LTV. This tanks your credit score to the tune of 40 points. Pay it down to below 30% LTV and your score will go up.
Good luck!
2007-09-18 16:22:19 · answer #4 · answered by mphsblue 3 · 0⤊ 0⤋
Normally I would say put it all on the highest interest rate card. But I might just pay off those two smaller amounts just to get them out of the way and have more money to put on the larger balance.
2007-09-18 15:45:21 · answer #5 · answered by bdancer222 7 · 3⤊ 1⤋
Pay on the one with the highest interest rate.
If you have money left, pay it on the other card.
All credit cards should be paid off each month to avoid paying any interest. If you can't pay your purchase off at the end of the month, don't charge it. Save up until you can pay it off.
2007-09-18 15:20:33 · answer #6 · answered by Tex S 5 · 0⤊ 0⤋
I would pay off the ones with the highest interest rates. To me, it doesn't matter how it looks, it matters what it costs.
2007-09-18 15:19:14 · answer #7 · answered by hottotrot1_usa 7 · 2⤊ 1⤋