Question:

I have four Visa credit cards. Three of them have a
balance of about $200 bucks each and one Visa card has
a balance of $3,500. All the interest rates are about the same.

I came into a little windfall and have $1,500. to apply to
my cards. Which would make more sense. Apply the total
$1,500 to the card with a balance of $3,500?

Or, pay off the three small balance cards first, and then apply
the rest to the one with the $3,500 balance?

How many points will my credit score go up when I pay off
a credit card?

And another quick question. If I could pay off all the cards
at once, would that be worse for my credit score than paying
them off over time?

Answer:

Like many answers in life, there is no definitive correct answer.
The answer is - it depends. Here are the three most popular ways
to handle this scenario:

1) Pay off the cards with the lowest balance first, and then apply
the rest to the $3,500 balance card. This advice is based on the belief
that you will feel great about paying off your three credit cards with
small balances.

You will be so excited that you don’t have to write out so many
payment checks each month, that the momentum will carry over
and you will be motivated to pay off the card with the $3,500 balance.

It’s something like going to the gym, and then stepping on the scale
and seeing that you’ve lost several pounds in a few days. You’re motivated
to continue exercising and eating well.

The other advantage of this approach is that you will have fewer bills
to pay each month, so you are less likely to screw up and miss a due date
and get slammed with late fees, higher interest rate penalties and a late
payment blemish on your credit report.

This is the option that I would recommend.

2) Another strategy would be to pay off the card with the highest
interest rate first, regardless of the size of the balance. With this
approach, you are looking to get the biggest bang for your buck
by paying less interest.

The money you save using this strategy will depend on how much
you r interest rates are on each account. You would simply pay
as much as possible toward the card with the highest interest rate.

When you have paid off that card, move on to the next one.
And continue this until each card is paid off in full. This is the
strategy that most “financial consultants” or advisers suggest.

In your case however, your interest rates are the same so this
strategy may not be as valuable to you as it would be to someone
with credit cards at very different rates.

3) Pay down your balances strategically to improve your credit score.
By using this method, you would look at your available credit lines on
each of your accounts and try to get each of your balances down
below 30% of your available credit, even lower if you can afford it.

This can boost your credit score tremendously!
(And don’t be surprised if you get offered more credit).

A high unpaid balance relative to your maximum credit limit is an
important factor in your FICO credit score. A balance above 30%
(and especially over 50%), will lower your score…
Even if you never miss a payment or never make a late payment,

How much your credit scores will change depends on many different
factors such as whether you own your own home, how long you‘ve been
employed at your current job, your annual income, etc.

You will have to monitor your credit scores to see the changes but
you can definitely boost your credit scores with this approach.

Your decision about which of these three methods will work best for you
depends on the details of your debts, and even your own personality.

Only you can decide which way will work best for you.

However, by simply deciding to apply that $1,500 to your credit debt
instead of spending it, you will have already overcome the most difficult
hurdle – deciding to use your extra money to pay off your debt!

To answer the last part of your question, (If you could pay off
all the cards at once, would that be worse for your credit score
than paying them off over time?)…

You don’t have to carry debt to build a strong credit score.
But, when you pay off a credit card, don’t close it.

Keep it active by using it from time to time for purchases you would
make anyway, then pay the balance in full each month.

Doing this will help you achieve a decent credit score and keep you
out of credit card debt.

For those of you in credit card debt with no way out, an easy way
to use the above strategies is to make some extra money on eBay.

To learn where to find products to sell and start making money
from the comfort of your own home, check out this video. Go to:

http://plus2000.salehoo.hop.clickbank.net/

TAGS: credit cards, credit score, debt, eBay, FICO, interest rate, late fees, late payment, money, Visa

This entry was posted on Thursday, October 18th, 2007 at 7:04 pm and is filed under Debt Consolidation, Credit Reports, Credit Card Debt. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.