Thoughts on payoff strategy

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Thoughts on payoff strategy

Postby theladybear » Tue Aug 13, 2013 1:46 pm

I recently charged a home improvement purchase of approximately 2k to a card with cash back rewards. Since I am carrying a balance, this purchase takes me very close to the limit.

I knew I had the cash coming to cover this purchase so should I pay the 2k and back off my limit, or should I use the 2k to pay off another card entirely? Ordinarily, I'd go for option 2, but I hate being so close to the limit. The interest rate on both cards is roughly the same.

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Postby Midori » Thu Aug 15, 2013 7:57 am

You seem to imply that the $2k home improvement purchase that takes you close to your limit does not account for the entire balance being carried on the card?

Do you have any other situations coming up in the next four months that will require you to carry a balance, rather than paying it in full? (ie, if you chose the "pay off card B" option, would you turn around and carry a fresh balance on it two months from now?)

If you dedicate your $2k to paying off your home improvement purchase, how long would it take you to pay off Card B, and the remainder of Card A?

If the $2k home improvement charge to one card, and the $2k balance on the other card, were the only balances I was carrying on two cards, I'd be kind of tempted to split them... $1500 in one, $500 in the other, just to show both cards I was making an effort to pay them back. Or I'd do the entire $2k on the paying-in-full card, and then aggressively pay down the home improvement card, if I knew I could get them both wrapped up in a month/by the fall/by the end of the year/whatever. But knowing the mystery balance on the home improvement card would be helpful... there's a difference between putting a $2k charge on a $3k card and "getting near your limit", versus putting a $2k charge on a $10k card that's already carrying $7k worth of preexisting debt.

If you preexisting debt is significant, I would focus on paying off one card at a time. If your preexisting debt is easily managed, I would be more likely to split my efforts. I would also remember that carrying a balance on a cash back card kind of wipes out any benefit of using it.

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Postby takeshi » Thu Aug 15, 2013 8:58 am

theladybear wrote:Since I am carrying a balance, this purchase takes me very close to the limit.

How close?

Do you only have the two cards? What's utilization like for each?

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Postby djrez4 » Thu Aug 15, 2013 10:12 am

Does your current credit score matter to you? If so, pay down the one that is close to the limit. If not, pay down whichever has a higher interest rate.
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