Should I pay off Credit Cards or an Installment Loan?

Discussion in 'Credit Talk' started by sehnsee, Apr 13, 2015.

  1. sehnsee

    sehnsee Member

    I came into a little money and wanna use it to lower my debt.

    I have 5 credit cards with a total balance of about $4000.

    I also have a high interest intstallment loan that I owe about $3600 on.

    I was thinking of paying off the installment loan since the interest is higher (about 35% apr vs 22% on my credit cards).

    But I don't know if paying off the installment loan will look as good on my credit as paying off 5 cards completely. Im really focusing on rebuilding my credit this years as Im planning on buying a house early next year.

    Can anyone advise?

    Thanks in advance!
     
  2. jam237

    jam237 Well-Known Member

    I would pay the highest one that I could.

    Now, one option could be, pay half towards the installment loan, and pay half towards the credit cards, that way you are knocking down the credit card utilization, and your overall debt as well...
     
  3. mindcrime

    mindcrime Well-Known Member

    Paying down your revolving will do far more for your credit than paying down the installment.

    Paying down your installment will do far more for your wallet than paying down the revolving.

    What is your total revolving CL?
    If, say for example it's $100k and you have $4k in balances, you're well within the optimal ratios for FICO scoring.
    If, say for example it's $5k and you have $4k in balances, then you're killing your scores and chances at new credit.

    If you're closer to option 1 (or at least have less than 10% utilization on your revolving), aim it all at the 35% installment. If not, jam's second suggestion is a good one.
     
  4. sehnsee

    sehnsee Member

    Yeah its more like the 2nd scenario, about 6.5K revolving, with 4k in balances. So paying off the cards will do more for FICO right?
     
  5. mindcrime

    mindcrime Well-Known Member

    Yes.

    You are utilizing over 60% of your revolving credit and your scores are suffering because of that.

    Consumers are known to have installment loans (like auto) maxed out (new loan) and still have FICO scores well into the 700's.



    What type of installment loan is it?
     
  6. Akronguy

    Akronguy New Member

    How is the interest calculated on the installment loan. Is it rule 72? If it is you've already paid the interest most likely and you'd be better off paying your credit cards. I would call the loan company and ask about the interest.
     
  7. JoshuaHeckathorn

    JoshuaHeckathorn Administrator

    Mindcrime and Jam gave you good advice. What did you end up doing sehnsee? Did you pay down the credit card balances, and if so, what kind of improvement did you see in your FICO credit scores? Hopefully it was a nice bump and has put you in a good position to be applying for home loans this year.
     
  8. johnlewis

    johnlewis New Member

    Hi sehnsee,

    It will be better if you divide the amount in 30-70 ratio. You can pay 30% towards your installment loan and 70% towards credit card loans. With time you'll be able to clear both. If you have any doubt you can also take the services of debt negotiating companies. I was also entangled in a similar position but I availed the services of vantage acceptance credit card specialists and they applied this formula in my case.
     

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