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My Credit Cards Are Maxed Out. Which One Should I Pay Off First?

Lynnette Khalfani-Cox, The Money Coach by Lynnette Khalfani-Cox, The Money Coach
in Credit Cards
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My Credit Cards Are Maxed Out. Which One Should I Pay Off First?
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Q: I have about 6 credit cards that are maxed out. I recently got some money so I was wondering if it is better to pay off a couple of cards or pay down the balance on every card?

A: From a credit scoring standpoint, it would be better to pay off a couple of cards entirely – leaving them with zero balances.

The reason this is a better strategy than paying some money on all the cards is because the FICO credit scoring model looks at the total number of credit card accounts you have, and analyzes many data points about those accounts.

For example, FICO will assess how many of your cards carry a balance. It’s better for you to have 2 or 3 cards with no debt on them, as opposed to having 6 cards that all have balances.

Additionally, even if you paid down the balances on all 6 cards, if you spread that money out, you might not be able to get all your balances below 50% or 60% of their credit limit.

In general, when you’ve charged 50-60% of your credit limit, the impact on your credit score won’t be much different than if you charged, say, 70% of your available credit.

Though every bit of debt you pay off can help with your credit score.

And needless to say, eliminating a credit card balance altogether means that’s one less bill you have to worry about each month.

So overall, it’s better to simply use the money to knock out a couple of credit card balances.

Just don’t go back out there and charge up more debt once you have zero balances!  Good luck.

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All information on this blog is for educational purposes only. Lynnette Khalfani-Cox, The Money Coach, is not a certified financial planner, registered investment adviser, or attorney. If you need specialty financial, investment or legal advice, please consult the appropriate professional. Advertising Disclosure: This site may accept advertising, affiliate payments or other forms of compensation from companies mentioned in articles. This compensation may impact how and where products and companies appear on this site. AskTheMoneyCoach™ and Lynnette Khalfani-Cox, The Money Coach® are trademarks of TheMoneyCoach.net, LLC.

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