Paying Off Credit Cards

I've suddenly found myself with enough cash on hand to pay off all of my credit cards. However, I also have a lot of credit card debt and a pretty low credit score. Also, my credit cards are at about 30% interest because of late payments and overdrafts, etc. Anyway, I want to use my cash to pay off my credit cards.

I want to use my cash to pay off my credit cards completely; however, some sources have told me that it's not good for your credit score just to pay off all of your credit card debt at once because it makes the reporting agencies think that you've just happened on a stash of cash (gambling, inheritence, bank robbery, whatever) and that as soon as that stash runs out you'll be right back where you started.

So, I can either pay them off all at once, or I can pay them off in smaller payments over the next few months. But, the problem with this is that I will have to pay the very high interest they are charging me on the credit card debt.

Any advice?

Originally Posted by odoreater

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I want to use my cash to pay off my credit cards completely; however, some sources have told me that it's not good for your credit score just to pay off all of your credit card debt at once because it makes the reporting agencies think that you've just happened on a stash of cash (gambling, inheritence, bank robbery, whatever) and that as soon as that stash runs out you'll be right back where you started.

wow odor, I was wondering the very same thing today! Someone please tell me not to transfer the entirety of my tax refund over to my credit cards and to instead buy more beyond-my-means clothes with it. Please!!

Originally Posted by Joel_Cairo

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wow odor, I was wondering the very same thing today! Someone please tell me not to transfer the entirety of my tax refund over to my credit cards and to instead buy more beyond-my-means clothes with it. Please!!

Haha, you played the tax game right too I take it?

Originally Posted by odoreater

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Haha, you played the tax game right too I take it?
If by "played the game right" you mean "made such a patethtically measly amount of money that Uncle Sam took pity and gave a bunch back" then yes, I am awesome at that game.

If your score is already low, I would think paying it off can only help. The trick is to keep it that way for a while.

Here is the thing; if you already have decent credit history it will not make much of a difference. However, what you could do is break up the payment in to a few parts while leaving the money you will use out of the way somewhere, like a short term CD or a high interest savings account where it will at least accrue interest in the meantime. This will give you some nice large payments that were on time and substantial, a good thing. Unfortunately the exact way that credit scores are calculated is obfuscated and cryptic so whether it will positively impact you or not is hard to tell without more data...

OTOH I would just pay the bastards off!

P.s. I am not a financial adviser, so....

Originally Posted by tiecollector

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If your score is already low, I would think paying it off can only help. The trick is to keep it that way for a while.

Yeah, I agree, but the question is whether to pay it off all at once or to pay it off over a few months.

Man, screw what they think about paying them off. Pay them off, get it off your mind, and then work on building up good credit from scratch. Shut down some of the accounts too, if they are giving you bad rates. Large available credit lines look scary to creditors.

Edit - to be clear, I say pay it all at once.

Originally Posted by j

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Man, screw what they think about paying them off. Pay them off, get it off your mind, and then work on building up good credit from scratch. Shut down some of the accounts too, if they are giving you bad rates. Large available credit lines look scary to creditors.

Edit - to be clear, I say pay it all at once.

I hear you - as a psychological matter, I feel that paying them off might be the best thing to do. On closing accounts, I've heard that this can be bad for your credit because the reporting agencies don't know why the accounts are being closed and they may think that the credit cards themselves are cancelling your accounts.

You know what though - **** them - I don't really want to be their slave anymore.

hmmm... so no votes for "ride the high-interest assrape train and buy more clothes"?

You guys are no fun at all.

I paid off all my credit cards recently. I don't remember how it effects your credit score, I think you are right that in the short term it is bad, in the long term it's good though. Really though, who cares? You're getting screwed with 30% interest! Pay them off and close them all down. Take the money you were paying each month on them and dump it into savings. Your credit score will go up, then if you are a masochist you can get new credit cards with better rates and pay off each purchase instantly from your stockpile of money you have been saving.

One word of advice on closing your credit card account - they throw up some major obstacles. I cancelled 4 different cards and each one took multiple requests and a lot of phonetime with the customer service apparatus, and each one tried to exort me out of more money via fees which no one could explain (it's painful to hear them prevaricate). I'd recommend that you just overpay them about $50 to $100 and cancel at the same time. If you're lucky the extra money will automatically get applied to whatever fees they throw at you. If you're really lucky you might even get some of it back. Credit card companies are scum.

Originally Posted by j

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Man, screw what they think about paying them off. Pay them off, get it off your mind, and then work on building up good credit from scratch. Shut down some of the accounts too, if they are giving you bad rates. Large available credit lines look scary to creditors.

I've heard that shutting down credit lines can be bad, too, particularly if the ones closed are older accounts. There's all sorts of conflicting advice on this stuff. I say go ahead and pay the cards off -- if nothing else, it will save you money. Over time, if you keep the cards paid off, your credit will improve.

Originally Posted by tiecollector

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If your score is already low, I would think paying it off can only help. The trick is to keep it that way for a while.

I like this answer; they probably will think what you were worrying about (to quote: "think that you've just happened on a stash of cash") but if you lay low for a while, spend here and there and repaying that debt with haste, their worries will dissapate and your credit score will increase. Plus you end up paying less money overall, more money for nice clothes!

Originally Posted by odoreater

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I hear you - as a psychological matter, I feel that paying them off might be the best thing to do. On closing accounts, I've heard that this can be bad for your credit because the reporting agencies don't know why the accounts are being closed and they may think that the credit cards themselves are cancelling your accounts.

You know what though - **** them - I don't really want to be their slave anymore.


The way I have heard this explained is that credit card companies don't like people who don't have any credit. If you don't own a home or have some other kinds of loans out and you cancel all of your credit cards your credit score will go down some unknown amount. I don't remember where I saw this, but as an example they had this old married couple in their 70's. They had owned their house for something like 40 years and had a huge amount of money in the bank, but their score was so bad they couldn't get a department store's in-house credit card.

Originally Posted by DocHolliday

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I've heard that shutting down credit lines can be bad, too, particularly if the ones closed are older accounts. There's all sorts of conflicting advice on this stuff. I say go ahead and pay the cards off -- if nothing else, it will save you money. Over time, if you keep the cards paid off, your credit will improve.

+1

At least keep the oldest card. That helps with long term history, as The Doc said...