3 strategies for reducing debt on multiple cards

Whether it's keeping a high score or reducing interest expense, setting priorities first is key

Speaking of Credit columnist Barry Paperno
Barry Paperno is a freelance writer and credit scoring expert with decades of consumer credit industry experience, serving as consumer affairs manager for FICO (formerly Fair Isaac Corp.) and consumer operations manager for Experian. He writes "Speaking of Credit," a weekly reader Q&A column about credit scoring and rebuilding credit, for CreditCards.com. His writings about credit scoring have appeared in The Huffington Post, MSN Money, CBS Money Watch and other consumer finance websites.

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Dear Speaking of Credit,
Is there a way to pay off cards that does not trigger a credit line reduction by the issuing card company?ards.com/credit-card-ne

Back in 2008, I paid three cards of five I had to $0, and the card issuers immediately reduced the credit line by 50 percent. This hurt my credit score instead of helping it.

I’ve read your “Keep 1 percent” article. Would paying all five cards down to 30 percent be better than paying off three of them to 1 percent while leaving the other two at 75-ish percent? – John


Dear John,
 As you saw firsthand, card issuers grew edgy back in 2008, when recession-influenced record-high credit card debt and charge-offs found card companies attempting to stem future losses by lowering credit limits and closing accounts. What you experienced is called “chasing down the balance” in which card issuers would lower credit limits as their customers paid off balances.

The accumulation of consumer credit card debt and charge-offs (cards gone unpaid) steadily declined from the 2008 recession to 2014.

Since then we’ve seen the economy recover in many ways. And with it, lenders are more generous in who receives approvals and the credit limits granted.

But average card debt began to rise steadily from the 2014 low mark to the present – with charge-offs experiencing a climb in recent months.

While there’s no way of knowing which way the economic winds will blow, history proves that another recession is not out of the question.

So, with that in mind, and having been burned in the past by reduced credit limits that raised your credit utilization and lowered your credit score, it’s perfectly understandable why you would want to avoid a recurrence.

The ideal credit utilization ratio
It’s also not surprising that you’re looking for the ideal credit utilization ratio to prevent any of your card limits from being lowered should we enter a new recession.

However, rather than narrowly relying on specific credit utilization percentages, card companies are more likely to base such reductions in credit availability on your credit score, credit card debt level, and past activity on the card in question.

  • For this reason, your best bet is to continue paying down your debt without stopping until all of your cards are paid in full each month.
  • That way, even if a lender lowers your credit limit or even closes your account, with $0-to-low balances on all of your cards your utilization will remain low – and your score high – with any amount of available credit remaining.

Prioritize debt payments
Fortunately, a strategy for paying off credit card debt can take different forms, depending on your priorities.

  • For instance, you may want to simply focus on making sure your score is as high as it can be at all times while paying down your debt.
  • Or, while protecting, if not maximizing, your score, you can focus on paying the most to balances charging the highest interest as a way to minimize your interest expenses.
  • Or you can start by paying down the smallest balances first to experience the gratification of seeing balances drop to $0 in the shortest possible time.

Let’s take a look at debt reduction strategies that focus on:

  • Maximizing your credit score.
  • Minimizing your interest expense.
  • Paying the smallest balances first.

1. Maximizing your credit score.
You’ve touched on this one already with your question, asking which is better – paying all card balances down to 30 percent utilization, or paying three of your five cards down to 1 percent, while keeping the remaining couple at 75 percent.

  • Compared to the scoring impact of utilization percentages on individual cards, combined utilization that includes all cards weighs most heavily on your credit score.
  • In other words, as long as your balances are coming down, you’re boosting your score. Yet, you may be able to add a few more points by preventing any card from going higher than 50 percent credit utilization.
  • So, if maximizing your score is the goal above all else, bring those card balances down together without allowing any to exceed 50 percent.


Video: What is your credit utilization ratio?

2. Minimizing your interest expense.
Sometimes it’s important to take a brief step back and think about what’s most important and what isn’t.

In your situation, while it’s always good to have a healthy credit score, this may be one of those times when saving more of your hard-earned money might take precedence over maximizing your score.

By applying the largest payments to the credit card balances carrying the highest interest – regardless of the individual card utilization – you can put more of your money to work paying principal and less on interest, while still managing to protect your score.

3. Paying the smallest balances first.
If you’re an “instant gratification” seeker, however, this might just be the debt reduction plan for you.

  • Also known as the “snowball” method, the idea here is to leverage that great feeling of finally paying a card in full as motivation to keep at it and not give up.
  • Just apply the highest payment possible to the card with the smallest balance each month until it reaches $0.
  • Then move to the next highest balance and so on, while making minimum payments on your other cards.

Naturally, by ignoring the utilization percentage and interest rate on the card receiving your attention, you might not achieve either the highest score or lowest interest rate while paying down those balances.

But if each of these small victories can help you remain focused and optimistic until eventually reaching that goal of debt freedom, it will all have been well worth it.

See related: Forget the 30 percent credit utilization ‘rule’ – it’s a myth, Credit utilization: How this key scoring factor works

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Updated: 11-20-2017