TL/DR: should I pay my loans off or pay partially and keep the accounts open?
My credit score dropped 80-100 points (different scores) because of loans and credit utilization during home renovations. The home is currently being sold and with the profits I plan on paying off all/some debt. I already have the credit utilization under control but I still have 3 loans: $13k, $10k, and $5k.
These are my options
1) Pay off all 3 loans and be debt free.
2) Partially pay down the loans to lower my debt-to-income.
What would be the pros and cons of each option?? I’m aware that paying off the loans would temporarily drop my score. I’m also aware that having the high loan balances affects my debt-to-income ratio.
Thanks in advance!
What’s the interest rate on them?
There is no pro to not paying off all your debt the second you can if you can
Debt to income is monthly minimum payments divided by monthly income so partially paying all the loans does not impact that at all.
Look at your overall finances, do you have 3-6 months expenses for an emergency fund and contribution to retirement accounts?
If so, do you have any other short to medium term goals you are saving for?
And finally what are the interest rates on these debts?
I’ve read everything. Pay them off. Don’t get cute with the loans, you have existing credit cards and such. Start at the 5k loan since it’s the highest interest and least amount.
Do not pay off all your loans. Keep some open as your credit score is also based on time of established accounts. Pay enough off to bring your credit score back up again then just pay off the interest (but not the principal) over the next few years to increase your credit