I am doing a refi + cash out on a rental home. The cash out is to pay off ~24K in credit cards. I am aware of secured debt/unsecured debt and how it is often not a good idea to refinance a home to pay down credit card debt. I have done the math and it makes sense for me. My question is:

Should I allow the credit cards to be paid out of escrow in one lump sum? Or should I take the cash and pay the cards down over a few months. I have heard that it is better for your credit score to pay them down over time. Will it make much of a difference?

Edit in response to questions: All of my cards are around 13%. I have 3 cards with balances of: 11K (out of 12K), 9K (out of 10K), 4K (out of 6.5K). I am looking at a ~60K 30 year loan (yes, my principal is currently very small) I am going for a 30 year loan (rather than a 15) as I want some breathing room on my payments.

  • Since you asking, lets get a couple more details. How many cards? What are the rates on those cards? Any other debt, and if so, what and what rate? Anything else you think to provide would help get you a clearer picture.
    – MrChrister
    Commented Jan 14, 2013 at 22:45
  • @MrChrister Added response to original question. Commented Jan 14, 2013 at 23:01
  • Thanks for all the responses - will be paying them immediately! Commented Jan 15, 2013 at 22:53
  • I have a credit card with a $200 limit, and I'm using 88% of that card. The smart thing to do, which I am doing, is paying it down in one month to about 2-7% and making auto-payments each month. I will use it only for gas in the future.
    Commented Jan 27, 2013 at 20:37
  • @STEPHANIE The smart thing to do is pay it off every month before interest accrues, i.e. after the statement comes.
    – Xalorous
    Commented May 12, 2017 at 21:19

5 Answers 5


Should I allow the credit cards to be paid out of escrow in one lump sum? Or should I take the cash and pay the cards down over a few months. I have heard that it is better for your credit score to pay them down over time. Will it make much of a difference?

Will the money you save by increasing your credit score (assuming this statement is true) be larger than by eliminating the interest payments for the credit card payments over "a few months" (13% APR at $24,000 is $3120 a year in interest; $260 a month, so if "a few months" is three, that would cost over $700 - note that as you pay more principal the overall amount of interest decreases, so the "a year" in interest could go down depending on the principal payments).

Also, on a related note regarding credit score, it doesn't look good to have more than a third of a credit line available balance exceeded (see number 2 here: http://credit.about.com/od/buildingcredit/tp/building-good-credit.htm).

  • 2
    I read the article, no idea where they got 30% as the number to stay below. My article was based on Credit Karma, which works in partnership with Transunion. Commented Jan 15, 2013 at 2:07
  • Yeah; I enjoyed your article. At Credit Karma, this article here: creditkarma.com/article/credit-card-utilization also mentions that experts recommend staying below 30%. This is what they refer to "credit utilization." Note that different algorithms calculate things differently, so this is always subject to change, depending on how the risk factors translate.
    – YaReally
    Commented Jan 15, 2013 at 2:15
  • 2
    Last year we started using a number, not as a recommendation, but as a fact that most of the people with really high FICO scores have credit utilization rates that are 7 percent or lower," Watts said. Read more: bankrate.com/finance/credit-cards/…
    – Sun
    Commented Jan 15, 2013 at 22:43
  • I can attest that lower utilization rate does bump your score. You can either decrease your debt like the OP wants, or apply for new cards with the intent to not spend on it. I was able to raise my score by 50 points within 45 days by applying for two cards that raised my overall credit limit by $20k.
    – Sun
    Commented Jan 15, 2013 at 22:56

Pay them off immediately. But, as I note in my article Too Little Debt?, a zero utilization is actually a negative hit. So you want to just use the cards to get over 1%. i.e. if the lines add to $38K, just charge say, gas and some groceries, $100/wk. Pay in full every month. It's the amount on the statement that counts, not the amount carried month to month accruing interest, which, I hope is zero for you from now on.

  • This should be marked the correct answer. Credit scores are based on a snapshot in time. How you got to that snapshot is irrelevant.
    – TTT
    Commented May 12, 2017 at 22:25
  • OP is long gone, but I do appreciate the note! Commented May 12, 2017 at 22:28

I have heard that it is better for your credit score to pay them down over time. Will it make much of a difference?

I have never heard that, however, the financial institutions (who are charging you an amount of interest which was at one time in the not so distant past classified and punishable in state criminal codes) really enjoy you thinking that way.

You are clearly capable of doing the math yourself. While I don't know the exact numbers, I am totally confident that you will find in about 5 or 10 minutes (if that long) that eliminating debt of any kind in your life will pay an immediate return that beats the great majority of other investments in terms of risk/reward. After the immediate financial return, there is a quieter, subtler, and even greater long term benefit.

Basic principle: Highest Rates First

Perhaps this decision could be considered slightly less important than deciding not to smoke during your youth; but I would put it as a close second.

You are already in a position where you can see the damage that your prior decisions (about financial debt) have produced. Run the clock back to the time in your life when you were debt free. Now, pay off that debt with the big check, and start from zero. Now, turn on your psychic powers and predict the same amount of time, in the future, with the same amount of money (don't even try to adjust for inflation; just use flat dollars) WITHOUT losing the money which you have given to the financial institutions during this previous part of your life.

Do you now see why the financial institutions want you to think about slowly paying them off instead of waking up tomorrow without owing them anything ?

  • +1 for not starting smoking to be more important than debt. Smoking also leads to debt, accidentally. I always enjoyed the charts credit card companies put on the statements where they show how easy and fast I can pay the debt with "just" minimal payment. Only 5 years and I'm debt free! Yey! (I pay always and in full, never carry balances)
    – littleadv
    Commented Jan 15, 2013 at 3:28

it is better for your credit score to pay them down over time.

This is a myth.

Will it make much of a difference?

You are paying additional interest even though you have the means to pay off the cards completely.

Credit score is a dynamic number and it really only matters if you are looking to make a big purchase (vehicle, home), or perhaps auto insurance or employment.

Pay off your credit cards, consolidate your debt, and buy yourself a beer with the money you will be saving. :)


I know you say you are aware of secured and unsecured debt and you've made your decision. Did you do the numbers? You will pay 44k over the life of the mortgage for that 24k (Based on 4.5% APR mortgage).

  1. Once you refinance your mortgage, do you plan on using credit for a while? Lots of Americans are hyperfocused on credit scores. The only times it affects your life are when you finance something, when you apply to rent a house or apartment, and sometimes when you apply for a job. Credit score should not be a factor in this decision.

  2. You're borrowing the money at a lower rate to pay off the high rate cards because you want to pay less in interest. Considering #1 is there any reason NOT to pay off the cards immediately, if not sooner?

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