Paying Off Debt

What is the right way to pay off credit card debt? Is there anything I need to consider not to harm my credit score?
Expert answer by Alex Gerard,
10+ years experience in banking consulting

It is always worth to have a proper plan before you start paying off your debt. Some moves can even damage your credit and it is not what you want while building a better financial future.

For instance, paying off your oldest loan or closing your oldest credit card account can damage your credit in two ways:

  1. age of your credit history will be less than before (this factor accounts for 15% of your credit score) 
  2. your types of credit in use can be less than before (10% importance in your credit score).

So while it is always good to have less debt, you need a strategy how to approach it:

  • Pay off your youngest accounts first
  • Pay out your accounts with biggest APR

 

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