Best way to improve low credit score because of credit card debt.

I had an extended period of unemployment and lived off of credit cards for a while. I have $17,000 in credit card debt at 13%, and another $8,000 at 0% with intro ending in March. I was close to 50% in credit card usage a month ago, but card companies dropped my limits by a total of $10,000 last month. This will leave me around 70% in credit card usage. Though I am 100% on on-time payment, my credit ratings among the three bureaus range from 570 to 650.

I am now employed and can pay back about $1800 a month in debt. I thought a consolidation loan might help my credit rating, but I was offered a rate of 15% on $17,000. That is higher than my current credit card interest. As far as secured loans, I rent my home and have no property. There is maybe about $3k difference between what my car is worth and what is left to pay.

Is paying my 13% credit card at $1800 per month the best strategy? Are there better options?

Yes, you don’t want to end up paying higher interest, because that means you will pay off things longer. Pay the minimum on all but the smallest balance and put everything you have towards that, until it’s paid off. The work your way to paying them all off in that way. Good luck.

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Hi @mark.r. I definitely agree with what @jeremym said about not paying the higher interest rate. Paying off your cards directly instead of taking out the loan is your best option.

One thing I’d suggest though is paying the minimum on the $8,000 card while it’s at 0% and putting every extra cent you have right now toward the $17K balance. Once the 0% interest period ends in March, you can compare the interest rates. If one is much higher, focus on that one. But if the rates are similar, knocking out the one with the smallest balance is a good move.

Definitely don’t touch your $3K of car equity to pay off any credit card debt. Just keep making your car payments as usual.

The good news here is that you’re clearly already on your way to recovering from a long spell of unemployment since you’re working again and have $1,800 to put toward debt.

Even though your credit score may have taken a hit from the credit limit decrease, this is a temporary setback. As you pay down your credit cards, you’ll see your scores increase. A temporary increase in your credit utilization has no lasting impact on your score. When you reduce it, you’ll see your score increase within a month or two.

Good luck to you!

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