Should I Focus on Reducing Utilization or Balances?

I've been journaling about my debt pay down journey with YNAB for some months now and I've paid off about 25% of my balances so far... $22,768 to go! Now that I've taken a few months to build up savings and true expenses, I'm ready to start putting money towards debt again. The question I'm struggling with is:

Should I focus on paying off one balance at a time, eliminating the minimum payment altogether, or should I pay down balances simultaneously to lower utilization? 

The former is more satisfying, because I get to see an account's $0 balance sooner. The latter helps me build my credit faster, though, and it also makes paying down big balances a bit easier to swallow, because I'm not looking at a $7k balance, I'm focusing on getting the 70% utilization down to 49%, 29%, etc. by paying in large, but doable chunks.

For July, I'm able to either:

  • Pay off my smallest and highest interest balance completely (~$1,868),
  • OR, split it between the two highest interest, lowest balance cards ($1,868 and $1,925 balances), getting them both down to <29% utilization. That leaves me with two manageable balances to tackle in August (~$970/each).
  • OR, I can always put this money towards my highest utilization/balance card, which could bring it from $7,205 / 90% utl down to $5,337 / 66% utl. 

My ultimate goal is obviously to be debt-free. My timeline for that is end of 2022 (for these balances plus a loan to be fully paid). In the meantime, though, my priority is to get my credit score up, as I'd like to refinance my car loan. As you can see, I'm basically waffling between the snowball and avalanche methods. Any input is so appreciated! :)

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  • My preference and the mathematically fastest way is the avalanche method. You pay off the highest interest rate first while paying the minimums on all others. Now add everything your were paying on the just paid off debt onto the next highest interest debt. Rinse and repeat until debt free. 🙂

    Like 5
      • Pineapple Gal
      • Goal-Getter
      • Orchid_Wrench.11
      • 2 mths ago
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      Superbone Since I'm trying to stretch my dollars as far as possible and get out of debt ASAP, I do think I'll use the avalanche method. I found an Excel avalanche spreadsheet template that shows my payment timeline based on how much I can pay each month, and that was a huge help for me to see the light. I end up saving hundreds in interest with my current timeline if I go for highest interest first.

      And, in this case, my highest interest card is also my lowest balance, so it looks like I'll plan to pay in full come July! Thanks for the input 😁

      Like 3
  • I would pay off the smallest/highest interest balance in full. Not only will it give you motivation to knock that off your list, it will also add to your snowball and enable you to pay off the 2nd low balance card in full that much faster. Then you can send a shotgun blast to your highest utilization/balance card, thus decreasing both your balance and utilization dramatically. Once you have 2 cards paid in full and the 3rd one with a much lower balance, you will be more motivated to keep those other 2 cards paid off each month. Plus, by paying those 2 cards in full you will see a jump in your credit score (and probably a credit increase...don't fall for it! 🤣).

    Congrats on everything you've paid off so far! That's quite the accomplishment! 🎉

    Like 1
      • Pineapple Gal
      • Goal-Getter
      • Orchid_Wrench.11
      • 2 mths ago
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      Violet Rain Totally! Seeing the balances drop to zero has been a huge motivator for me this year. 😄

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  • As far as I know, uniform reduction across all cards is no better than concentrating on one card at time. I believe the utilization is across all cards, not each individually. But I don't know that for a fact.

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      • Pineapple Gal
      • Goal-Getter
      • Orchid_Wrench.11
      • 2 mths ago
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      Superbone I'm no expert either! I've heard that it's calculated both per card and overall, so you're absolutely right: Paying down one at a time will still lead to a boost because it decreases my overall utilization, I'm just trying to avoid "balance chasing" (something I learned about on the FICO forums) by keeping utilization too high on a card for too long -- but that's a whole other issue! 

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      • Turquoise Jackal
      • A dreamer who needs to get more sleep
      • Turquoise_Jackal.11
      • 2 mths ago
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      Pineapple Gal From monitoring my own CC utilization across a number of credit score reports for a while now, it definitely is weighted across all of your credit utilized over total credit available! I feel that the technique that gives you the most joy and motivation is the best route, while minimizing interest payments as much as possible given anyone's unique situation. 😉

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      • Pineapple Gal
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      • Orchid_Wrench.11
      • 2 mths ago
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      Turquoise Jackal That is super helpful! I don't subscribe to a credit monitoring service, so that's very useful info. After evaluating the timeline, I think the refinance is about 6 months down the road anyhow, so I can't wait to see another $0 balance this month! 🎉

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      • Turquoise Jackal
      • A dreamer who needs to get more sleep
      • Turquoise_Jackal.11
      • 2 mths ago
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      Pineapple Gal I love to hear that! The feeling of knocking a card to $0 is definitely a huge dopamine boost for me which I think is the true fuel to the snowball engine.

      Despite personally benefitting from the snowball technique once about a decade ago (before I knew anything about the concept of avalanching or the more recent hybrid, fireballing 😂) I only made the most progress on my debt in these last 4 months as a new YNAB user simply because the software truly motivated me to really want to concentrate on knocking out my card balances to zero in a way where I could actually afford it instead of me continuously panic-spending without strategy - I was essentially snowballing again while being considerate of my non-debt finances. Of my 9 cards (very long story...) I've knocked out 4 and it feels awesome! I refuse to be stressed out about money again.

      Now that my momentum is about to be slowed for a bit due to the bigger balances remaining, I'm not nearly as discouraged as I used to be because I now I've got an actual "guide" to keep me from freaking out, spending more, incurring sudden debt, freaking out, ad infinitum...(also undebt.it+ is very good for simulating mathematical what ifs if you wanted to see what you could try)

      Rooting for you! For us! 🎉🎉🎉

      Like 1
    • Turquoise Jackal Oh my gosh - I haven't even heard of fireballing! 👀

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      • Pineapple Gal
      • Goal-Getter
      • Orchid_Wrench.11
      • 2 mths ago
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      Turquoise Jackal Four out of nine is incredible and SOO inspiring to me! Last year, I started with seven cards, two loans, and a line of credit to pay off. 🙈 I got one card and the biggest loan paid off on my own last year.

      When I found YNAB a few months ago it was a HUGE eye opener for me as well. Every move I've made with YNAB has been so clear-headed and conscious. No tossing money at this or that and seeing what happens. I know exactly what to expect, what I have covered, and an approximate timeline for getting all this debt out of my way. 

      This community is such a huge motivation booster, too! Keep us updated on your progress! 🥳

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  • You've got a lot of great advice here - one thing I'd add when considering snowball vs avalanche is how much extra effort do you need to put in when you have more accounts. For me - it was helpful to simplify to fewer accounts at times - and so I ended up paying a bit more in interest by focusing on my smaller balances vs focusing on higher interest. (But I didn't have any outlandish interest rates to contend with at the time). 

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      • Pineapple Gal
      • Goal-Getter
      • Orchid_Wrench.11
      • 2 mths ago
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      Marisa That is such a good point! I switched banks recently and had to take all my accounts off autopay into manual, and I'm having trouble linking them with my new bank now. Because of that, I forgot about a due date by one day and got my first ever late fee ... eek! Simplification is definitely something to factor in. 

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      • Vibrant
      • No more counting dollars, we'll be counting stars
      • vibrant
      • 2 mths ago
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      Pineapple Gal never hurts to call and ask to have a late fee forgiven.

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      • Pineapple Gal
      • Goal-Getter
      • Orchid_Wrench.11
      • 2 mths ago
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      Vibrant Good point! I paid it last month, but I'll give it a try. I'm just glad it didn't show on my credit report. 😄 

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  • I'm not sure you give the info about all your debts but mathematically you are better off financially to pay down your highest interest debt first. And I would think it isn't your car loan so refinancing it is a good idea but maybe not the one that will give you the most bang for your buck. Well, depends on balances and time to pay it off. But since you state 2022, it's not a long time frame so it shouldn't play a major role.

    For your 2 first options, considering what you say, it seems they are equivalent as you would pay off both debt by August no matter what. If you can pay off the $1,868 one in July, you will most likely be able to pay off the $1,925 one in August since you have one less min. payment.

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      • Pineapple Gal
      • Goal-Getter
      • Orchid_Wrench.11
      • 2 mths ago
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      Ceeses Thanks for the input! My car loan (sadly) isn't factored into the debt I'm paying off, which is why I'm hoping to refinance it when I get my credit back into shape and then I'll focus on paying it off once the interest rate is brought down. 🙂

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  • You’re on a roll! Keep up the good work.

    As you said, you’re waffling between the debt snowball and avalanche methods. In that case, maybe you should consider a hybrid approach. With any approach, you should always make at least the minimum monthly payment on all your debts, especially if you’re concerned about your credit score—payment history is one of the biggest factors contributing to your scores and credit utilization ratio also is a significant factor. 

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