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Question By
hellojello25

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Should I pay off my credit cards or my collections accounts?
So here's the deal: I recently came into a lump sum of money ($1,500) and I'm trying to decide what to do with it. The two options are: Pay off my two collections accounts (both are about a year old), or pay off my only two credit cards that I make the minimum payments on a month ($25.00 and $80.00). I would keep the accounts open, and only use them when I have the money in my account to pay them off. I'm already practicing this with my newest credit card and it's working out well. I never max it out and it's paid off completely every month. If I paid off those cards, I would have about $100.00 more a month and that is a lot, especially because I have a 4 month old. But, one of the collections accounts keeps accruing interest, which lowers my credit score every month. However we are not planning on buying anything big in the next 3-4 years, so I'm wondering if I should just let that account go? Idk, I'm fairly new to being fiscally responsible and I just want to do the right thing with this money for me and my family. Any and all help is appreciated!

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Making the minimum payment on a credit card ensures that you are paying interest.  You can save yourself between 17-29% if you were to pay these off.   You should then rotate your credit cards so that you are only using one any given month that you pay off ever month as you are doing on your third one now.   As long as you use them every couple of months, the accounts will remain open and help to build your average age of accounts.  This will also substantially lower your credit card utilizaton which will also increase your scores.   Then, take the $100 savings every month and work to pay off the collections.   The collection accruing interest is your primary focus for paying it off.   As soon as you can get it taken care of, use that same savings to pay off your other collections.   A paid of collection looks so much better on your report than an unpaid collection.  The actions you take today will have a big impact on your big purchase in the future.  Too many people wait until they are ready for that purchase to start taking action.   You have a head start, good luck.

Reply by
hellojello25

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So the collection account accruing interest is much larger than the other. In fact, the other account would only take a month or two to pay off completely after paying off the credit cards and then I could focus on paying off the larger one. I think this is the route that I am going to go, as it makes more sense to me to do it that way. Do you agree?

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Your plan is a positive one.  In fact, as you make progress you'll feel better; better about yourself and your credit file.   Its when you get results that you know you are on the right track.   Don't forget to pat yourself on the back as you see these pay offs.   Good luck on your road improved credit report health,

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I suggest taking the time to get a good credit education by reading the articles on this site, since the expressed purpose of Credit Karma is to TEACH how credit works.  I learned a lot and have benefitted greatly. You can, too.

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