Four Credit Cards Nearly Maxed Out - Best Way to Pay Them Off?

Reader Question: "I have four credit cards with a total balance of $4,500. My FICO score is in the 580's and all cards are close to being maxed out. I understand that having them below 50% will help increase my score, and what I really want to do is pay off all of the debt. Since I want to increase my FICO score as fast as possible, would it be better to pay them all down to less than half first, and then work on one card at a time using the 'snowball' payment plan?"

Unfortunately, I'm not familiar with the snowball payment plan you mentioned. I have never heard of the 50% rule either, with regard to credit utilization ratio. I recommend keeping things simple, since all of your credit cards are nearly maxed out. The FICO scoring system considers your entire credit usage across all accounts, but it also looks for "max out" situations. You currently have this situation across all four cards, so your best bet is to lower all of the balances in tandem.

If you want to use half the limit as a target, that's fine too. Fifty percent, forty percent, thirty percent ... whatever. The main thing is that you are lowering those cards away from their limits, and the more you do this the better.

Related article: Best Ways to Pay Off Debt

If you need more input on this, you might want to check out the forums over at MyFICO.com. There are people there who spend a lot of time analyzing this kind of thing (too much time, if you ask me). Still, it might be worth a visit. Take care.