I have been having a discussion So I ask you all if you have a credit card Has a 2000 limit. 1500 balance. Is it better to have that balance While having 1500 in savings Or Using the the savings to zero balance the card But now zero savings. Rocket River
oddly enough, zeroing out a credit card balance can actually hurt your credit score. I've read they recommend keeping a small (in this case probably $200-ish) balance on the card. In which case your scenario would suggest paying the credit card off to that level with the cash in savings. End result $200 on the card, $200 left in savings.
1500 balance with 1500 means you still have 0 money, except now you're paying interest on the card. Now if your interest is really low and you're using savings to invest elsewhere that will give greater return then your interest, then option 1 becomes viable.
Don't pay interest on cc debt you can zero out. I would read something like creditkarma to get better advice for increasing your credit score.
First things first. You need an emergency fund, which is 6 months of expenses if you are in your 20s and 30s. The older you get the more you will need in your emergency fund, to 2-3 years of expenses when you get to 60. Once you get a fully funded emergency fund, then pay off your credit card debt.
1. What interest are you paying on the credit card? What's the point of having 1500 in savings when you are paying 15% interest on your CC? 1500 out of 2000 = 75% utilization = will hurt your credit score. Key to a better score is low utilization of your entire available credit limit ...like 10% or so.
You can get around total utilization % by applying to more no annual fee CCs and raising the limit from time to time. Some of them even offer teasers like $300 back after spending X amount over three months. Some people are wary of this because they spend what they don't have. Practice self control / fiscal responsibility, and cut up the ones you don't use. Keeping those credit cards will boost your credit score by boosting the aggregate average age of your credit cards. This later allows you to churn cards with bigger teasers (and an annual fee you have no business paying) without impacting your credit score.
Why would you build your savings account while carrying debt? You are paying interest on the card needlessly. Pay off the card first. If you have an emergency you can always use the card.
One should list their financial goals in a priority order. Most have an emergency fund as their top priority. How about this? Say you want to go get a cheese burger at Sonic. Do you claim that that is an emergency or do you use a credit card? Now using the credit card will not be option when you hit its limit. In that case, you stay home and have ramen noodles or some such.
I always thought zeroing out the credit card was best The only exception is if you are saving up for maybe a down payment on a house. I have heard that you should carry a small balance as well In fact I have heard that if you say spend 200$ A month in bills....if you paid them with your credit card Then paid the 200 to the card every month That would build credit...... Shows card is active and paid monthly on time...etc... Is that correct? Rocket River
Yeah that's correct. Credit scores are overrated. Of course you need a good credit score, but it isn't worth it to stay in dept to build credit. That "keep a small balance to build credit" BS is what the CC companies tell you to keep you in bondage. I pay all my bills with my reward cards for the reward perks and pay them off with the money I was already going to use. The CC company's are essentially paying me to pay my bills.
If you’re good with money you can still budget for this. This is my personal account that my wife doesn’t know about.
+1. Just to clarify...you do NOT need to keep a balance on your card to get a good credit score. I have never kept a balance on my card. I charge what I need for the month...when I get my statement, I pay off the statement balance. Recently I got a discount tire card to use their 12 month financing. I just asked for 2000 bucks limit and charged 1500 on it. Guess what. My credit score took a hit because it said I had high utilization on one of my card. Nvm the fact that I can easily charge 50K+ on the other cards.
The "keeping a balance" is take news. You need multiple accounts to truly have great credit. So let's say you have 5 credit cards with 100k in open credit lines you just use whatever card offers the most points for said bonus category and pay everything off on time. Randomly every 7 days when your credit is updated it will show you are utilizing credit but it's a very low % As far as paying bills with your credit cards I would pay anything you could with them for A) extra layer of security B) points points points
Like all things it depends on the situation. If you have zero emergency fund and zero cc debt, but find your self needing cash beyond your cash advance limit..... Pay day loans are worse than cash advance for an example.
I treat my CCs like a debit card. If I dont have the cash to pay it off, I dont charge it. I dont care about credit score or any of that crap as I hardly ever need it. The only thing I would ever use credit/finance on it is a mortgage.
There are multiple ways credit scores are calculated. Trying to determine whether you should carry a balance is ridiculous. At worst, you might get docked a couple points for carrying a zero balance. When you're applying for loan or house, I can reassure you carrying zero balances is a very good thing. Don't pay interest fees if you dont have to. If you're struggling to pay off 1500 CC loan, one probably shouldn't have a credit card in the first place. There is good credit, great credit and stellar credit. Very few lending institutes care about perfect credit. Don't overthink it. Getting great credit is pretty simple. Do not pay your debts late. Pay your debts off as quickly as possible. Try to achieve 50k+ credit line. Keep 2-5 lines of credit open. Get a couple credit cards that you plan to keep for life. This will help with credit longevity (this is a very stupid metric). To reiterate, there is no reason why a person should keep debt of any kind just for the sole purpose of a credit score.
