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Post by jeremysgirl on Aug 8, 2014 14:49:20 GMT
OK, we recently had a very, very expensive car repair. We put it on a credit card. Now my credit card is almost maxed out because of this debt. We are hoping my credit score improves over the next year because we want to buy a house next summer. I could take the money out of the bank and pay down the credit card but it would make a significant dent in what little savings we have. While I am a bit freaked out about potentially losing my savings cushion, I think it would look better on my credit to not have my credit card charged up to the limit. Which would you do? Pay off the credit card little by little and take the hit to your credit score or take the money out of the bank and pay it, leaving you with little money left?
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Post by freecharlie on Aug 8, 2014 14:54:57 GMT
I'd rather have the savings. You could compromise and put half on the card and continue to pay more than the monthly payment and then you will also still have money in your savings account
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Post by jeremysgirl on Aug 8, 2014 14:59:32 GMT
I am leaning to keeping the money in the savings account and trying to pay down the debt on the credit card. I just wonder how much it actually hurts your credit score to keep a high balance. I guess I am just a little bit disappointed as I have been diligent in paying off all debt over the past couple of years, really trying to improve my credit score, and now it was my goal to really start socking money into savings but this has put a big dent in my plan.
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sharlag
Drama Llama
I like my artsy with a little bit of fartsy.
Posts: 6,580
Location: Kansas
Jun 26, 2014 12:57:48 GMT
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Post by sharlag on Aug 8, 2014 15:00:57 GMT
I'm struggling with the same issue, but am not so concerned with credit score because I'm not house hunting like you are.
It's nice to know if there were a crises, I could cut back on credit card payments.
What interest will you be paying on the card that you used on the car?
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Post by Bitchy Rich on Aug 8, 2014 15:04:58 GMT
Most definitely take the money out of savings and pay off the credit card. Much better to not have to pay interest on the full balance. What do you think the benefit is to keeping money in the savings account? If you have another "emergency" you can again put it on your credit card.
After you make the payment, set up a payment plan to start building back up your savings account. Treat it as though you must make a minimum payment each month - just like you would have paid off the credit card.
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Deleted
Posts: 0
Oct 8, 2024 6:43:16 GMT
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Post by Deleted on Aug 8, 2014 15:05:46 GMT
I would be more concerned about the interest piling up on the credit card debt vs the next to nothing you are earning on the savings. As far as credit..they do look at how much you owe on credit cards as compared to the available credit. Being close to the limit is not as good for the score...however ontime payments helps the score. In general for a mortgage it is debt to income ratio and credit score.
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Post by leannec on Aug 8, 2014 15:07:40 GMT
I would pay off the majority of the credit card ... paying interest sucks! Why give someone else your money?
Have you thought about applying for a line of credit? We use that in emergencies ... the interest rate is much lower ...
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Peal
Pearl Clutcher
Posts: 2,524
Jun 25, 2014 22:45:40 GMT
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Post by Peal on Aug 8, 2014 15:16:01 GMT
Unless you have some kind of phenomenal savings account that is paying huge interest, the best thing to do is pay down the credit card. If it was a one time emergency it wont be as hard to build up the savings again as it would be if you were living on credit.
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Post by mikklynn on Aug 8, 2014 15:21:38 GMT
I would pay down the credit card with every penny I could. Your savings will earn little to no interest. In the event of an emergency, like a car repair, you'll have the credit card.
Once you pay off the CC, work just as hard to build up your emergency fund, so you don't need the CC in the future.
I know it's frustrating to work hard at it and get hit with another bill.
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Post by meowgal on Aug 8, 2014 15:23:32 GMT
Pay off the credit card and then don't use it for anything but VERY minor things. Pay the small balance off each month. Be sure to work on rebuilding that savings account as fast as you can. You'll be saving on the interest, so that is "money found" rather than throwing it to the credit card company each month you don't pay off the balance. NEVER pay interest if it can be avoided!
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IAmUnoriginal
Pearl Clutcher
Posts: 2,894
Jun 25, 2014 23:27:45 GMT
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Post by IAmUnoriginal on Aug 8, 2014 15:26:39 GMT
I'd pay down the CC debt with the savings to save myself the interest building up on the CC. Whatever you plan to pay per month on the CC debt, pay back into you savings account. You get to keep 100% of what you're putting into saving each month, rather than a portion of your payment going to pay interest before it even touches the principal. It will also look better to your mortgage lender that your card isn't nearly maxed out. That makes banks very nervous.
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Post by scraphollie27 on Aug 8, 2014 15:30:28 GMT
I would pay off the credit card. I wouldn't want to rack up anymore interest charges than absolutely necessary and I would never earn that leaving it in savings.
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akathy
What's For Dinner?
Still peaing from Podunk!
Posts: 4,546
Location: North Dakota
Jun 25, 2014 22:56:55 GMT
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Post by akathy on Aug 8, 2014 15:34:01 GMT
No credit card debt without a doubt. Use your savings to pay it off and then start making those payments to your savings account.
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Post by Spongemom Scrappants on Aug 8, 2014 15:35:16 GMT
I would be more concerned about the interest piling up on the credit card debt vs the next to nothing you are earning on the savings. As far as credit..they do look at how much you owe on credit cards as compared to the available credit. Being close to the limit is not as good for the score...however ontime payments helps the score. In general for a mortgage it is debt to income ratio and credit score. Very sensible advice. |
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Post by momstime on Aug 8, 2014 15:35:41 GMT
I would try my very hardest to never carry a credit card balance. Pay yourself, not your creditors.
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Post by workingclassdog on Aug 8, 2014 15:36:31 GMT
I would go by what everyone else is saying.. pay it off or at least 1/2... or 3/4 if you want to show you are paying it down.
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Post by scrapcat on Aug 8, 2014 15:37:27 GMT
It's actually better for your credit score to pay down the balance over time. Having zero balances on your credit cards (or any loans) constantly actually doesn't help your score. It doesn't hurt it either, but if you are looking to get a mortgage eventually they will want to see positive activity, versus nothing. Can you move the balance to a zero interest card? Generally, its better to have no debt versus savings, but it seems like you are looking for more of a strategy to help your credit.
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Deleted
Posts: 0
Oct 8, 2024 6:43:16 GMT
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Post by Deleted on Aug 8, 2014 15:38:28 GMT
While there is a major psychological benefit to having more in savings, paying high interest on a credit card balance over the long term doesn't make sense. And having a card close to maxed (especially if it is your only card) tanks your credit score. Your utilization percentage counts for 30% of your credit score and being over 50% has a very negative impact on your score. The good news it that it rebounds instantly when you pay that balance down significantly/off.
Credit cards have high interest rates. The longer you keep that balance, the more interest you are going to pay, which is reducing the amount of money you have to use and save. Pay it off and then focus seriously on rebuilding your savings as quickly as you can.
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oldcrow
Pearl Clutcher
Posts: 3,828 
Location: Ontario,Canada
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Post by oldcrow on Aug 8, 2014 15:39:02 GMT
No credit card balance is my choice. Why would I want to pay very high interest on a CC balance just so I could collect a teeny tiny interest payment on my savings. I would even take money out of my tax free savings to pay a large credit card balance.
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sharlag
Drama Llama
I like my artsy with a little bit of fartsy.
Posts: 6,580
Location: Kansas
Jun 26, 2014 12:57:48 GMT
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Post by sharlag on Aug 8, 2014 15:44:46 GMT
If you have another card you could transfer the balance to, many of them have a zero interest for x number of months deal on transferred balances.
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gsquaredmom
Pearl Clutcher
Posts: 4,092
Jun 26, 2014 17:43:22 GMT
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Post by gsquaredmom on Aug 8, 2014 15:45:45 GMT
Savings. Credit cards don't work for all emergencies. Cash is king.
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Post by jeremysgirl on Aug 8, 2014 15:48:24 GMT
I did recently have an offer come in the mail to transfer balances on a new card with zero interest for a year. Maybe I will compromise and pay half and transfer the balance on the other half and keep making payments.
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Deleted
Posts: 0
Oct 8, 2024 6:43:16 GMT
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Post by Deleted on Aug 8, 2014 16:00:24 GMT
It's actually better for your credit score to pay down the balance over time. Having zero balances on your credit cards (or any loans) constantly actually doesn't help your score. It doesn't hurt it either, but if you are looking to get a mortgage eventually they will want to see positive activity, versus nothing. Can you move the balance to a zero interest card? Generally, its better to have no debt versus savings, but it seems like you are looking for more of a strategy to help your credit. You do *not* need to carry a balance on credit cards to have a good credit score. Paying them off in full monthly shows payment activity, which is all that paying balances off over time does for your credit score. Utilization percentage is one of the largest factors in credit score algorithms. Maxed out is almost as bad as having a 90 day late on your report. Over 50% is also very negative. 30-50% starts having a negative impact, but not severe (depending on the rest of your credit profile). Under 30% is generally not going to have a negative impact, but it can. "Ideal" is around 2%. Ideal only comes into play in very high credit scores. |
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Post by 2peafaithful on Aug 8, 2014 16:12:30 GMT
I would have have no credit card debt.
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Post by bc2ca on Aug 8, 2014 16:13:42 GMT
Opening new credit cards and transferring the balance could have a negative impact on your credit score, but paying at least the minimum balance every month should not reduce your credit score. My DH would open store credit cards to get the 10-15% savings they'd offer for opening the account and until he discovered all these cards (that usually never got used again and had no outstanding balance after the first bill was paid) reduced his score.
I would pay off the credit card and make a serious monthly payment into the savings account until it had been repaid.
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scrapperdee
Junior Member
Refupea 1827
Posts: 76
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Post by scrapperdee on Aug 8, 2014 16:57:27 GMT
Pay off the debt....the interest paid to the cc company is way larger than the interest earned on a savings account. You'll never get ahead keeping up with paying MORE for something because of the interest charges.
Once your are debt free, then save.
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Post by meowgal on Aug 8, 2014 17:00:03 GMT
If you have another card you could transfer the balance to, many of them have a zero interest for x number of months deal on transferred balances. BUT, read the fine print. Most charge 3% for the transfer! I'd never pay that! AND, it is for a limited time. They hope you'll transfer it, pay the 3% (which is tacked on, of course) and then pay the minimum ....so that when the special ends, you still have a big balance and are now paying high interest on that, PLUS, you paid 3% for the privilege! |
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loco coco
Pearl Clutcher
Posts: 2,662
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Post by loco coco on Aug 8, 2014 17:03:01 GMT
no credit card debt wasting money on interest
then save and earn interest instead of paying it!
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Post by meowgal on Aug 8, 2014 17:03:02 GMT
It's actually better for your credit score to pay down the balance over time. Having zero balances on your credit cards (or any loans) constantly actually doesn't help your score. It doesn't hurt it either, but if you are looking to get a mortgage eventually they will want to see positive activity, versus nothing. Can you move the balance to a zero interest card? Generally, its better to have no debt versus savings, but it seems like you are looking for more of a strategy to help your credit. You do *not* need to carry a balance on credit cards to have a good credit score. Paying them off in full monthly shows payment activity, which is all that paying balances off over time does for your credit score. Utilization percentage is one of the largest factors in credit score algorithms. Maxed out is almost as bad as having a 90 day late on your report. Over 50% is also very negative. 30-50% starts having a negative impact, but not severe (depending on the rest of your credit profile). Under 30% is generally not going to have a negative impact, but it can. "Ideal" is around 2%. Ideal only comes into play in very high credit scores. Darn tootin' you don't! I pay off mine every month and I have an excellent credit score. The activity of charging and then paying off in full shows financial responsibility, thus credit worthiness! |
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Post by Jamie on Aug 8, 2014 17:06:29 GMT
It actually hurts your credit score by having CC's open with nothing on them. Like a PP said, it looks bad to the banks. By having even a small amt on your CC and paying it off monthly, that is helping you. We just got done purchasing our house and actually got a letter from one of our CC's, because we hadn't used it in quite some time that our credit score had dropped, because there was no positive activity.
What if you paid a majority of it off and then paid monthly payments on what small amount is left. That way you are helping your credit score and it will look good for when you do go after that mortgage loan next year
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