I have a credit card with about ,000. I’ve used the credit card for paying for school, stupidly believing that would be a better route than getting a student loan (yes, I know, stupid thinking). I got a car a year ago, and that has opened my eyes to all this stuff about loans and lines of credit, fixed interest versus adjustable interest (which is what I think a credit card uses). I’ve noticed that my car payments, every payment, the balance goes down the amount I pay. I’ve noticed with my damned credit cards, it turns out the payments I’m sending in is covering interest only and about +/- to the actual balance I actually owe. I pay 5/monthly, and about 0 seems to go towards interest approximately. I’m paying about 30% interest on this damned thing and realize now I’m in a mistake and want to get out of it. My big question is, I want to get rid of the credit card for good. I’ve heard canceling hurts/kills your fico score, but at this point I don’t think I care. I’m paying hefty a hefty stupid tax, and haven’t gotten anywhere in the past few years. Since I’m making car payments, that should help the fico score to some degree, but is it advisable to cancel the credit cards? I want to get rid of the thing, and not use them again. Maybe keep one for the emergency situation like car breakdown/tire blowout, but I’m planning to otherwise live on what I make, not what I can borrow. If I cancel the credit card, does that allow you to continue making monthly payments to get rid of the thing without incurring more interest monthly? Or will the credit company then demand 00 upfront? I’ve never canceled a card before as these two being my own cards ever.
Please, no short/quick answers from people that haven’t dealt with this before. I’m looking from people who have dealt with or been in this situation before, or has worked with credit companies. I’m looking for a way out of this trap, pay off what I owe without incurring more stupid tax and without getting a lawsuit if I cancel and they want it all up front. Thanks in advance! Sorry this is long-winded.
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Fri, Aug 20, 2010
August 20th, 2010 at 5:53 pm
As far as cancelling the credit cards go…depends on your school of thought.
Dave Ramsey is a financial counselor. He recommends living a debt free lifestyle. Saving up to buy a car and purchasing it out right. No car loans. The only loan he really is ok with is a mortgage (as long as the payment is no more than 25% of your income on a 15 year fixed).
Dave does not care what your credit score is. Because you only really need a credit score – when you borrow money (which Dave is against).
Dave’s going to tell you to cut that card up – cancel it and pay it off.
He has a strategy for paying off your debts and living debt free. You can check out his book: The Total Money Makeover for more info.
http://www.daveramsey.com
Suze Orman is another financial counselor. She wants you out of debt but does not quite push it as much as Dave. She does agree with paying off all credit cards- having an emergency fund. She’s just not as anti- debt as Dave. She would tell to pay the card off – keep it open (so it does not hurt your credit score) and just never use the card again. Ever.
http://www.SuzeOrman.com
Both are respected financial counselors. And both give sold advice. Just depends on what works best for your.
I tend to split the difference.
I had credit card debt.
I have paid most of it off – following Dave’s baby steps.
But I have not cut up the card. I have a good credit score – so I’m not going to cancel the card. But putting it in a bowl of water and freezing it in the back of the freezer is definitely on the table. This way…before you can use the car…you have to thaw it out first. Gives you several hours to think about how much of an emergency it is.
If you have been a long time customer of the credit card company – and have made all your payments on time – you may be able to call them and get them to lower the credit card interest rate.
Does not cost you anything to call them and ask. Sometimes if you threaten to transfer the balance to a lower rate card – they will match the lower rate card.
As far as making the balance of the cards go down– if you make just the minimum payment – it will take you about 30 years (provided you never charge on it again) to pay the cards off. You will have to pay more then the minimum payment.
Given your situation – Dave’s baby steps would be the way to go.
When you have debt (and you do- credit cards and car loan) you really need a strategy for paying it off. Dave gives you a good step by step way to do that.
It won’t be fast.
It won’t be easy.
It will take discipline.
But you can get out of this mess.
August 20th, 2010 at 5:53 pm
Closing a card wont do any good. It will actually hurt your credit rating. Unless there is an annual fee on that card keep it open.
Even if you close the account, you will still pay interest and or late fees.
Go to myfico.com – it will tell you how closing cards hurts you. /
August 20th, 2010 at 5:53 pm
Here is what I recommend with credit cards. Call up the companies, ask them what the lowest APR is available. They usually should have lower interest rates available. You do want to keep the cards, maybe just not use them regularly. The longer you have credit cards, the higher your score. If you close these down, pay them off… then later open a new account, your score will go down.
I highly recommend keeping the cards you have, unless they have crazy yearly fees. Also the lower your balance to your credit line, the better your credit score. The best way to pay off credit cards is to pay the minimum + interest. If you minimum is $100, and your interest is $35 then pay $135. On you car, if you pay more because you are able to, then yes your monthly amount does go down. BUT the minute you pay the new minimum then you are going to have to go back to the original minimum. You either want to always pay the minimum or pay more than the minimum (that way if you don’t have a job or something happens for a month then you have a lower amount to pay)…
Hope this helps
September 3rd, 2010 at 7:01 pm
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