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16 Favorite Money Rules of Thumb

July 2nd, 2007 at 10:52 pm

I know I've been on hyper post tonight, but just one more from me and then I'll shut up until tomorrow. I read this article online today.


It was very good and well worth the read and I did learn something new from her. I'm not sure I agree with it but I follow her reasoning.

She says to pay off the cards that are maxed out first, not the one with the highest interest or the one with the lowest amount on it. She says this because having cards maxed to the limit is worse for your credit report than the ones that have plenty of room left on them.

I suppose if you are trying to improve your credit report that might be the way to go, but if the object is getting out of debt period, I'd go another way, myself.

I am curious as to what others think on this.

5 Responses to “16 Favorite Money Rules of Thumb”

  1. baselle Says:

    I think you should tackle the credit card that bugs you the most, the one that causes you to lose sleep. Too many people dither about which one. To me, that's just procrastination and worse, in the meantime while they decide, charge up the others. I say, just start one, get r done, go onto the next one and don't look back.

    When I got rid of three credit cards I didn't go after the highest interest rate or the smallest balance. I went after the one who was the rudest to me, then the one with the smallest balance and then finally the worst interest rate. Yeah, I might have lost a bit of money on the deal, but when I was done ... I was done and I was just as debt free as if I did it methodically. Big Grin

  2. Broken Arrow Says:

    Good article. I agree with your reasoning. My goal would be to reduce the total cost of the debt as well, so I would be inclined to pay off that which has the highest interest as well. Otherwise, I suppose I can see why she made that suggestion. In retrospect, perhaps she should've clarified that point.

  3. scfr Says:

    Given that she explained upfront that they are just "rules of thumb," which means they don't apply to everyone in every situation, I thought it was very good advice. The one I had a problem with was the last one, where she advises saving for retirement before paying off credit card debt or saving an emergency fund. I have a hard time believing that it makes sense to continue paying super-high interest rates on credit cards just to make moderate gains on your retirement savings. And if you don't have an EF, you're just going to wind up charging emergency expenditures and the debt cycle will continue.

  4. monkeymama Says:

    I saw this the other day - good article.

  5. Lau Says:

    If you're going to prioritize which credit card to get rid of first, I'd go with the one that charges you the most finance charges every month first.
    I'm over-simplifying here, but if you have
    card #1: $100 at %20
    card #2: $1000 at %10
    Card #1 will cost roughly $1.67 a month, and card #2 will cost $8.30 a month. I'd go with #2 first and make minimum payment on #1.

    About the: "These days, though, you should first tackle any card that's close to its limit, since maxing out cards hurts your credit scores and can trigger penalty rates and fees". I agree with the triggering penalties part, but not the first part. Back to my example:
    card #1: $100 - limit is $200
    card #2: $1000 at %10 - limit is $1100
    You're "borrowed" ratio (or whatever it's called) is %84.6 (100+1000)/1300
    Whether I pay $100 off of #1 or #2, that ratio will go down the same way.

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