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.
http://articles.moneycentral.msn.com/SavingandDebt/Advice/16FavoriteMoneyRulesOfThumb.aspx
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.
16 Favorite Money Rules of Thumb
July 3rd, 2007 at 05:52 am
July 3rd, 2007 at 06:38 am 1183444688
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.
July 3rd, 2007 at 03:05 pm 1183475143
July 3rd, 2007 at 03:42 pm 1183477340
July 3rd, 2007 at 07:02 pm 1183489325
July 3rd, 2007 at 09:05 pm 1183496742
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.