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Did you know that 40% of your credit score is based on how you use credit cards and that you need to have at least 3 open credit cards at all times, but no more than 3.
If you ever go over 30% of your credit limit your score will go down as much as 100 points!
Paying down a credit card will help your credit score, but not much unless it is a substantial payment and it brings the balance of all cards below 30%.
Now with this being said it is always a good idea FINANCIALLY to pay off the cards in full every month, but if you cannot afford to do this, pay the minimum payment on ALL of the cards except the credit card with the highest interest rate. Make the largest payment you can towards the card with the highest interest rate, once the credit card with the highest interest rate is paid off start applying the large payment to the next credit card with the highest interest and continue to pay the minimum payments on the rest of the debt.
For example if you have 3 credit cards, a car loan and a mortgage your payments would look like the following;
- Mortgage $1,500 a month at 4% interest
- Car Loan $350 a month at 8% interest
- Credit Card #1 $50 a month at 18% interest
- Credit Card #2 $75 a month at 19% interest
- Credit Card #3 $150 a month at 24% interest
Instead of paying $25 a month extra on each bill apply the extra $125 towards the $150 credit card payment for a total of pay $275 onto the highest interest loan, once the highest interest loan is paid off apply the $275 to the next highest loan.
I know this seems like a simple process and it is, but I find that most people forget it about and they look for something much more difficult. In most cases this simple process can get you 100% debt free in 7 to 10 years including your mortgage due to compound interest or in this case compounding payments.
Posted By Ron Siegel
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Ron Siegel is a Radio Show host on the Real Estate Radio Network and counsels clients in all matters Real Estate Related – Mortgage Banking, Real Estate Purchases and Sales, Short Sales, Foreclosures, Credit Repair. Reach on Ron Siegel at Ron@MBEhoa.com – 800.306.1990 – www.MBEhoa.com.
