Credit Card question

[cptacek]

In every single financial article I ready, it says to pay off your credit card first. But sometimes I don't think that is the answer. For instance, what if you have a car loan at 8% but a credit card at 5%? Or if you have a Student Loan at 3% and a credit card at 0%? In fact, is it ever smart to pay off a 0% credit card, so long as the interest stays at 0%?

I understand the reasoning if the credit card's rate fluctuates, but if it is guaranteed to stay at that low rate for a certain amount of time (for instance a Home Depot card that is 0% for a year, or a furniture store that is 0% for 5 years) wouldn't it make sense to just pay the minimum payment to pay off the balance before the rate goes up?

[getforfree]

I would pay off the one that has the biggest interest rate.

I have Home Depot card too, and I had the 0% for 6 month, no payment, no interest. I waited about 5 month, then paid it off completly before the interest would kick in. Even though I had the money, I kept it in case I would need them on my savings acct which pays almost nothing in interest, but still better than nothing.

I have only those cc's that either give discounts or give money back. I have never paid even a penny interest on cc's, so maybe I am not much help. I have mortgage though, on which I make extra payments. I also have Emergency Fund. I am not sure if I should use it as an extra payment towards mortgage.

[sweeps]

Yes, it's almost always best to pay off your highest interest loans first, and work your way down from there. The "pay off your credit cards first" advice made sense when the only rate you could get was 20%+.

[debtdude]

It doesn't matter if you pay off a fixed rate loan early or late (some loans penality for early payment). That's why it's best to target all your resources towards your flexible rate loans (credit cards). Great, you have a 0% credit card but what will you do when that intro period runs out? Better to have paid off as much of that as possible.

Use the snowball method.

Let's say there are three credit cards with debts of $4000, $2000, and $1000. The $1000 debt would get paid off first by paying as much as possible towards that specific debt. Take the payment amount that was being used for the $1000 and add it into the payment on the $2000. Once the $3000 is paid off, take the TOTAL that was being paid on the $2000 and add that in with the regular $4000 payment.

Using this step, you might start out paying $400 per month on all your debt. When you are paying off the very last card, you'll be putting that same amount into just one card. Hence, the snowball effect of adding more and more money to each debt as you pay off the previous credit card debt. Nice solution.

This method works best if you target the credit card with the highest interest rate first. You'll be saving hundred, if not thousands if dollars in interest payments!

[Ima saver]

Even though you have a credit card with 0 interest, which I just applied for, it is still best to pay off the card each month and carry no balance. I am just getting this one because they will give me back 1% of my purchases in cash (check) when i reached $100 accumulated.

[flash]

Originally Posted by cptacek

In every single financial article I ready, it says to pay off your credit card first. But sometimes I don't think that is the answer. For instance, what if you have a car loan at 8% but a credit card at 5%? Or if you have a Student Loan at 3% and a credit card at 0%? In fact, is it ever smart to pay off a 0% credit card, so long as the interest stays at 0%?

I understand the reasoning if the credit card's rate fluctuates, but if it is guaranteed to stay at that low rate for a certain amount of time (for instance a Home Depot card that is 0% for a year, or a furniture store that is 0% for 5 years) wouldn't it make sense to just pay the minimum payment to pay off the balance before the rate goes up?

You said it well...you need to pay off the balance before it comes due. The problem many people have with this (and the banks count on it) is that once the money is on 0%, people "feel" like it's not a debt and ignore it. Then, when the interest starts and payments come due, the majority of people have not saved to pay it off immediately.

[Ima saver]

The best thing is to pay off everything and have no credit again, except what you can pay in full each month.

[veronak]

With a car you can see the decrease when a payment is made but CC I think not, maybe that is why I do not know, but I agree to pay the CC off first...they are a pain

[PRICEPLUS]

I like getting rid of CC first. I just despise those people who issue them after all I have learned about them on this board.