I humbly disagree with your opinion. If the OP zeroes out his CC debt and keeps it that way but after two years still does not have an emergency fund, this would not exceptional. Something like 60% of Americans do not have savings enough to cover a $500 unexpected expense. $500. Some excellent financial advise is to month-to-month live comfortably within your means. People who do that do not have $1500 on their CC. There obviously exceptions, but they are exceptions. You might want to finance your big purchases (like a car) with debt, but at least aspire to someday buying a car with cash. Back to the OP's $1500 debt question ... A reasonable approach would be to live comfortably within your means ... say only spending 80% of your net income. OP could then split the reaming 20% between reducing CC debt and building their emergency fund.
Fine. But, I'll point out that if you have a credit line for $2,000 and it is unencumbered by an existing balance, you'll be able to use that to handle a $500 emergency. The stat about so many Americans not being able to handle such an emergency is not just because they don't have savings, they don't even have available credit.
I'm pretty sure this is wrong. IF your wife was penalized, it was because she cancelled the credit cards -- not because you paid off your balance every month. Pay off your balances (if you can), people. Credit cards have the worst interest rates. (insert new CC that LTF is currently forgetting offering 0% interest for first 12 years)
the bolded might be true, but I think she kept the cards but stopped using them. I think they were canceled for inactivity, but I may be wrong. I'll have to ask her if she remembers, this was a while back
To each his own. I just don't know anyone that has become wealthy because of credit card rewards. This is literally EXACTLY what happened when my debit card was compromised at a gas station a few months ago. Got a call and a text within minutes, the charges reversed within the hour and a new card in the mail 3 days later. Boom. Just a very minor inconvenience. LOL, that's not at all why a rewards CC isn't good for me. Quite the opposite, frankly. We do a monthly budget down to the penny every month. And stick to it. I just choose to pay for things when I buy them instead of a month later. And debit cards (with the VISA logo) carry all the same protections as a credit card. Like OS said, everyone has their own financial plan that works for them. I can say that the plan I use is working VERY well for me. I have no debt and I'm halfway to having my 6 month emergency fund fully funded. After that, it's time to attack the college fund(s) and throw extra money at the mortgage. Cash back from credit cards isn't going to move the needle for any of these goals. So I don't really need to play games with the credit card companies or worship at the alter of the almighty FICO score. Not bragging or preaching, that ain't me! I just resent the implication that people who don't use credit cards or borrow money aren't good with money. That's just silly.
I dont know why I even mentioned rewards CC. I dont advocate using a CC for rewards. It should be a convenient side bonus. I find the rewards CC commercials absolutely idiotic. "Lets buy this item that I probably dont need and can't afford because I get rewards". But my premise was not all bank debit cards are as convenient as Chase and Capital One. I would never consider a Wells Fargo debit card as they are notorious for screwing over their customers when it comes to fraud.
I was making a general statement understanding why someone may not use CCs. In your case though, since you sound disciplined, you sound like a great candidate to have a reward CC. No one is saying you are going to get rich, but your plan could easily yield a few hundred bucks a year from the sounds of it. Yes, to each its own, but if you are paying everything off cash, then what difference does it make? You aren't paying any interest if you are paying off your card monthly. Sure, it won't matter on your ultimate goals of paying off your mortgage or putting money in a student loan, but just talking about the extra cash yielded. Not much, not enough to move any needles, but better to take advantage of it. I certainly wasn't trying to say that if you don't use a credit card you suck with money, not at all. I'm not even saying that you need it to build up your credit. If you want to pay everything off with cash, then more power to you. I'm just saying that by the sounds of it, you sound like a great candidate to use a reward credit card and make a little extra cash a year.
You don't need to keep a balance on them to keep them from being cancelled. Buy something, pay it off. That counts as activity.
Nobody is saying you'll get wealthy from using a credit card. Everyone is mentioning that you'll get some rewards back in the form of cashback or travel points that roughly equates to 2% of what you spend. In addition, you'll get some extra safety features like travel insurance, fraud detection, price protection, extended warranty, and others while you build your credit, giving you more favorable loan terms if you ever needed it. I've saved thousands of dollars over 5 years by using a credit card. That's with cash back to use as statement credit (worst way to redeem points), converting them to gift cards for 90 cents to the dollar, or using them to purchase plane tickets/hotels/rental cars at better rates than cash. If you can keep a budget, there are literally no downsides to having a credit card.
What kind of payments are you making monthly on this credit card? If it's minimum you are losing so much money. Assuming APR is 20% and you're paying only 3% of your balance monthly, and no further charges, it's going to cost you almost $3000. Pay that credit card off and use it as your safety net until you can build a savings again.
OK, but they didn't close because you didn't keep a balance on them. They closed from no activity. What are you going to do? Keep a balance on a card and always pay interest? That's silly. Use it once a year, and pay it off. That's activity. Then they don't close the account and you don't have to worry about your credit score changing because of it. Leaving a balance on a card doesn't help your credit score. It might "keep it open" but that's not the only way, and you're paying needless interest (even if its a small amount).
I will repeat it again one more time. Your credit score dropped because by having less credit limit available. Think about it..if you have 5 cards with 5000 dollar limits..thats 25K worth of debt you can easily get into. Now when a person who has that potential uses only 3000 of it a month (12% utilization) and pays off the balance after each statement, it shows restraint. Aka..your score goes up. When you cancel 3 of those cards, your limit drops and your utilization increases (20% now). Thus your credit drops. It has nothing to do with carrying a balance. The only people you are helping by carrying a balance are the credit card companies. Carrying a balance really means buying something and not paying it off until the statement comes. Meaning..don't buy something for 100 and then go online next week before the statement generates and pay it off. It DOES NOT mean don't pay your credit card statement balance in full so you get dinged with interest. there's a big diff. Your total balance on your card and your statement balance will be diff! If you are someone who uses their card for everything..there will always be a balance on your card. Only thing you need to make sure is to pay off the statement when it comes. Seriously..who started this bullshit? Yes let me not pay my statement balance in full and get dinged with 20% interest so my credit score goes up. Been using a credit cards for 20 years and have never not paid my statement balance in full. Interest paid so far: ZERO. Credit score 800+ Now if i can stop buying cars..i would have a lot more money. lol
One thing to note is average length of credit history plays a role. If you have 5 credit cards, 2 of them open for 10 years and 3 open for a 2 years, your average credit history is 5 years. If those two 10 year old cards get canceled for whatever reason, your average credit history now goes down to 2 years. Transunion is an example of this. People with flawed credit will often find Transunion will give them the best score as lenders tend to use this the least and those derogatory remarks will not be listed on Transunion. People with excellent history will find Transunion lower than the other two agencies as not all of their perfect credit history is reported. You are absolutely right. Credit agencies do not care if that balance is carried over or if its new purchases. I have no idea where this originated from. I often pay my card off bi-monthly. Speaking from experience, my score is at its peak when my report shows zero credit utilization. I have noticed the higher my utilization, the more my score drops (a few points). I rarely go over 5% of my utilization. Going from .01% utilization to 2% utilization drops my score 3 points. Simply put: Not using your credit does not hurt you.
You are right. That's one thing I didn't cover. You need to have accounts that have been open for a while. I don't go around opening a ton of those store cards. I have a best buy card to get interest free for 6-12% and a banana republic card. Another thing that hurts are a lot of hard inquiries. More than 5-6 and your points go down. They stay on your account for 2 years. So just think about that before you hand out your social.
Again, I'l preface by saying to each his own. Everybody knows what works best for them. I used to play the 'charge everything on my Freedom card and pay it every month' game. I did it for years and sometimes made as much as $60/month. Until I had a payment post late due to a bank holiday and got charged a finance charge. I called to see if they could remove it since it had never happened before and they said no. So that was it for me. I can do online surveys during my free time at work and make $60/month. But with me, it's more of a philosophy than a hissy fit because they wouldn't remove the charge. I just don't like borrowing money even if it's only for a month. Full disclosure: yes, I'm one of those weird Dave Ramsey guys. Used his plan to pay off all my debt last year and since then, my family has never been in a better place financially. Debt free, money in the bank, no monthly payments besides house and utilities, extra income to save/invest every month. It's worked great for us, so we're going to go ahead and play through until we get the house paid off and are 100% debt free before the kids go to college.
@ima_drummer2k No debt means you're not leveraging your credit and equity to build wealth. You can stay in debt until the day you die, pay very little taxes and live like a king. When you die the tax debt goes poof. This is why guys like Trump and Romney won't show their tax returns. Of course, most people get in trouble with credit cards, which is why Dave Ramsey's program works. They're ignorant and need a simple plan. But instead of running away from all understanding of how money works, you should embrace it and use the laws to your favor. It's crazy what ultra-rich people get away with tax-wise. And shooting people in the face on a hunting trip-wise.
The difference between using a CC and a DC, in the simplest situation, is that everything you purchase is 2% cheaper if you just get a 2% cash-back rewards card. No points, no having to manage anything complicated, etc. Just add up everything you spend on your debit card in a year, multiply by 2%, and that's free money you'd be getting. No one would ever get a debit card where you had to pay 2% more than otherwise, but that's exactly what you're doing. That's why people say it's silly to use a a DC over a CC. There are psychological reasons to use debit cards, no doubt - difficulty with managing money, etc. But from a purely financial standpoint, it is not a financially sound idea. But beyond the basics, the rewards can actually be quite large if done properly. The Advantage Aviator Red Card, for example, gives 60,000 American Airlines points for spending $1 (and a $95 annual fee). So you literally can travel to Europe or South America, roundtrip, for $96, during peak season. That's normally a $1000 ticket, so it's $900ish free dollars for no effort at all (or 2+ roundtrips within the US). To the OP, if you're not comfortable with paying off debt and losing your savings, at the very least look at 12-15 month 0% balance transfer, no-transfer-fee cards: https://www.magnifymoney.com/blog/balance-transfer/no-fee-balance-transfer-credit-card1322859387/ Get one of those, move your balance at no cost, and you'll save interest for a year, giving you a better chance to pay it down. Just do not spend ANYTHING on that card or that balance may incur interest. Get the card, move the balance, and then lock it away in a safe somewhere.
The biggest reason I don't use my debit card is because I don't like outsiders having a direct link to my source of money. Debit card number gets skimmed at a gas station...now I gotta deal with stupid Bank of A or wells fargo to put my money back. With a credit card I just call Chase and have them reverse the charge. Recently someone bought 5000 bucks of electrical equipment on my card in cali..i called chase..they sent me a new card. Thats it. Now imagine if 5000 dollars came out of my checking..for some people that's a huge overdraft! Same goes for direct connection to my checking. All auto pay goes through a seperate credit card. So I can keep a track of all the auto pay items and if my other card gets stolen, I don't need to spend days figuring out where all it was linked. Stupid verizon is the only thing that has my debit card info because of the $5 discount. But +1 Major. I don't know why I would give up all those perks when I know I am going to be spending that money regardless. Might as well get some free airline tickets.
