Improving Credit Score Two Charge Cards What Next?

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This topic contains 17 replies, has 4 voices, and was last updated by  Anonymous 8 years, 4 months ago.

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  • #413369


    definitely pay off your mortgage. In order to make a net gain over the course of the next 20 or 30 year, you’d have to get a return on your investments that was greater than the total interest being paid. It’s pretty hard to get a 6 percent return. Not to mention, the faster you pay off the mortgage the less total interest you’ll pay, look at that as your savings/investment.

  • #413370


    If the investments you make pay you more than the interest you’re paying each year, then you should invest the money. Remember also that mortgage interest is a tax deduction, so that might enter into your decision also.

    If, however, your investments are paying you less than a 6% APR return, you should pay off the mortgage. That will mean you most likely can’t itemize your tax return any longer. Do you make out much by itemizing your taxes? The standard deduction is so high now that most people don’t benefit much by itemizing.

  • #413371


    You should probably talk to a Financial adviser, who can look at your overall finances & make recommendations.
    I’d do that 1st.
    Perhaps you can do both? 50% on mtg, 50% for investing or 75%, 25%, something like that anyhow,….

  • #413372


    You couldn’t get even close to 6% on a secure investment today. But not long ago 6% would have looked like free money. It could well look like free money again if inflation becomes a problem. I’d say that if you have a fixed mortgage and you have more than ten years left to pay, then stick with it. If you have a floating mortgage and/or have less than 10 years to go, then pay it off if you can.
    But pay off credit card debt before anything else, any time.

  • #413373


    Simply not enough information about your debts, income, overall financial status to make any reasonably accurate recommendation.

    What I can say is that I question the overall general advice most give about paying the mortgage Without knowing the length of your mortgage and where you are in the amortization schedule, again, no way to give a reasonable recommendation. But the fact is, mortgage interest is paid heavily in the earlier years such that in the first months your payment can be in the range of 80-90% interest with very little going to principal.

    Likewise, after a mortgage has been paid for for 15-20 years, the major portion of your payment goes to principal with very little in interest.

    No doubt, the sure thing to eliminate risk is to pay the mortgage before doing any investing.

  • #413374


    Let me ask the same question in a different way:

    If you already had a paid for house, would you get a mortgage in order to put $ 120K in the stock market?

    In both cases, the choice comes down to “Do I want…
    A) A paid for house, and no stocks, or
    B) A mortgage and $ 120K in stocks.”

    That was the “apples to apples” comparison, pay off the house, or invest.

    Here’s the “apples to oranges, grapes, lemons, pineapples, and the whole fruit salad” comparison, the big picture:

    Here is what I would do, if I found myself getting $ 120K in cash:

    1) Pay off visa, mastercard, Sally Mae, discover, and capitol one.

    2) If there were any money left over, then I would top off the emergency fund. $ 25,000 cash in the bank, just sitting there.
    With that much cash, there’s nothing a credit card can do that a debit card can’t.

    3) Pay off the house, as much as I could, with what’s left.

  • #413375


    The WAY you asked the question suggest that people answering it are wasting their time but it is late and I can’t sleep so…..
    This is a BASIC money management question so the correct answer depends on your skills, income, tax rate, loan terms, ad a few other factors but to give you a serious answer here are a few starting points.
    1. It depends on HOW you earn your income and if that income is taxed and at what tax rate. If you earn W-2 income and can deduct the interest expense on the loan then that helps lower your NET taxable income and saves you money on tax’s so any funds used to prepay the loan would lower your tax deductions and increase the chances that it would lower your NET rate of return off the investment.
    2.It depends if you are living in the house or if it is a rental property. If you live in it then you can once again deduct the interest expense on your tax’s. If it is a rental property that positive cash flows then you are increasing your cost bases in the investment, increasing your Capitol risk without increasing your rate of return off the investment and would be decreasing your net rate of return in total.
    3. Skill set. Can you find and manage other investments wit the same capitol that you are thinking off prepay the loan with and get a better NET rate of return AFTER tax?
    4.Are there any “Pre-Payment Penalties” written into your loan terms?

    5.Do you have OTHER debt that is at a high interest rate or at the same or lower interst rate that are NOT tax deductible? Do you have liquid funds set aside in case of those emergencies that EVERYBODY ELSE has but NEVER are going to happen to you like, car breaking down, hospital, job loss, girlfriend getting knocked up?

    IF you NEED to ask this question then prepaying down your loan amount is NOT one of your biggest problems. You need to learn how to manage money and one place I HIGHLY recommend you start is spending $ 10 on a book called “The Richest Man In Babylon”. Or you can trust somebody you do NOT know, who’s skills and education are unknown, who wastes time answering stupid questions at midnight on a faceless message board.

  • #413376


    I am all for paying off as soon as possible ANY Debt. Therefore I will never have to worry about finances.
    If your Mortgage agreement has a “no prepayment penalty” clause, you may opt to pay down the remaining balance by perhaps half and keep the rest for a rainy day.

  • #413377


    Wait until you have the cash in the bank.

    This way you have enough leeway to adjust your sales price to find a buyer for the house and don’t have a set amount, you absolutely have to ask for, looming over you.

    Sell house, pay off mortgage and then use what is left over to pay off the cards. (which hopefully leaves you with enough for a down payment on the next house?)

  • #413378


    With the downturn in housing value, this is a chancy move. You would be better off sticking to a strict budget, and gradually paying off the credit cards. Do not charge anything you can’t pay off totally when the bill comes.
    Say you sell your house without a cushion between the amount owed, plus selling expenses such as transfer fees and commission, and the amount you receive for the house. You won’t have any money left for a down payment on the next house, so you will probably have to rent for a while.

  • #413379


    Even though the credit cards are carrying a higher interest rate, I would recommend staying away from adding more debt to the house right now. You are limiting how low you can go on the house price to get it sold, and in today’s market what you expect to get and the offers that do come in can be quite far apart.

    If you got a best offer that was lower than the two mortgages, you’d have to pony up the cash right now to be able to transfer title to the new owner. Without the second mortgage, if you ended up getting less than you expected but enough to pay off the first lien, you could still pay the cards as you have been.

    If you do decide to go the second mortgage route, don’t list your house for sale until you get that one closed. If the lender sees it listed, or listed within about the last year (they do check), they won’t want to make the loan. This is because they will know that there’s a chance it will be paid in full shortly and they would not have a period of time collecting interest to offset the costs of making the loan that are not passed on to you.

  • #413380


    Look at the figures. Figure out how much the loan will cost you to pay off your cards (fees and interest as well as an early payment fee, if there is one) as compared to waiting to pay off your cards.

  • #413381


    I’d wait until the house sells. After all, you could be there a while before it sells. Your house is a secured loan, the credit cards, unsecured. I wouldn’t risk it, especially with the state of the real estate market.

  • #413382


    It sounds like a shell game that you would be playing. Ideally, you will wait until you sell the house. At that point, you are dealing with “real money” and not speculated profits that may never arise. Something else to consider is that most home equities loans will be offered at zero cost, but the fine print states that you will have to pay a penalty if you pay off within the first 3 yrs. This penalty is usually the amount it cost to close the loan, which will be between $ 800-$ 1,000 in most states.

    Josh Burley

  • #413383


    Hello Mrfixit6;

    I would not suggest that you take a second mortgage since it will have closing costs anyway.

    Wait until you sell the house and then pay them off. You made it this far, you can wait till the closing to pay them off.

    Wish you the best!

  • #199235


    Ok 2005 I filed Bancruptcy (divorce ex hubby bad debts). Please don’t tell me how that ruins your credit, because I am proof that there is life after Bancruptcy. I have a car now that I have been paying on for the last year, I have 4 years to go at 10% interest I overpay so it could be paid off even sooner. I have an Orchard Bank card that my limit has been raised to $600 on. Last May I got a Target card that started at $200 and has been raised to a $500 limit and just qualified to jump to a Target Visa for $4000.00. My credit score right now is still pretty low, 620 average. My goal is to get into a house within the next two years. For this I would like my credit score to go up to around 675 or higher. My only other payment that is outstanding is for $6000 in student loans.
    What are my next steps? Another CC? Keep CC down and pay car/student loans more? Savings for home? Any advise is appreciated.
    Thanks guys. You have both given good advise in the past. My nerves have me a little going with the larger limit for my Target card. I can see that being a very dangerous card if I let it get out of hand. But I have been keeping my minimums low on everything else, so if I keep that attitude with my cc I think I will be ok. I am a little concerned as I live in Seattle and the cost of housing just keeps rising. But I will take your advise and continue on the road to saving and the cc dance. I have been thinking about opening an orange account and just socking $100 to $200 a paycheck away. That way the money is not so obviously right in front of mine or my hubby’s face. It’s working with my 401K for sure, I have almost $2000 after starting in March and I don’t even miss the money that is being taken out.
    One other thing. Orchard Bank when I initially opened my account had something in the paperwork about an annual charge, but they never charged it. Should I be concerned? Or were they just happy to not have to add interest and charges to a low credit account? I use that card for gas and groceries and pay it every two weeks.

  • #257312

    Smoovy is correct.

  • #257315


    Congratulations, however with the debt you listed above
    do you really WANT all that credit especially when you
    go to apply for a Mortgage? Don’t be maxing them out
    and keep paying cash for what you want. All that credit
    whether paid off or not will reflect the debt to credit ratio
    when you apply for mortgage. The Bankruptcy is on
    your credit report for 7 to 10 years. You want your credit
    score above 700 for a much better interest rate and actually go to a Bank and not some “Mortgage” Company, that may special in Mortgages but gouch on interest. I would not
    get the Target Visa at 4K. Too tempting to get in trouble
    You have your Orchard that is enough.

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