Should I Pay Off My Credit Cards or Downpayment

Building up your credit

Yikes! What a quandary you’re in, huh? You finally saved up enough money to pay off your credit card in its entirety but now you’re hearing that by doing so you could actually hurt your credit? Not exactly, but here’s the deal. By paying off your credit cards, you’re essentially giving up your right to the credit that you have built up by having the credit card. Say you owe your credit card company $5000 and you have $6000 in the bank. You could theoretically pay off the $5000 debt you’ve accrued but what happens when you find out tomorrow that you need to make an emergency room visit and pay $100 in cash up front? You’re already cutting into the $1000 left in your bank account. Instead of paying off the entire $5000, you could have paid, say, $3000 and made sure that your credit card and your bank account were working for you. Moral of the story? Let your available work for you! Additionally, by keeping a little bit of credit on hand, you’re actually proving that you’re able to carry a credit card balance and make minimum payments responsibly. This will only help improve your credit score and your credit report quickly and without much effort on your part!

Staying timely with monthly payments

Now, keeping a little bit of a balance on your credit card can be a good thing, but that doesn’t give you a good or particularly strong argument for missing scheduled monthly payments. By missing payments, not only are you hurting your credit, you’re also accepting late fees and penalties that will increase your debt and put you more at risk for suffering from bad credit in the long run. Instead, keep a healthy, manageable balance on your credit card that allows you to make monthly payments. Keep in mind that your interest rate will often cause your monthly payments to rise if you’re only making the minimum payment. But regardless, continue making payments and try your best to only use the card in the case of an emergency. Or, if you do make leisure purchases with the card, pay them off immediately to avoid sinking deeper into debt.

Seeing positive results on your credit report

Let’s say you never kept a balance on your credit cards. You think you’re being responsible, right? Well, your creditors won’t see it as such. Rather, they see you as someone who can handle paying off your minimum balance accordingly but can’t necessarily handle sinking anymore deeply into debt. So, why should they lend you X amount of dollars to buy a house or a new car? They’re not seeing you make any strides with your credit. Rather, you’re just paying off the balance right away. They want to see how you handle it on the months when you have a balance and can only afford the minimum payments. How do you react then? By proving your responsibility with a balance on your credit card, you’ll see increases in your credit score in no time!

Ready to start your journey towards achieving financial freedom?