December 19,2008
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The Tough Questions, Pt. 2 –
-- Even tougher questions.2) Is maxing (or almost) a credit account bad?
Definitely. Even if you pay it off every month. The rating agencies take a snapshot at some point (usually each month) and apply that data to your new rating. Then you're stuck with that result, till they update their rating again (which can take months). If you must max out your credit card for some reason, try to pay it down to 33% of your limit as soon as you can. Spread the cost across different credit cards, if possible. This one factor is the second-most severe common infraction (after paying late or not paying).
3) When you can only pay one of two loans, which one?
This is the tough question. The general pecking order is to omit the unsecured debt payment first. ‘Unsecured' means they can't take your property away (like your house or car). After this, seek the least pain. Usually people slide medical bills first because (in theory) you're guaranteed medical attention somewhere, even if you can't pay. Secondly, signature loans, because you already have the money (or benefit). Lastly, don't pay the credit card. If you're that hard pressed, you probably need the graces of emergency borrowing, which you can only get with credit cards. In general, pay secured loans first, then credit cards, then choose between signature loans and medical.
4) Note of interest: What if they jack my interest so I can't pay the minimum?
This is happening all over the country now. The first recourse is the call the credit card lender and ask them to lower you interest to where you can pay. Most of them would prefer to not drive you into default. The second course is to ‘opt-out' of the change. You will be allowed to keep your old interest rate, but the account will be closed when the card expires (good riddance, perhaps).