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Michelle Singletary, "Big Mama used to say it's not how much money you make that matters, but how you make do with what you have"

Questions & Answers

Credit

Question:

I have two credit cards with balances on both. Once card I owe $900 with a $10,000 limit and a 5.9 percent rate. The other card has $350 with a $14,000 limit at 9.4 percent rate. I want to use my tax refund to reduce the balance on both and/or pay off the smaller balance and pay down the larger. I also want to put some of my refund into my savings, which needs it. Any suggestions?

Answer:

Why not pay off both cards in total. You have $1,250 in debt on both cards. I don't know what you are getting back, but if you have some savings, enough for even one month of living expenses I would use the entire tax refund to pay off both cards. Debt isn't a pet. Don't keep it around.

Question:

We were recently told our credit score of 780 was not "good enough" to get the lowest interest rate on a car loan. May I ask what can we do to increase it, and exactly what is good enough? I always thought 830 was the highest you could go.

Answer:

Oh please, what you can do is find another lender. Were you trying to get the loan from a dealer because whoever told you that 780 wasn't a good enough rate is a bum.

Now, were you trying to get a zero-interest loan? Because sometimes they pull that, "You don't have a high enough credit score." With a 780 score you are just fine. Go shopping some more. Actually if you are a member of a credit union, get your loan there. And with FICO, the highest is 850 but for a car anything over 700 is usually very good.

Question:

I'm self-cleaning my bad credit. How much and how fast will the score increase and improve my line of credit? Also, do businesses take into account that although my score is low, I've finally paid off the bad debt?

Answer:

Not sure but are you asking me if you can get MORE credit if you score improves?

Unless you are talking about buying a home, stay debt free. Give yourself some time and pay all your bills going forward on time and you credit scores will increase. How long? It can take about a year. So don't take on anymore consumer debt. Just wait this thing out and over time your score will improve.

Question:

To get my debt under control, I took a personal loan at 12 percent versus the variable credit card rates. The personal loan gives me a set term to repay the loan, and saves me over $150 compared to making just minimum payments. My issue is one credit card has a low balance transfer rate of 4 percent, which if I adjust my payment over the same term I would save an additional $100 or more in monthly payments. However, the teaser balance transfer rate (and one late payment) has me in my current dilemma where the rate has increased to over 25 percent at times. Should I stick with my personal loan or go for lower payments with the credit card balance transfer?

Answer:

I think what you are asking is should you transfer the money from one card with a 25 percent rate to one with a teaser rate of 4 percent. If there isn't a fee, go for it.

And I would urge as much as you can to speed up the payment on the credit card and the personal loan. A 12 percent rate is still high. Just be a madman or woman about getting rid of this debt.

Question:

My credit card company continues to increase my credit limit (just recently, they increased the limit to 30K). Why? I don't charge much, and when I do, I pay it off when the bill comes in. Would it hurt my credit rating to ask them to lower the limit? No one else uses this card, but somehow, I just don't feel comfortable having a limit this high.

Answer:

As long as you don't have an outstanding balance on this card and you don't keep balances on any other cards, you can certainly ask them to lower your limit without any damage to your credit scores.

Unless otherwise noted the questions were answered by me in recent online discussions on www.washingtonpost.com.