What is the best way to pay off this credit card?

Regicid3

I have a credit card with a $500 limit, it currently sits at $505. I will inevitably be charged a $25 over draft fee. I am currently sitting on $453 dollars to pay it off. Should I do it all in one payment, or spread it out? Does it even matter? I'm pretty sure it's 19.9% APR or something. It was originally 0% but the first time I went over, it shot up.

Thanks. 8-)

Pheezer

Get rid of it

All of it

As fast as you can

The longer you take to pay, the more you're going to pay in interest.

Dark Moon

Spread it out? What? As you've gone over your credit limit, chances are your interest rate will be adjusted to the default rate - code for "lower those pants and put this gag in." Thus, you'll be charged phenomenal interest on the balance of the card until it's paid off. Pay off as much as you can right away to ensure the amount of interest you incur and the credit score penalty you receive is minimized.

Depending on the agreement you signed with any other credit cards you have, all your other cards may adjust your interest rate to their own default rates. Check your credit agreements for a "universal default" clause and read it very carefully.

finalflight89

Lets put it this way: Would you rather pay 25% on a $400 dollar balance, or 25% on a $30 balance?

Regicid3

I heard something, one time, somewhere when I was younger.

It was obviously wrong.

Thank you.

winter_combat_knight

My advice, if you need to pay the fee, pay it and get rid of the card.

http://forums.penny-arcade.com/showthread.php?t=59740

This sums up my thoughts on credit cards

Crashtard

If you can pay that much on your card, do it. It's always good to get it as low as you can.

Vladimir7

Also, if you are always paying interest, make sure to call up your credit card company and ask them to lower your interest rate. I know a few people who have and most of them were able to reduce their interest rate by 25-50% (so 10%-15% instead of 20%)

ElJeffe

Regicid3 wrote: »

I heard something, one time, somewhere when I was younger.

It was obviously wrong.

Thank you.

The only thing I can think of is that if you're trying to build a credit history, maintaining a small balance and making regular payments can help you do so, while not costing you much in interest. Doing things like charging stuff to the card that you would otherwise pay cash for and then paying off most of that balance at the end of the month can be positive.

From a strictly cash-management perspective, though, you want to pay as little interest as possible, because interest is just money you give to other people in exchange for nothing at all.

Scrublet

ElJeffe wrote: »

Regicid3 wrote: »

I heard something, one time, somewhere when I was younger.

It was obviously wrong.

Thank you.

The only thing I can think of is that if you're trying to build a credit history, maintaining a small balance and making regular payments can help you do so, while not costing you much in interest. Doing things like charging stuff to the card that you would otherwise pay cash for and then paying off most of that balance at the end of the month can be positive.

From a strictly cash-management perspective, though, you want to pay as little interest as possible, because interest is just money you give to other people in exchange for nothing at all.

To clarify: as I understand it, there is no difference between maintaining a small balance and making regular payments, and simply paying off everything immediately after putting it on the card. You don't get "rewarded" for paying the interest; you get rewarded for having stuff on the card and getting rid of it.

For example, Bob keeps a steady balance of $50 on his card, continuously making payments and buying new things. This is costing him some (tho in his case, little) interest. Joe continuously buys things of various amounts; however he treats his card almost like a debit...the second he puts something on it, he pays it with the cash in his account. Dan has a credit card and never uses it. Tard doesn't have a credit card. Here is what I believe happens:

Bob and Joe are treated the same. They are showing they know how to gain and lose credit responsibly, and build their score appropriately.
Dan is almost as cool as Bob and Joe. He has a card and hasn't fucked it up. However, he hasn't really used it either, making it easier to not screw up. Who knows what Dan will do if he ever decides to use it? His score improves, but not as much as Bob and Joe.
Tard has no credit history. He fails. His score will not be very high because lenders don't know him.

I'm not disagreeing with the above post, just elaborating as I understand it after having it explained to me. It is definitely good to remove the debt as fast as possible. Btw, if you're Joe, you're probably earning rewards points for all the stuff without paying interest. I've gotten hundreds of dollars from reward points simply because I don't see why I should pay with cash if I can use the credit and pay the credit with cash.

Vladimir7

Exactly. I rarely ever use cash anymore (basically only at things that require cash, or if I am making <$5 purchase)

I receive a 2% dividend at the end of the year.. So if I put 8 grand on my card, over the course of the year, I get a cheque back at christmas for $160... Not too shabby.
So why spend cash? I don't get any of it back, I don't improve my credit score... there is very little benefit of using cash.

truck-a-sauras

If this is the first time you have ever gone over the balance I would call the credit company. If you ask them to waive the penalty charge they just might. I've had fees waved before for the same type of situation. I've told friends of this before who have gone over limit also and the fee only ever seems to get waived for first time offenses or people who aren't habitually late on payments.

musanman

There is absolutely no positive to keeping money around on a credit card to gain interest.

The best way to have a credit card is to basically treat it like a debit card. Every dime you charge on it will get paid off. I consider my credit card a debit card, but I can pay it in intervals of 30 days built up instead of straight out of my account. Any more than that and it's a shitty investment loan with high interest.

I am winning against Chase right now by charging thousands and thousands of dollars, getting rewards checks every couple months, and them not making a dime off my ass (since I never rollover interest to next month). This is the best way to build credit, they will raise your limits and try to get you to spend more that you can't pay off right away.

If you have to have debt go to next month, because you just need an extra hundred or so dollars that's ok. That's the benefit of a credit card really, being able to have a little extra cash until a paycheck or something.

Just pay it off as soon as you reasonably can (don't be a broke ass for 2 weeks just to save $4 in interest).

Edit: also regarding your late fees, call them and say you are cutting up the card if they don't drop it. They will absolutely drop the fine. Either way there are plenty of credit card companies out there. Pay off your debt, but you're done with them when it's gone.

Quoth

musanman wrote: »

There is absolutely no positive to keeping money around on a credit card to gain interest.

The best way to have a credit card is to basically treat it like a debit card. Every dime you charge on it will get paid off. I consider my credit card a debit card, but I can pay it in intervals of 30 days built up instead of straight out of my account. Any more than that and it's a shitty investment loan with high interest.

What he said.

Things that negatively impact your credit score: not paying off your balance in its entirety, and charging almost to the limit of the card on a consistent basis. So try not to max out your card every month, because it hurts you in the end. And always pay off the entire balance unless you're reduced to eating ketchup packets that you steal from McDonald's.

Houk

Yeah, I ended up getting in a good amount of credit card debt when I moved out to California, and now it's manageable but I'm losing so much money to interest, it sucks ass. Even if you can "afford" to pay it off slowly, do everything you can to pay as much as possible right now.

tsmvengy

musanman wrote: »

There is absolutely no positive to keeping money around on a credit card to gain interest.

The best way to have a credit card is to basically treat it like a debit card. Every dime you charge on it will get paid off. I consider my credit card a debit card, but I can pay it in intervals of 30 days built up instead of straight out of my account. Any more than that and it's a shitty investment loan with high interest.

If I could do it any harder I would. Jesus, didn't anyone teach you guys about credit cards? They exist to FUCK YOU OVER. This "balance" bullshit is crazy - buy your shit with the credit card, then PAY IT OFF when the bill comes.

nuclearalchemist

tsmvengy wrote: »

musanman wrote: »

There is absolutely no positive to keeping money around on a credit card to gain interest.

The best way to have a credit card is to basically treat it like a debit card. Every dime you charge on it will get paid off. I consider my credit card a debit card, but I can pay it in intervals of 30 days built up instead of straight out of my account. Any more than that and it's a shitty investment loan with high interest.

If I could do it any harder I would. Jesus, didn't anyone teach you guys about credit cards? They exist to FUCK YOU OVER. This "balance" bullshit is crazy - buy your shit with the credit card, then PAY IT OFF when the bill comes.

I completely agree. I use my credit card as though I have the money in hand, and keep track of a budget with my fiance. Compound interest is one of the most powerful forces in the world.....

ElJeffe

I have heard that credit card companies are more likely to offer you awesome deals if they see you as someone who will make them money, hence the keeping-a-small-balance thing. If you always pay off your card each month, you aren't making the credit card company much money compared to someone who maintains a balance, and so they have less incentive to offer you low interest rates and the like.

Is this not true?

Houk

ElJeffe wrote: »

I have heard that credit card companies are more likely to offer you awesome deals if they see you as someone who will make them money, hence the keeping-a-small-balance thing. If you always pay off your card each month, you aren't making the credit card company much money compared to someone who maintains a balance, and so they have less incentive to offer you low interest rates and the like.

Is this not true?

Well I know that as I neared my credit limit a few years ago, my limit would magically jump up. And over the last few months I've noticed that my main card's APR has dropped like 6%.

My ex, meanwhile, had to kick and fight with the credit card company to increase her $500 limit when she was moving because she paid it off completely every month. So my completely anecdotal evidence would seem to agree.

Phoenix-D

ElJeffe wrote: »

I have heard that credit card companies are more likely to offer you awesome deals if they see you as someone who will make them money, hence the keeping-a-small-balance thing. If you always pay off your card each month, you aren't making the credit card company much money compared to someone who maintains a balance, and so they have less incentive to offer you low interest rates and the like.

Is this not true?

If you never HAVE interest on the card, lowlowlow interest rates are irrelevant.

For what its worth, I have a 800+ score and have had a month-to-month balance a grand total of twice. Ever.

Cryogen

ElJeffe wrote: »

I have heard that credit card companies are more likely to offer you awesome deals if they see you as someone who will make them money, hence the keeping-a-small-balance thing. If you always pay off your card each month, you aren't making the credit card company much money compared to someone who maintains a balance, and so they have less incentive to offer you low interest rates and the like.

Is this not true?

Yep, not true. If you're accruing interest already on your card, they have little incentive to offer you a lower rate, because they're already making money off you*. If you always pay off your full balance before each interest free cycle, you are making them no money. Therefore, it is in their interests to make it more attractive to you to keep a balance, by increasing your credit limit and offering lower interest rates.

Its always best to pay off the entirety of your credit card balance before you will get charged interest. Personally, i clear mine once a month as it is easy to remember that way.

* Thats not to say that you cant get a reduced interest rate ever if you leave a balance on your card, you can, depending on just how much balance you are leaving. Its still best if you leave no balance.

supertall

Don't credit cards get 1-2% of the purchase price of anything you buy with your card? So even if you never carry a balance they're still making money off your card?

Cryogen

Yes, but it doesnt come out of your pocket so its not particularly relevant to the thread. (it is a good point though)

Although one could argue that the 1-2% that the merchant pays is passed on to the consumer by building it into the price of the goods. Heck some places just charge you a surcharge for using your card, then you *do* pay directly for it. Hmm... getting off track now

Regicid3

=(

OK.

I'm sorry.

Thank you.

=(

I've gone over a few times accidentally, pure stupidity and irresponsibility on my part. I have never been late on my bill though. How do you think my credit score fares?

Scrublet

Houk wrote: »

ElJeffe wrote: »

I have heard that credit card companies are more likely to offer you awesome deals if they see you as someone who will make them money, hence the keeping-a-small-balance thing. If you always pay off your card each month, you aren't making the credit card company much money compared to someone who maintains a balance, and so they have less incentive to offer you low interest rates and the like.

Is this not true?

Well I know that as I neared my credit limit a few years ago, my limit would magically jump up. And over the last few months I've noticed that my main card's APR has dropped like 6%.

My ex, meanwhile, had to kick and fight with the credit card company to increase her $500 limit when she was moving because she paid it off completely every month. So my completely anecdotal evidence would seem to agree.

She had to kick and fight for [CREDIT BLACK BOX]. I doubt that her paying it off completely was the reason. Maybe she had had earlier credit problems you don't know about. Maybe her income wasn't good enough. Maybe she has more loans. There is not necessarily causation here.

Quoth

She may even just have a jerky bank. I have a credit score over 800 and yet the credit union where my mom works won't give me a credit card with a limit over $500 unless I fill out a mountain of forms. So I just got a different card elsewhere.

Namel3ss

My wife and I racked up about 5 thousand on the credit card when we were in college and another couple thousand while we were getting moved after graduation. It is hard to pay off! Now that we are both working we should have it paid off completely in 11 months according to the excel spread sheet that we created, which tracks every expenditure and income. One thing that we did was transfer the majority of the balance to one of those 0% for a year cards (which is a lie because there is a 3% transfer fee, but this is still a hell of a lot better than 12-15%). I would recommend the same to someone in a similar situation of a large difference of income and you know that you can pay it off. If worst comes to worse, you can always transfer it again to a different 0% card; those offers arrive nearly every day in the mail.

Once you get out from under the credit card though, never carry a balance on it again unless it is a dire need. I have been thoroughly scared!

tsmvengy

Phoenix-D wrote: »

ElJeffe wrote: »

I have heard that credit card companies are more likely to offer you awesome deals if they see you as someone who will make them money, hence the keeping-a-small-balance thing. If you always pay off your card each month, you aren't making the credit card company much money compared to someone who maintains a balance, and so they have less incentive to offer you low interest rates and the like.

Is this not true?

If you never HAVE interest on the card, lowlowlow interest rates are irrelevant.

For what its worth, I have a 800+ score and have had a month-to-month balance a grand total of twice. Ever.

Correct, it shouldn't matter what your interest rate is, because you shouldn't be carrying a balance in the first place.

ALSO, if you are someone who pays your card off every month, their incentive is to offer you better and better offers (cards with cash back/rewards, etc.) in the hopes that you will buy even more (as they are making money on the transaction fees.) Those people are the ones they want to entice to buy EVERYTHING with a credit card. Also they offer you tons of credit in the hopes that you will use it, carry a balance, and have to pay interest.

VThornheart

Regicid3 wrote: »

=(

OK.

I'm sorry.

Thank you.

=(

I've gone over a few times accidentally, pure stupidity and irresponsibility on my part. I have never been late on my bill though. How do you think my credit score fares?

No need to apologize! They're just repeating themselves and liming it because it's EXTREMELY important that you (and those others who may have similar questions as the one you have but aren't voicing it) know that the answer being given here is utterly crucial. Pay it off now is very important. No one's upset at you if that helps.

You're going to want to be very, very careful in the future to make sure that you don't go over your credit limit anymore. You can find out what your credit score is through one of the three major credit providers... I don't have their names offhand, but I'm sure someone here does... and if no one posts it by the time I get home, I'll post the links to them. You should be able to check your credit score with them for free once per year through the IRS. Just make sure not to go over the credit limit anymore. Ask for an increase if you have to (though I don't recommend it, it beats the alternative).

Gdiguy

VThornheart wrote: »

Regicid3 wrote: »

=(

OK.

I'm sorry.

Thank you.

=(

I've gone over a few times accidentally, pure stupidity and irresponsibility on my part. I have never been late on my bill though. How do you think my credit score fares?

No need to apologize! They're just repeating themselves and liming it because it's EXTREMELY important that you (and those others who may have similar questions as the one you have but aren't voicing it) know that the answer being given here is utterly crucial. Pay it off now is very important. No one's upset at you if that helps.

You're going to want to be very, very careful in the future to make sure that you don't go over your credit limit anymore. You can find out what your credit score is through one of the three major credit providers... I don't have their names offhand, but I'm sure someone here does... and if no one posts it by the time I get home, I'll post the links to them. You should be able to check your credit score with them for free once per year through the IRS. Just make sure not to go over the credit limit anymore. Ask for an increase if you have to (though I don't recommend it, it beats the alternative).

https://www.annualcreditreport.com/cra/index.jsp is the official one; you get one free check at each of the 3 companies per year, BUT I believe all three you have to pay to actually get your credit score (the report just lists open lines of credit/problems/etc)

musanman

Gdiguy wrote: »

VThornheart wrote: »

Regicid3 wrote: »

=(

OK.

I'm sorry.

Thank you.

=(

I've gone over a few times accidentally, pure stupidity and irresponsibility on my part. I have never been late on my bill though. How do you think my credit score fares?

No need to apologize! They're just repeating themselves and liming it because it's EXTREMELY important that you (and those others who may have similar questions as the one you have but aren't voicing it) know that the answer being given here is utterly crucial. Pay it off now is very important. No one's upset at you if that helps.

You're going to want to be very, very careful in the future to make sure that you don't go over your credit limit anymore. You can find out what your credit score is through one of the three major credit providers... I don't have their names offhand, but I'm sure someone here does... and if no one posts it by the time I get home, I'll post the links to them. You should be able to check your credit score with them for free once per year through the IRS. Just make sure not to go over the credit limit anymore. Ask for an increase if you have to (though I don't recommend it, it beats the alternative).

https://www.annualcreditreport.com/cra/index.jsp is the official one; you get one free check at each of the 3 companies per year, BUT I believe all three you have to pay to actually get your credit score (the report just lists open lines of credit/problems/etc)

Checking your credit score actually does have a negative impact on it. If you're in need of something that requires a check you might as well just let the bank do it and they'll tell you.