You may have been told that paying off your credit card in full is a good thing to do, or maybe you were told that you shouldn’t pay it off in full because having a balance helps your credit. The truth is neither is right or wrong, depending on your situation.
Let’s say that you have the cash to pay off your credit cards yet you have a great rate of 1.9% on the card. In this case the question would be which do you need more, the cash in hand or the credit for later? Either may work for some, but there may be others that could use the cash in hand for daily or monthly expenses, such as your car payment, mortgage or even food. That is a very low rate and you’re not paying much on interest, but there’s still a question of do you need to?
Paying off your card is usually the best option for most because it gets rid of the debt and helps boost your credit, giving you a higher credit score. Obviously this helps you obtain more credit easier if you keep this card paid off, if you need it down the road. That’s what these cards should be used for, not daily shopping habits or to kill boredom.
If you have a high interest rate on your card(s), and you have the cash, then paying off that debt is absolutely the best thing to do. The fact is – you are giving away money by keeping your debt high on these higher interest rates. You’re not gaining anything by doing this, unless you believe these billion dollar financial institutions need your money?
So it comes down to the following:
High Interest Rate? Pay it off, or at least pay off as much as you can as quickly as possible.
Lower Interest Rate? Pay off what you can, when you can.
Notice the underlying tone of each suggestion? “Pay off what you can, when you can. As quickly as possible.” But having a lower interest rate does help as you won’t be giving away as much money to these banks.
Having the cash in hand is always useful, but if that cash is just going towards having more money to spend on what you feel like, you’re already losing the finance game. Don’t do it. Be responsible and you’ll have more financial options down the road.