Everyone knows that to get credit you must have credit. But does everyone know the smart way of paying down debt?


You just got your tax refund, or maybe a raise, or maybe you just worked overtime and had a few extra dollars weighing down your pocket. You’re smart. Instead of spending the money on something you really don’t need you decide to pay off some debts. Ok what’s the Million Dollar question? What debt should I focus on first. Well in our minds the choice is easy. Pay off a credit card; and preferably one with the highest interest rate first. You see paying off a credit card will allow you to use the money again if need be. If you paid off a car note or a student loan you can’t use that money again. Note an installment loan is given once and once it’s paid off-account closed. Your debt utilization ratio will be in your favor if you paid your credit cards first.

Closing a credit line is almost never the right thing to do

You pay off your credit card and you say to yourself: Self I’m not going to do this again; I’m not going to rack up all kinds of debt and interest charges I will just have to pay cash. Well this may work on the short term but what happens when you want to buy or lease a car? Buy a home? Or any other big ticket item? If you shut down your credit card your shutting down your credit. Credit line history counts. The longer you have your card open the more comfortable lending institutions will be with you.

Now for the almost never. Store cards are not a good thing. Remember you can’t take that store card and buy a ticket to Florida, or a metrocard or gas or many other things you may want. You can have a $10,000 credit limit in ABC store but you can only spend it in ABC store. The only way we recommend you keep a store card is if it has a MC/Visa/Discover or Amex symbol on it where you CAN use it elsewhere.

Not too little, Not too much

We recommend at least 3 cards, one with at least $1,000 limit. We recommend holding a max of 5 revolving credit lines. This includes overdraft or checking plus accounts. You don’t need 20 credit cards. Remember you need to manage your finances smartly. You can’t have too little credit nor can you have too much; even if most cards are at zero or near zero balance.

Make all payments on time

This one is a no-brainer to keeping your credit worthiness intact.

Is paying off old debts a good thing?

Sometimes it is and sometimes it isn’t. When you pay off a collection it doesn’t come off your credit report; as a matter of fact financial institutions look at is as an admission of guilt. It is still there. Sometimes it’s there multiple times because debt collectors sell and resell. And maybe only one debt collector has acknowledged it.

We can help you with a professional debt negotiator and go after them to remove it from your report.

We are LMF Credit. We are here to help. Visit us at www.lmfcredit.com

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