Don't spook credit companies

By PHIL MULKINS World Action Line Editor - 10/29/2009


Dear Action Line: I've always paid off credit cards as soon as bills arrived. I'm paying off dental and medical expenses, now, to the providers (not credit cards) but need one more procedure before the end of the year while my deductible is satisfied and my out-of-pocket maximum is satisfied. All will be paid by 2010.

This month I made minimum payments on cards with balances less than $1,600. But I'm about to add a new set of tires and plan to keep up the minimum payments until January, when I'll resume the higher amounts.

Recently both of these issuers "raised" my credit limits. Would it be a bad move to let them know I'm not in danger of defaulting and plan to step up payments in January, or should I just let the snarly beasts lie? — M.S., Tulsa.

Lying dogs: Let them lie. You're not in default or even late on payments and it sounds as if you have a good credit history. This is what issuers and credit reporting agencies go by. You owe them only $3,200, and this is nothing compared with the $10,680 typically owed by households that run balances. People are finding their minimum payments raised from 2 percent of the total to 5 percent — quite a chunk when living on the red line.

Mum's the word: Calling the card companies is what you do when you are in default and want to negotiate a payment plan. Calling them when you're not even late might put you in their "default worry" list, resulting in higher minimums or even higher interest rates. Consider raising your minimum payments by $20 until your January higher payments resume.

The Consumer Reports' monthly newsletter Money Adviser for October lists three basic approaches to paying off credit cards:

Pay off highest-interest card first: This will result in the lowest amount of interest paid. It won't take much of an increase over "minimum" to pay it off and put it in a drawer. Remember, never close a credit card account, as the credit reporting agencies monitor what you owe, how much credit you have access to and how you pay your debts. If all your accounts are closed, it will hurt your credit score.

Pay off lowest balances: This is the "snowball approach" to paying off debt. Pay the minimum amount on the high-balance cards and put the bulk of what you have left for card payments on the smallest balance. When it is paid down, work your way up the line to the next smallest, next smallest, etc.

Pay off largest balances: Now that you don't have those pesky little payments nipping at your heels, get out the big pen. Balances equaling 50 percent or more of available credit should be next — attacked equally until they are both less than 30 percent of the available line. Eventually, you want them all down to amounts you can pay off in 30 days, but keep at least two open so the credit score computers will have data to go on.





Submit Action Line questions by calling 699-8888 or by e-mailing phil.mulkins@TulsaWorld.com or by mailing it to Tulsa World Action Line, PO Box 1770, Tulsa OK 74102-1770.




Email to a Friend
Main Menu