Your list of credit card debt questions may be long–and indeed it may be a while before you are asking what to do when they are all paid off. Goals are important though, and if you strategize, you will be able to get out of debt eventually. The credit card debt cycle usually starts off innocuously enough. You may want to transfer a balance due to a low (or zero) introductory interest rate, with every intention to pay it off quickly. Perhaps you just want a credit card for emergencies. Or you may just be starting out and working to build credit. It is a good feeling to know you have backup, as well as balances that can be paid off every month. Creditors are content, you are secure, and your finances are squared away. Unfortunately, that financial balance is all too easily interrupted when an unexpected (and usually expensive) issue arises.
Even if Cards Are Paid Down, Consider Leaving Accounts Open
If your credit is still good and you can come up with a realistic strategy for paying off your balances, it is important to understand how to handle open credit lines and how they will affect your score. After all, if you have worked this hard to keep up with payments and eliminate debt, you want it reflected positively on your credit report. And if you are concerned about buying a new car or home in the future, keep in mind that lenders will be focused on that FICO score. If you want to maintain it, it may be better to pay off those accounts, but leave them open.
Learn to Calculate Your Debt-to-Credit Ratio
Your credit history is important, but once you reach the point where you owe little to nothing on a credit card, you are in a good position—especially with that credit limit just sitting there, offering a good balance against whatever debts you may owe. Closing it may hurt your credit score. And if by chance this is your only credit card, it is a good idea to leave it open so you show a well-rounded range of credit on your report, varying by mortgage, auto, credit cards, and more.
Figure out your debt-to-credit ratio by adding up your total credit-card debt and dividing it by the credit limits available to you; for example, if you have $5,000 available in credit limits overall and are using $1500, then your debt-to-credit limit is 30 percent. While 30 percent isn’t bad, most experts recommend staying below that for good measure. As you begin adding up your debts and checking out your own ratio, you will gain a better understanding of why it could be important to leave one or more lines of credit open. To make the math easier with multiple card balances, here is a good calculator.
If You Are Having Trouble Paying Off Debts, Consider a Settlement Plan
If you are having trouble paying off your debts on your own though, and it seems like an uphill battle you will not win without help, contact an experienced debt settlement law firm like Fitzgerald & Campbell, APLC. We can review your case and discuss all the available options with you, to include debt settlement options. Our attorneys have decades of experience in serving clients as they navigate through challenging financial situations.