A (maybe) controversial post on debit and credit
You do not need to have some debt to have good credit. You need to be able to use credit to establish a credit score/record, but you do not need to carry around thousands of debts in loans or consumer credit to have a decent credit score.
Debt is stressful. Debt can make you go crazy, and having monthly payments sucks. Monthly payments annoy me. We bought a brand-new car in December because our old car, which I bought in grad school (cash $3,000), looked close to giving out. However, it is a Toyota and no longer looks like it will die any time soon. Back to the car. All good advice says buy a used car, and I agree, except in this case our crossover SUV from Nissan was cheaper than any other used SUV we looked at lol. The Nissan kicks range between $17k to $20,000 brand-new. It is super basic with some excellent features. We wish it had more power, but it works.
I was telling a friend that we plan to pay it off soon (we are about 52% paid up), and she said, but you need a bit of debt for your credit score. This is false. I agree that for most people, especially folks of color looking to make big purchases like a home, we do need a credit history. There are many ways to do this – your phone bill, your cable bill, buying groceries with a credit card, and paying it off at the end of every month. My credit score is over 800, which is more than enough for getting a house loan when the time comes. A bigger focus should be saving for a down payment and staying clear of unnecessary loans.
Ask yourself these questions before you make purchases – do you want to make monthly payments for say underwear? If you buy underwear from Victoria Secrets and do not pay it off at the end of the month, you will most certainly be in debt (plus interest) for underwear. This is not necessary. There are other reasons not to support Victoria Secrets, but being in debt for undergarments is a top one.
If you have consumer credit, I suggest that you buckle down and pay it off. People use different strategies like
- the highest interest first
- Smallest debts first –
- Or mixed methods.
Whatever methods you decide on, you will need to pause on using your credit cards or borrowing until you are paid off. I prefer making minimum payments on everything and putting extra $ on the smallest debt first. I like seeing wins, so this works for me. When I was paying off debt, I customized the Dave Ramsey snowball method. I closed off two of my cards and negotiated a lower rate with the companies. This brought my credit score down to 705, which sucked, but I knew I would fix the situation faster this way.
I am also no anti-credit card. I love free things, so the rewards work for me. Every year we take a couple of trips for “free” using rewards.
I will do another post on my fav credit cards – I want to hear from you- which credit cards have the best rewards?