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Choosing Between A High Credit Score And Being Debt Free

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By Andrea

Once you’re in debt, it’s difficult to get out of debt — especially while protecting your credit score at the same time.

I happen to believe that it’s worth it to let your credit score suffer a bit in order to dig yourself from under the weight of oppressive debt. It’s best to worry about your credit score later. 

Here’s why…


Motley Fool has a list of 9 ways to pay off debt.  All of these suggestions are sound, but they don’t necessarily work toward raising your credit score. 

For example, suggestion Number 8, says you should renegotiate the terms with your creditors.  (Some creditors will actually lower the amount that you owe in order to close an account you are having trouble paying).  The fact that you negotiated your debts will show up on your credit report and lower your credit score.
Meanwhile, MSN Money suggests that paying old debts can hurt your credit.  They say that settling your debts by making an agreement with the creditor to pay a lower amount will show up on your credit report.  They suggest instead that you should pay the entire amount, or wait until the debt falls off your report.  However, not paying an old debt can bite you in the butt when you go to buy a house.  And paying the full amount of the debt, when you have the option to pay less, will slow down your debt payoff plan.
According to the Me vs. Debt blog:

When you’re far in debt, the best financial decisions are not always the best credit score decisions. Sometimes it’s in your best interest to find a good balance transfer offer to help lighten the load of finance charges. That is rough on the FICO score. Make that 2 or 3 balance transfers and you can expect some turbulence.”    

Those who want to purchase a home or a car on credit in the short term, should be careful to pay down debts in a way that won’t adversely affect your credit score.  If you own your own home, and are willing to drive an old car for awhile, it may be smarter to pay your debts off now, and worry about your credit score later. 

Here are some credit safe ways to pay off your debts:  

  • Pay down your credit cards, but don’t pay them off.  Keeping your credit card balance at 30% proves that you can manage credit without using it all.

  • Do not close a credit card that still holds a balance.  Some people do this to keep themselves from using the card.  If you have a $0 credit limit and a $1000 credit balance, then you are over the limit and damaging your credit score. 

  • Keep your oldest credit accounts open.  If you have a credit card that you’ve had for 20 years, and another one that you’ve had for 20 months, and you’re trying to decide which one to keep open, keep the older one — regardless of interest rate.  The reason: Your length of credit is 15% of your credit score. 

Source: Credit Advice For Home Buyers: Don’t Pay Off Credit Cards