Hi Money Minder,
I’ve got an extra $6000 burning a hole in my pocket and I want to use it wisely. My wife and I are hoping to buy a new house in the next year or two. I’m torn between paying off her car (which is in my name) or tackling a few low balance credit cards to boost my credit score.
Right now, I’ve got around $23000 in credit card debt spread out over a few cards. If I pay off her car, which has a $400 monthly payment, it’ll be done by the end of the year. On the other hand, paying off a few low balance credit cards would free up some cash every month too.
What do you think would be the best move? I’m all ears for your advice!
Thanks,
Savvy Spender
Response from THE MONEY MINDER:
Hello There,
Congratulations on taking the proactive step to address your financial situation! It’s great that you have identified the extra $6000 that you can utilize to pay off some of your debts. When it comes to improving your credit score with the goal of buying a new house in the near future, it’s essential to consider the most effective approach.
In your case, paying off the debt with the highest impact on your credit score would be the most beneficial. Since you have $23,000 in credit card debt spread out over a few cards, focusing on paying off the low balance credit cards could have a positive impact on your credit utilization ratio, which plays a significant role in determining your credit score.
While paying off your wife’s car would eliminate a monthly payment and free up cash flow, tackling the credit card debt first could potentially boost your credit score and improve your chances of securing a favorable mortgage when buying a new house.
It might be a good idea to create a payment plan to gradually pay down your credit card debt while ensuring that you stay current on all your payments. By effectively managing your debt, you can work towards your goal of purchasing a new home within the next year or two.
Remember, every financial situation is unique, so it’s essential to consider your priorities and long-term goals when making decisions about paying off debts. Best of luck with your financial journey and all the best from THE MONEY MINDER.
