To Pay Off or Not To Pay Off

[Mackenzie Click-Mickelson]

where is this the law? in the united states-

The federal agency- CFPB (consumer financial protection bureau) has established special restrictions for banks providing credit cards to those under the age of 21. these restrictions require that they either have an independent ability to make minimum payments or have a co-signer who is at least 21 and agrees to become liable for the debt on the account.

this typically means that those age 18-20 can only report:

• Personal income from current work or regular allowances.
• Residual amount from scholarships and other financial aid (not student loans) after paying tuition and other college expenses.

there are countless under 21 year old members of the military, otherwise employed as well as college students who have applied for and independently secured credit cards.

The cosigner is what I meant by parental consent as that is who often will be the co-signer, my apologies I could have worded that better. Before the law once you were 18 you could get a credit card with no restrictions. The law was created with good intent but it has it's immense drawbacks as it can setback the age at which someone can get a credit card and can have real consequences to someone. My sister-in-law was denied a car loan because she did not get a credit card early enough. Her income was great, her credit history not at all.

Think about all the parents that won't let their kids even get a job especially when in school. Now that authorized user has become much more plentiful people can at least have some credit history going without the necessity of having their own card in their own name although they eventually should get a card in their name.

you're right-credit scores were not used in the manner they are today but for some of a certain age/gender it would have been a moot issue when it came to buying a house or a car or engaging in anything related to credit anyway. it wasn't until 1974 that a woman in the u.s. could legally obtain a mortgage without a male co-signer. as well-credit generally couldn't even be established by a woman w/o a male co-signer until the mid 70's (thank you for helping us out with that ruth bader ginsburg). a woman might be able to rent a place to live but was still hard pressed to get a landline in her own individual name back then, same went with utilities. i witnessed many widows of my mom's age who had spent 50+ years working and contributing timely to their household's expenses and financial obligations yet once their husbands died they were invisible and not credit worthy (a widow never disclosed to a credit card company, mortgage company or utility that their spouse had died-the implications were dire). women did not consider themselves privileged then or now in hindsight to have been w/o the implications of a fico score.

the implications and challenges fico places on individuals is a separate issue from the difficulty of living within one's means. an individual can have a stellar fico score but still be barely scraping by financially, an individual can have no or a low fico score and be financially secure.

You're preaching to the choir about women's limited opportunities but I would want to let you know that is a whole issue altogether. I have at length talked about that in prior posts.

The commentary by the PP throughout this thread to multiple posters was towards a credit score and being concerned with one because they don't have to worry about it, to them they own a house, they are retired and can't foresee themselves having to rent. Do you think into today's age growing up poor, getting married and having $200 (or the equivalent in today's money) would secure you a house or a place to rent? And all without having a good credit score much less one to begin with? Because that was what the conversation several days and into yesterday/day before/whatever was about. That a fixation on credit score is shrugworthy to the poster. But it is unfortunately a part of life nowadays. You cannot focus on living within your means if your credit score does not allow you to secure housing to begin with, you cannot put money into savings if your credit score precludes you from getting opportunities. Even your car insurance can be reliant on your credit score, your home insurance. I didn't ask for my score to determine my opportunities anymore than women asked for their gender decades ago to determine their opportunities. But that is what society has determined is the case and that was what society determined was the case decades ago. To question why people would even care about their credit score much is as what a prior poster said "Not caring about a credit score, in today's society, is a privileged position."

As for your last statement again I already said I agreed with the PP that having a great score doesn't mean you're rolling in the dough, but tell that to society because until the credit score stops barring people from getting things it very much is important to enough people.

 

[disney-inspired]

It depends on the type of debt.
Consumer debt - pay off ASAP. The interest rates are high (well higher than student loans)
Student loan debt - with student loan cancellation, I will still owe some. I'm actively paying it down, more than minimum. One day I'll have that monkey off my back.

 

[Ms Bibbidi]

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[Mackenzie Click-Mickelson]

But, the language that if we had credit before we are "out of touch with things" is very offensive.

I'm sorry you find that upsetting. My last comment to barkley hopefully explains a bit more. If anyone has paid attention to my prior posts they would know how I discussed the limited opportunities of women before. In fact there was a thread that morphed into that topic not too too long ago.

The topic of conversation was credit scores and wondering why people are so heavily focused on that. The answer is because that's how it is these days. When most of your experience is before that, when you got into housing, got into an established life before that was universally used for everyone as a means of determining your very ability to get that stuff may lead to a different experience although as DLgal mentioned it's not only young people and that is quite quite true.

Some of what posters were responding to throughout the thread. (italics and underline is mine):
"I accept that these things are important to young people who are just starting out, but they mean little-to-nothing to me:
- I've been paying utilities since college (that was the late 80s), so I don't need to put down a deposit.
- I am a homeowner and don't foresee renting an apartment /house, but IF I needed to do so, I could easily pay a year's rent in one lump sum. That would make me a pretty attractive client.
- I don't anticipate taking out a loan again, but, if I were to do so, the bank tends to look positively at a paid-for home, a small business, money in their coffers (and having had a banking relationship with the same bank since I was 17).
- I'm retired and may work here or there occasionally, but I'll never look for a clearance of any type.
- Someone might mention insurance. I've been with the same insurance company since I was 16. I think that counts more than my credit rating."

"Nope, more a result of working hard and making good decisions. Everything I have, I've worked to earn. Since I own a house, I'm not likely to need to rent"

And the reason I brought up the FICO timeline was more or less this comment: "growing up a poor in a farm family with too many kids and an alcoholic father who abandoned us, I know the word doesn't apply to my upbringing. I didn't start with any credit history -- on the day my husband and I got married, we had $200, one car and four jobs. As I said, we worked for everything we have." Imagine being able to replicate that situation now without any credit history. The pull up your bootstraps mentality it's a systemic problem with our society. DLgal said not caring about your credit score, in today's society, is a privileged position. MrsPete may not have grown up in a well off life and nothing should discount their struggles we can all empathize with that (but that was not the reason privilege was mentioned) but by their own multiple comments they have no need in their mind to worry about their score. My point of view was more or less they probably didn't have to worry about it when the groundwork was being laid for them due to the timing of it. I surely hope the PP doesn't find themselves in a bind where they need housing quick or a car loan quick but their experience may be different if their credit score was not in a good place.


Here's a timeline I found:
"1990-2010: Growth of credit scores

In 1995, Fannie Mae and Freddie Mac announced that lenders would be required to use FICO scores on residential mortgage applications, leading to a significant uptick in use throughout the 1990s.

In 2006, the three credit bureaus created VantageScore, a subsidiary LLC that developed its own proprietary credit score to compete with FICO.

Over the years, both FICO and VantageScore have continued to revise their methods and release new versions of their software. FICO Score 8, introduced in 2009, is still the most used FICO score version today."

In addition there's no end in sight for credit scores being used it would seem but it does look like there's way of helping someone get a better score:
2010-today: Consumer-permissioned scorable data
"Credit bureaus typically only consider credit lines when they compile their reports. But in recent years, they’ve introduced programs to let consumers add other types of accounts to their credit reports as a way to help improve their credit score calculations.

In 2018, Experian introduced Experian Boost, which allows you to add utility and subscription accounts to your Experian credit report. A few years later, a service called eCredable Lift appeared, offering similar features for your TransUnion credit report."

I think that's great that there's a recognition that more can be used to determine someone's financial risk.

You and I as well as barkley are unlikely to agree on the subject however whether we like it or not, whether we agree on the usefulness of it or not, whether we all can agree it can be a flawed, racially and gender unequal and has systemic issues it is the system by which many of people's opportunities are based upon. That was not always the case. If you want to know why people care about it that's why. I appreciate your viewpoint and barkley's although I hope you understand I am not minimizing the struggles of women of the past it's just a different topic. I also hope you and barkley do not take offense should I not respond further

 

[barkley]

Think about all the parents that won't let their kids even get a job especially when in school. Now that authorized user has become much more plentiful people can at least have some credit history going without the necessity of having their own card in their own name although they eventually should get a card in their name.

an individual parent's choice to not permit their minor to work doesn't dictate what their child does upon becoming 18-at which time they can begin to establish credit. as it currently stands-unless a minor's identity has been stolen or there is a credit bureau error then nothing that occurs prior to age 18 employment wise would count towards their fico.

Do you think into today's age growing up poor, getting married and having $200 (or the equivalent in today's money) would secure you a house or a place to rent? And all without having a good credit score much less one to begin with?

didn't hamper my oldest and her half dozen (at one time) roommates a few years back. 1st-4th year college students with little to no credit history and not a single parent willing to co-sign for that herd. it took time but they found a landlord willing to rent when they all pooled their $200 each together (actually it was a bit less per person) and offered to pay for a couple of month's rent up front as a show of good faith. no, it's not the norm. it's not easy-but it's not impossible.

you cannot put money into savings if your credit score precludes you from getting opportunities.

not every opportunity (which i guess you mean as income generating) is based on a fico score. i know many adults with no credit score who have been hired into a variety of jobs from entry level to professional absent fico impacting it. the fair credit reporting act prohibits employers from doing a credit check absent an applicant's written consent. don't want fico ruling your employment opportunities? opt to apply for the wealth of opportunities where it's not a condition of application.

My credit history about evenly straddles the 1989 FICO event you reference. But, the language that if we had credit before we are "out of touch with things" is very offensive.

i agree.

None of that history means a person who had a credit history prior to 1989 is "out of touch" with how things are today. If they are living, breathing still making transactions and on this forum, they also have some credit history after 1989.

according to my math unless someone has pre 1989 credit history exceeding 33 years then not even half their experiences have been absent fico's impact (btw-cheers to all the 84 plus year olds on this thread who fall into that category ).

Your generation is dealing with different issues and some similar issues.

in the end-aren't all of us living and breathing, despite our generational identifier subject to all this? i don't recall being given a 'magic ticket' when i hit 60 that made me exempt but it sure seems like some believe i was.

 

[barkley]

When most of your experience is before that, when you got into housing, got into an established life before that was universally used for everyone as a means of determining your very ability to get that stuff may lead to a different experience

what exactly is an 'established life'?

 

[Ms Bibbidi]

Ageist insults layered on ageist insults. Time to disengage in the conversation.

 

[QueenIsabella]

Ageist insults layered on ageist insults. Time for me to hit the ignore button.

Bingo!

 

[Anna131517]

It depends on the interest on the debt, usually.

Paying off a low interest loan early (like a mortgage, for example) is usually a very foolish choice.

On the other hand, paying off a loan on a depreciating asset (like a car) early is often the best choice.

Credit card debt is the worst and should be paid off as quickly as possible. Interest rates on credit cards are higher than most people can get in investment returns.

I disagree. It depends on the interest rate. We pay about $11/month in interest on our 0.9% interest rate car loan. We have no intention of paying that off early because even our savings account pays a higher interest rate than that. We have a 2.5% interest rate on our mortgage - very low - but do pay extra principle each month to pay it off early because over the life of the loan that will save an appreciable amount of money and the interest rate is higher than what we are currently getting for our savings. Every little bit counts. We never carry a balance on our credit cards. By avoiding paying interest as much as possible, and by paying as few processing fees as possible, we save a significant amount of money each year.

 

[afan]

I disagree. It depends on the interest rate. We pay about $11/month in interest on our 0.9% interest rate car loan. We have no intention of paying that off early because even our savings account pays a higher interest rate than that. We have a 2.5% interest rate on our mortgage - very low - but do pay extra principle each month to pay it off early because over the life of the loan that will save an appreciable amount of money and the interest rate is higher than what we are currently getting for our savings. Every little bit counts. We never carry a balance on our credit cards. By avoiding paying interest as much as possible, and by paying as few processing fees as possible, we save a significant amount of money each year.

And her first sentence says it's based on I interest rates. It's less common for a car rate to be lower than savings rate so in most situations it does make sense to pay it off sooner. There's always going to be an exception to all this.

 

[barkley]

but do pay extra principle each month to pay it off early because over the life of the loan that will save an appreciable amount of money and the interest rate is higher than what we are currently getting for our savings. Every little bit counts.

absolutely. we threw ever odd dollar that popped up at our mortgage. if a utility bill dropped a few dollars one month-that got thrown at it, if i used a few dollars less than i had budgeted for a monthly expense-throw it at it, rebate and class action checks....i found great joy playing with amortization calculators and seeing how even 10 or 15 dollars might take a day or two off, and then watching those days add up.

 

[DLgal]

I disagree. It depends on the interest rate. We pay about $11/month in interest on our 0.9% interest rate car loan. We have no intention of paying that off early because even our savings account pays a higher interest rate than that. We have a 2.5% interest rate on our mortgage - very low - but do pay extra principle each month to pay it off early because over the life of the loan that will save an appreciable amount of money and the interest rate is higher than what we are currently getting for our savings. Every little bit counts. We never carry a balance on our credit cards. By avoiding paying interest as much as possible, and by paying as few processing fees as possible, we save a significant amount of money each year.

If you are basing the decision to pay off a mortgage early on the interest rate of a savings account, I've got news for you about long term investing in a brokerage account and compound interest over time.

Put the extra into the stock market and in 15 or 30 years, you will have made more money than you saved in interest by paying off early. (Based on average stock market returns over time)

 

[mrodgers]

Not sure I agree. Easy credit seems to be what gets borrowers in trouble. People working to get their credit score up so they can borrow more than they really can afford. That sure was the lesson of the 2008 economic collapse.

In 2000 we were looking at buying our first house. I qualified for a $280,000 mortgage... making $12.75/hour

Realtors kept trying to steer us to expensive houses. I kept pointing out the $80,000 houses out in the sticks, which is where we wanted to be. They kept getting mad at me for not jumping on $240k or so house. I was smart enough to know I couldn't afford a $240k house at $12.75/hour. Not everyone is that smart, LOL.



A common statement is, if the interest is less than you make investing the money.... That works well with well off people. Doesn't work with normal people because I don't want a payment because I have $15k or whatever to buy a car, not lock my $15k up and try to come up with the $300 per month. I would have to have access to my investment immediately so I can make my loan payments from that instead of not having a loan payment.

 

[mrodgers]

Largely due to predatory lending practices and failure by banks to verify incomes? Yes, I remember that crisis.

I view that as a failure of people making smart decisions than failure by the banks. Why is it the banks fault people bought more than they can afford? As I said, I qualified for well over $200k, but didn't look at anything over $90k because I'm not a moron no matter how the banks acted.

 

[DLgal]

I view that as a failure of people making smart decisions than failure by the banks. Why is it the banks fault people bought more than they can afford? As I said, I qualified for well over $200k, but didn't look at anything over $90k because I'm not a moron no matter how the banks acted.

Banks were not doing their due diligence and even verifying incomes. That was their failure. You can't place the blame solely on (uneducated) buyers. There is a reason why it was called "predatory" lending practices. Is it a prey animal's fault that it gets eaten?

 

[tvguy]

In 2000 we were looking at buying our first house. I qualified for a $280,000 mortgage... making $12.75/hour

Realtors kept trying to steer us to expensive houses. I kept pointing out the $80,000 houses out in the sticks, which is where we wanted to be. They kept getting mad at me for not jumping on $240k or so house. I was smart enough to know I couldn't afford a $240k house at $12.75/hour. Not everyone is that smart, LOL.



A common statement is, if the interest is less than you make investing the money.... That works well with well off people. Doesn't work with normal people because I don't want a payment because I have $15k or whatever to buy a car, not lock my $15k up and try to come up with the $300 per month. I would have to have access to my investment immediately so I can make my loan payments from that instead of not having a loan payment.

We were pre-qualified for a $125,000 mortgage. My wife and I were both making $7.50 an hour at the time! Minimum wage was $3.35 an hour at the time in 1982. Our maximum price in our comfort zone was $100,000 and Real Estate Agent didn't show us anything above $105,000. Ended up getting our house for $101,000. But in 1982 you could get a brand new house for $50,000 here. It was only 1,000 square feet, 3 bedrooms, 1 bath, no carpet, no gutters and no dishwasher but it got your foot in the door as a homeowner. And a local developer build a condo complex with condos the size of a two car garage, yup, 400 square feet. They had murphy beds, and smaller than normal appliances in the kitchen. I think they cost like $18,000. They set up mock ups of those condos in the Sears stores here.

 

[mrodgers]

I have no interest owing debt in my name and my credit score is above 800. My name is not on our mortgage, we do not have car loans, and I pay our credit cards off in full each month. There is no need at all to pay interest to have a high credit score.

Has to be noted and your post is a good example of it....

You do not live debt free from the bolded. You are in debt for a month, then pay the debt. Repeat every month. Those of us who use credit cards to pay our expenses then pay them off at the end of the month or biweekly when paid are essentially debt free in spirit, but not debt free on paper.

Not having loans but having and paying off a rolling monthly debt is different than using your cash to pay all your bills and not having any loans or credit at all.

Another example. Quote states using and paying off credit cards. It's still credit and working for your credit score even if it's for only a month and you pay it before accruing interest to be paid.

I voted to pay it off as fast as possible. Unless the interest rate is very low. As far as your credit score taking a hit from paying off debt, I don't see that as true. I have had no loans for over 3 yrs and my credit score hovers around 830. We do charge almost everything so we can play the points/miles game, but always pay off the bills at the end of the month.

rodneygt

 

[barkley]

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[MrsPete]

And people who have enough legitimate money to pay in advance. I paid my kids college rent 6 months at a time. No discount, just didn’t want to fool with having to remember to pay it.

The apartment complex didn’t see it as a red flag. They loved it. Always had their rent on time.

Yes, our experience was the same -- perhaps it's different in college towns, but my daughters' college apartments were not even surprised when I (and the roommates' parents) wanted to pay the rent in one fell swoop. It's essentially the same thing people do when they're paying for a dorm.

If they'd been suspicious, a look at my banking history would've shown regular deposits from my employer /savings building over the years -- specifically so I could pay for my girls' college needs.

Realtors kept trying to steer us to expensive houses. I kept pointing out the $80,000 houses out in the sticks, which is where we wanted to be. They kept getting mad at me for not jumping on $240k or so house.

Of course realtors want you to buy the more expensive house /will do their best to show you more expensive houses -- they work on comission.

But if any realtor seemed even remotely "mad at me" for sticking to my budget, I'd drop them in a heartbeat. No one who's working for you has any right to be angry when you assert your opinions on what you want to buy.

Banks were not doing their due diligence and even verifying incomes. That was their failure. You can't place the blame solely on (uneducated) buyers. There is a reason why it was called "predatory" lending practices. Is it a prey animal's fault that it gets eaten?

Yes, they were greedy, but their hands were also tied by laws that forced them to accept some less-than-stellar borrowers.

You do not live debt free from the bolded. You are in debt for a month, then pay the debt. Repeat every month. Those of us who use credit cards to pay our expenses then pay them off at the end of the month or biweekly when paid are essentially debt free in spirit, but not debt free on paper.

Eh, this is splitting hairs. Right now I have used electricity and water for which I haven't paid -- but as long as I pay the bills before the due date, I'd say I'm debt free.

 

[mrodgers]

Eh, this is splitting hairs. Right now I have used electricity and water for which I haven't paid -- but as long as I pay the bills before the due date, I'd say I'm debt free.

I didn't make my point clear. The narrative was about credit score and not having debt, which you replied you were debt free with an 800 score. You have an 800 score probably from that credit debt you accrue then pay off, same as I do.

My credit score jumped 200 points when I lost or paid off all of my debt (lost mortgage, paid off credit cards I didn't rack up.) Probably would still be low if I wasn't rolling and paying $2-3000 a month on a credit card.