Do You Owe Too Much on Your Credit Cards?

It's often easy to dismiss how much we owe, until the bills come, or we have a need for a new loan, but handling your money with finesse will give you financial peace of mind.

According to the Fair Isaac Corporation (FICO) approximately 30 percent of our credit score is calculated based on how much we owe. But how debt much is too much debt?

Certainly, you are in the best position to determine how much debt you can afford to carry. However, if you are looking to raise your credit score, qualify for a good mortgage interest rate, or to ensure your financial future is at low risk, ask yourself the following questions:

Do you have high credit card balances? If you have credit cards that are maxed out or have balances close to the credit limit, you are sending the message to the credit world that you are over-extended. This will lower your credit score and raise your interest rates lickety-split.

Pay off or whittle down your credit card balances to at least fifty percent or less of your credit limit. (Meaning, if you have a credit card limit of $10,000, then your goal is to have less than $5000 in charges.)

Do you jump at zero percent financing? The offer in your mailbox may be too tempting to refuse. Why not shuffle your balances from higher interest rate cards to a zero balance offer?

First, this practice will ding your credit report, not help it. Paying down your credit is the most effective way of raising your score.

Second, most zero percent offers have unfavorable terms including processing fees, extremely high interest default rates if you are late with a payment, and high interest charges if you do not pay off the full amount by the promotion end date. This will result in paying more on your debt than you would have spent, had you stuck with your original plan and paid the debt down.

Do you open store accounts just to get a free gift or percent off your sale? The free umbrella they are offering is "oh so cute," but there's trouble around the corner if you fall for the promotions one too many times.