Q: Hey CreditCardGuru, I have around $5,400 spread across 4 different credit cards and am working tirelessly to pay them down. How can I figure out which credit card I should pay off first?

A: That’s a great question. Some people have different theories as to which credit card to pay off first, but in my opinion, the “Golden Rule” for this is the following:

Pay the highest rate balances first.

But not everyone agrees with me. Dave Ramsey says this:

Pay off the smallest debt first to create the greatest momentum in your debt snowball.

Ramsey believes that paying off the smaller debts first will motivate you more to pay off the bigger debts. With all due respect to the great Mr. Ramsey, I think this piece of advice is utterly ridiculous.

If your goal is to pay down your credit card debt in the quickest amount of time possible, how can that be accomplished if high interest rates are causing it to keep growing? Don’t you remember, Mr. Ramsey, that is where the phrases “debt cycle” and “debt snowball” originate from – seemingly never-ending debt because the newly accrued interest charges mostly offset your payments?

Where it gets complicated…

Start with the highest rate credit card first and knock that out, next go after the second highest rate card, and so on. Seems simple enough, right?

Well unfortunately, there’s something else you need to consider when choosing which credit card to pay off first:

Credit Utilization Rate (CUR)

This term refers to the percentage of your credit limit being used on a given card. For example, if you have a credit card with a $10,000 limit and a $4,000 balance, that would be a 40% CUR. The reason I bring this up is because having a high CUR can negatively impact your FICO score, even if the high balance is only on one card and the others have $0 on them.

According to MyFICO (an official FICO website) using 10% or more of your credit limit might adversely affect your score. That being said, most personal finance pundits claim it’s okay to use up to 30% of your credit limit, because the impact on your score between 10% and 30% is trivial.

Now I know what you’re thinking “My credit limit isn’t big enough to stay below 30%!” Well that’s the reason I’m talking about it! Are you using 50%, 60%, 70% or even higher on an account? If so, you may want to give some extra priority to paying it down, even if its interest rate is not the highest.

Once your CUR on a card starts going past 50%, banks usually start viewing you as a higher risk (like you’re at the end of your rope with credit). Many forum posters have reported their credit limits being slashed to the amount of their balance, when they start hitting utilization in the 60’s and 70′s.

But sometimes even when you do have a high CUR on one or more cards, the credit card to pay off first still remains the one with the highest rate. If you aren’t planning on taking out any mortgages or loans within the next couple years, then maybe the credit score ding you get from the high CUR is worth it, if it means you will be saving money on interest by paying the highest rate card. Ultimately, you will have to weigh the pros and cons to decide for yourself.

Use 0% offers as long as they won’t encourage debt

As I stated above, the less interest you are charged then the quicker your debt will be paid off.

However for some people, 0% credit card deals encourage them to spend more. As long as you’re not one of them, then I would highly recommend shifting your highest rate balances to a 0% balance transfer offer.

After you do that, the rule for which credit card to pay first will remain the same: Pay the highest rate balances first. Since the 0% offers won’t be bearing interest, you can make minimum payments on them, while focusing on the next highest rate cards you have remaining.

Review the top 0% cards for transfers

Q: Is renting a car without a credit card possible? All I have is a debit card.

A: Is it possible? Yes. Is it easy to do? Definitely not! Here’s what you need to know if you plan on attempting it…

Why don’t car rental companies accept debit cards?

You would think that as long as they are getting paid, they wouldn’t care the method used, right? Well unfortunately they take a different mindset.

According to Thrifty’s website “Renting a car to someone with no credit card is risky for rental car companies. Not having a credit card is a red flag that you may be a credit risk.” Other companies may not be so blunt in telling you this, but you can bet their reasoning is the same as Thrifty’s.

Another reason that a car rental without a credit card is so difficult, I suspect, is because they want they assurance they will be able to charge you for extra costs after you turn in your vehicle – i.e. gas charges, smoking fees, damages, and so forth. If you paid with a debit card those charges (if applicable) might bounce if there isn’t enough money in your checking account. On the other hand, with a credit card they’re far more likely to go through unless the credit limit has been maxed out.

How to rent a car without a credit card?

The exact requirements will vary by company and location, but don’t be surprised if you are asked to provide any of the following:

• A credit check. Keep in mind that credit checks (not including those done by yourself) can have an adverse affect on your credit score. Too many credit scores will hurt your credit. This is why you want to save them for when you actually need them – applying for a loan, mortgage, credit card, etc. In my personal opinion, exposing yourself to a credit check just to rent a car is a bad idea.
• A security deposit charged to your debit card of probably at least $200, but it may be as much as $500.
• Extra proof of identity. I have heard stories of people being asked for utility bills, airline tickets and even pay stubs to prove their identity and their ability to pay.
• Insurance through car rental company. If you already have full coverage on your own car, odds are it probably covers you in rentals too. Regardless, to rent a car without a credit card, you may be required to purchase the rental company’s insurance coverage – that can increase the cost of your rental by as much as 35% to 70%.
• Additional restrictions. There could be other stipulations, such as age requirements, vehicle exlusions, and having to stay in-state.

Car rental companies that don’t require a credit card

There is no simple answer, because even among the same company the policies can vary based on location. Thrifty mentioned on their website (under the statement I pasted above) that they do indeed accept rentals at some locations with a credit check, deposit and additional restrictions. I have also heard that Hertz, Enterprise, and Budget don’t require a credit card at every location if you are willing to endure some of the stipulations mentioned above. Call around to see if the company and location you’re interested in accepts debit cards.

If you don’t have a debit card or don’t wish to use one, then there is one company that I know of that will accept cash; Rent-A-Wreck. I’ve actually rented from them one before (but using a credit card) when my car with in the shop and I didn’t have rental coverage on my policy. As their name implies, their cars are junk (mine was an old beat-up Hyundai) but if that doesn’t bother you and you need a car rental without a credit card, then they are probably your only option.

Hate credit cards? Try a charge card!

If you don’t like credit cards for whatever reason, then you may want to consider a charge card. They are a little bit different than a credit card, because you have to pay the bill in full each month. However unlike a debit card, charge cards have rewards, benefits – and yes – you can use them to rent a car. For an entry-level charge card check out my review of the Zync:

American Express Zync review

Q: Hey CreditCardGuru, how do I know which credit card is the right one for me? There are many that sound good but which will be best for my habits?

That’s an excellent question and there is certainly no “one-size-fits-all” credit card. For example, a card may have great rewards for the categories you spend, but there are other factors to take into account like cardholder benefits, annual fee, etc. Ultimately, finding the right credit card is a balancing act which takes everything into account.

Here are 5 questions to ask yourself that will make your choice easier…

Question #1: Do you have a tendency to get into debt (or think you will?)

First and foremost, this is the most important question you need to be asking, because if you carry a balance, the interest costs will almost certainly exceed the value of any rewards and benefits you are getting.

So which credit card is right for you if this is the case? None! You should probably be avoiding credit cards altogether, and instead using charge cards. Why? Because they give you benefits and rewards like a credit card, but the difference is their balance is due in full each month (so there’s no temptation to get into debt!). Here’s a comparison of the best charge cards.

Question #2: How is your credit?

This is the second most important question to ask, because if you don’t have good credit your options will of course be limited. Those with a recent history of bankruptcy and/or charged-off debt may have to start with secured credit cards. If you have those blemishes but they are at least two years old and your credit score today is at least somewhat decent, then cards for fair credit scores might be worth considering.

Question #3: Which type of rewards do you prefer?

As you know, there are credit cards for cash back, points, and airline miles. However the lines between them have become blurred over the last few years, because many offer the ability to covert points to airline miles, cash back to airline miles, and vice-versa.

Whatever you prefer, it’s important to read in-depth reviews for the cards you are interested in, because there are many tricks and traps to be on the lookout for like spending caps/tiers, reward conversion formulas, and more.

Question #4: Are you willing to pay for premium benefits?

The credit cards that charge annual fees are primarily geared towards travelers. If you don’t spend or travel much, then it might not be worthwhile to pay for a credit card with an annual fee.

On the other hand, if you are charging at least $1,500 to $2,000 per month and fly at least once per year, then some travel cards with annual fees might make sense. But which credit card is right for me if I travel? Well that depends on a number of circumstances… where you travel, which airlines/hotels you stay at, and so forth. Compare travel card reviews and hotel card reviews to see if any make sense for you.

Question #5: How important is customer service to you?

Good customer service should be standard for all credit cards, but unfortunately not many provide it. The time and mental energy it can take to communicate with a badly-trained CSR in India or the Philippines can be overwhelming and sometimes, they may not even resolve your issue!

According to JD Power & Associates credit card satisfaction survey for customer service (from last year, 2010, the latest available) the top 5 highest rated issuers are:

(1) American Express (2) Discover Card (3) U.S. Bank (4) Wells Fargo (5) Chase

I’m not a fan of the lackluster rewards offered by Wells Fargo or U.S. Bank, but Credit Card Forum does advertise cards for AmEx, Discover, Chase, and many others.

So which credit card is right for me?

That is something only you can decide. To help get you started, this site has hundreds of reviews to make finding the right credit card a bit easier…

Review credit cards by category

Q: Where can I find credit cards with a $500 credit limit that are easy to get approved for? I think this would be best to control my spending but will the low limit be OK for my credit score?

A: There are two different questions here so let me break it up and answer each part separately…

$500 credit limit: bad or good for your credit record?

The answer isn’t clear cut and here’s why – a $500 limit credit card won’t be the best for building credit, however, neither is having a high credit limit with a lot of debt. There are pros and cons going either way.

If you think having a high credit limit will cause you to spend excessively and get into debt (and it sounds like it will, since you asked the question) then I think it’s a smart decision to have a low credit limit of $500. In fact, I commend you for being honest with yourself and admitting it could become a problem. Most Americans in your shoes would never confess that!

As far as your credit history and building it, having a low limit will adversely impact your ability to get approved for credit in the future for higher amounts (i.e. car loan, mortgage, or a higher limit credit card). However there are some alternative ways you could bypass this issue…

Have a family member add you to their account, but not give you the card
If you want to have a high limit credit card on your record, but don’t actually want the card, then you could have a trusted family member add you to their account and they would never give you the card.

I am normally against adding authorized users, because if the person rakes up debt and flakes, the original account holder is left hanging (and that could ruin a relationship). However if you are never given the card in the first place, I don’t see how this could be a problem in your circumstance.

Have loan(s) of higher value
If you already have a car loan or student loan on file, then you will have a record of higher credit being given to you. However loans are considered installment credit. Credit cards are revolving credit. You need both to obtain a high score, so consider doing the authorized user idea mentioned above, too.

Aside from that, a card with a $500 limit may adversely impact your credit in another way – credit utilization. The percentage of credit used on a credit card is called credit utilization. You want to aim and keep this number below 30% at all time. Obviously if you have a credit card with a $500 credit limit, that could be hard because it would mean never using more than $150 of the limit.

How do you get around this predicament? Well, it’s typically the billing cycle’s closing balance that is reported each month to the credit bureaus. I suppose you could make an early payment each month before your billing cycle closes, to bring the balance below $150. That way when the cycle closes, it would show 30% or less for the credit utilization.

Getting credit cards with $500 credit limit?

Although it would be a very unusual request, I suppose it would be possible to ask for a $500 credit limit on any credit card (if you can qualify for the card). The problem is that you may be tempted to increase it, or the credit card company may increase it automatically when they do their “account reviews” which typically happen 3 or 4x per year. Conclusion? An unsecured credit card would be risky for your situation.

I would recommend you consider a secured credit card. Not only would it be easy to get, but you could also set the limit at $500 and make sure it stays there.

• With a secured card, the approval is guaranteed even if you have bad or no credit history.
• You put up a security deposit and that amount becomes your credit limit. As long as your account remains in good standing, your security deposit will be fully refunded to you when/if you ever choose to close the account. With some secured cards, your deposit will even be earning interest while it’s in there.

For these reasons, I believe your best bet for a $500 limit credit card would be to get one that is secured. Good luck!

Compare secured credit cards

Is Capital One good or bad? Here’s what you need to know about the company and their credit cards…

A reader recently emailed me this question and before answering, I first asked her “What is it that you have heard about Capital One?” Her response? She remembers hearing they are for people with bad credit and called “Crap One” for the customer service.

Is there any truth to that?

The Capital One of today is a totally different company than you may have been familiar with in the past.

Years ago (think 90’s and early 00’s) Capital One experienced good growth, by heavily catering to the subprime customers – those with less than stellar credit scores.

Because many of their customer’s were in the sub-prime crowd, as you can guess there were rampant complaints about late fees, interest charges, etc. and this tarnished the company’s reputation.

There’s no denying that in the past, their customer service left much to be desired. But in all fairness, the company took the beating extra-hard – probably unwarranted – simply because their customers who were using their cards irresponsibly chose to blame Capital One rather than themselves.

Where does the company stand today?

Over the past few years, Capital One has worked hard to improve their reputation and their customer base. Rather than focusing on subprime customers, these days their emphasis seems to be the prime crowd – those with good credit.

Let’s review the pros and cons for Capital One, as the company stands for 2012:

Advantages:

• Caters to different credit scores – Whether you have a good or bad score, chances are that Capital One has a credit card to fit. They offer secured cards, for rebuilding credit. For good credit, there are various choices for cash back and travel rewards.
• Different reward programs – Is Capital One good for rewards? Well for those with good credit, there is diverse selection of reward programs available. Not all of them are the best, but some like the Venture card (for excellent credit) offer good rebates.
• Improved customer service – A number of forum members have reported that on the higher up prime-level cards, they get American based customer service.

Disadvantages:

• Fees for some cards – Some of their credit cards do carry a fee. For example, those which are secured and for lower credit scores, there might be a fee involved. Also, their best reward cards have an annual fee.
• Benefits might be limited – Is Capital One a good for benefits? Well, that depends on the card. Their basic ones tend to just have the standard benefits. However with the fee-based cards for great credit, there are some extra bells and whistles thrown in. But they currently don’t have anything on par with say, an AmEx Gold or Platinum.
• Credit limits might not be high – If you have bad credit, you may end up with a lower limit and trying to get increases on it in the future may not yield results. Or at least, that’s according to what forum members have shared.
• Foreign customer service on some cards – In a perfect world, all products would come with American-based customer service. But unfortunately that’s not the world we live in. For the lower level cards especially, foreign customer service reps are common (but in all fairness, that’s how it is with every credit card company).

Verdict?

So is Capital One a good credit card company or not? Well I would say they are a good. The difference between the Capital one of the past and the one of today is like night and day. They still aren’t perfect, but they have came along ways and are continuing to improve their products.

As mentioned the Venture card is a big improvement and you can check out my Capital One Venture card review to learn more. However make sure you check out our rankings of the best credit cards available to compare side by side.