Speaker 1: Hey, hey, ba fam, it's Mandy here with another episode
Speaker 1: of Brown Ambition. This is our special B, A, Q
Speaker 1: and A, which means I am taking y'all's questions now.
Speaker 1: If you haven't submitted a question to us before, let
Speaker 1: me tell you how to do it. Go to Brown
Speaker 1: Ambition podcast dot com click ask us anything and head
Speaker 1: on over and submit your questions right there. Or a
Speaker 1: lot of y'all like to slide into our DMS on
Speaker 1: ig and that is fine too. You can find us
Speaker 1: at Brown Ambition Podcast on IG. I love taking y'all's
Speaker 1: career and finance questions. Y'all know I can. I can
Speaker 1: get at issues from both sides. I love any kind
Speaker 1: of questions you guys have for me. Just throw me
Speaker 1: the craziest questions, awkward relationship questions, awkward boss questions, whatever
Speaker 1: it is. I love it. Remember we can keep y'all anonymous.
Speaker 1: All you have to do is just let us know.
Speaker 1: I'll create a fun little pseudonym for you. You can
Speaker 1: be a super spy if you want to. That's fine,
Speaker 1: But hit us up with your questions, all right. I
Speaker 1: can wait to hear from you. In the meantime, let's
Speaker 1: jump on into this mail bag and see what y'all
Speaker 1: have for us this week. Got some personal finance questions
Speaker 1: for today since we spent a lot of time on
Speaker 1: career last week, so let's dive on in. Our first
Speaker 1: question comes from listener Denisha, who says, hey, Mandy, we
Speaker 1: all miss Tiffany, you're doing a great job. Thank you
Speaker 1: for pushing through for us. Oh, thank you, Denisha. All right,
Speaker 1: Denisha says, I will pay off my car and a
Speaker 1: personal loan in the next few months. I have three
Speaker 1: credit cards and a student loan remaining. My credit score
Speaker 1: is over eight hundred across the three credit bureaus. So
Speaker 1: my question is will I take a huge hit to
Speaker 1: my score when those accounts are paid off? Should I
Speaker 1: open new credit card accounts to preserve my history? Denisha? Okay, interesting,
Speaker 1: So this is a good problem to have. You're paying
Speaker 1: off your debt and you're worried that your credit score
Speaker 1: is going to be taking a hit because when you've
Speaker 1: got closed accounts, they kind of fall off your report.
Speaker 1: They can reduce your total amount of credit ode, which
Speaker 1: can have, you know, an impact on your credit score.
Speaker 1: But let's look at the big picture here. More than anything,
Speaker 1: paying off debt is good for your credit. Okay, it's
Speaker 1: good for your credit. However, in your particular case, since
Speaker 1: the loans that you're paying off are fixed loans. So
Speaker 1: one is you have a car note, so that's a
Speaker 1: fixed auto loan that you have, and a personal loan,
Speaker 1: which is another fixed type of loan. Because you're paying
Speaker 1: off those two types of accounts, and because they're very
Speaker 1: different than a credit card account, you may see a
Speaker 1: little ding to your credit score. Now, I don't want
Speaker 1: you to just keep these debts open because you're afraid
Speaker 1: of the ding, because obviously they come with an interest rate, right,
Speaker 1: So it's going to be more expensive for you to
Speaker 1: keep these this car note and personal loan open for longer,
Speaker 1: you know, just to get a more a better credit
Speaker 1: mix for your credit score. So think about your cost
Speaker 1: savings first and foremost. That's what I think is most
Speaker 1: important here. So pay off that car note, pay off
Speaker 1: that personal loan. So yes, most likely you'll see a
Speaker 1: little bit of a hit to your credit score because,
Speaker 1: like I said, your credit mix, so that's the types
Speaker 1: of different credit accounts you have, does factor into your
Speaker 1: credit score. It is not the most important factor. The
Speaker 1: most important factor is on time payments, followed by how
Speaker 1: much credit you're using versus how much credit you have
Speaker 1: access to, which is all about your utilization rate. So
Speaker 1: in this case your mix does matter, but not that much. Okay,
Speaker 1: it's another reminder of why it's good to have a
Speaker 1: couple different kinds of credit on your credit file to
Speaker 1: have the best possible score. But listen, if this is
Speaker 1: the price you must pay for being semi debt free,
Speaker 1: take it, girlfriend, take it, and then focus on those
Speaker 1: three credit cards. And by the way, you say that
Speaker 1: you have a student loan remaining well, a student loan
Speaker 1: is a kind of non revolving credit, just like your
Speaker 1: auto loan and your personal loan. So it's not like
Speaker 1: once you pay off those two loans, your car note
Speaker 1: and your personal loan, like you won't have any non
Speaker 1: revolving debt on your credit file. You still have your
Speaker 1: student loan, right, So that student loan is a part
Speaker 1: of your mix. So those credit cards, as we all know,
Speaker 1: when credit bureaus see a bunch of credit cards on
Speaker 1: a credit file, even if you're paying them off on time,
Speaker 1: still they like to favor and give a little bit
Speaker 1: of a credit score boost to people who have a
Speaker 1: good mix of credit who have beyond just credit cards,
Speaker 1: people who have a student loan, a mortgage, an auto loan,
Speaker 1: a personal loan. So at least you've got a student loan,
Speaker 1: you know there right now. But first and foremost, just
Speaker 1: focus on making those payments in full each month and
Speaker 1: getting those credit cards paid down. And I promise you
Speaker 1: your credit score will continue to be in the eight hundreds,
Speaker 1: if not now, then definitely in the near future. So
Speaker 1: just keep it focused on the big picture. Now you say,
Speaker 1: should I open new credit card accounts to preserve my history? No,
Speaker 1: big no, no no no no no no, no, no
Speaker 1: no no. So here's why. One, you're not really helping
Speaker 1: yourself here. The fact that you are opening new credit
Speaker 1: card accounts isn't really going to help you here because
Speaker 1: the types of loans that you're about to pay off loan,
Speaker 1: your car loan, and your personal loan, those are non
Speaker 1: revolving or like what they call installment debts. Okay, so
Speaker 1: you're not replacing the installment debt with a new kind
Speaker 1: of installment debt. You're actually just adding more credit cards.
Speaker 1: And like I said, credit bureaus and credit scoring models
Speaker 1: don't tend to favor lots and lots of lots of
Speaker 1: credit debt, so I wouldn't necessarily recommend you go out
Speaker 1: and open some new credit cards. And you also say
Speaker 1: to preserve your history. So here's one of the little
Speaker 1: known negative sides of opening new credit. When you open
Speaker 1: a new credit card, that's your youngest credit account, right,
Speaker 1: And immediately, what you're doing is you're lowering the average
Speaker 1: age of your credit So we talked about credit mix
Speaker 1: being one of the factors of your credit score. Credit
Speaker 1: age is also a factor of your credit score, and
Speaker 1: it's the average age of all of your accounts put together.
Speaker 1: So when you open a new account, it's like it's
Speaker 1: like having a new baby credit card, okay, And so
Speaker 1: the average age of all of your accounts gets younger,
Speaker 1: which can actually decrease your score in the grand scheme
Speaker 1: of things. It's not the most important factor. I on't
Speaker 1: think it's even the top three most important factors, but
Speaker 1: it is a factor in your credit score. So before
Speaker 1: you open new credit, just consider that I'm actually going
Speaker 1: to lower the age of my credit. Plus it's going
Speaker 1: to be a hit to my credit score because it's
Speaker 1: a new inquiry, right. So there are some downsides to it,
Speaker 1: so I don't necessarily think that opening credit is the
Speaker 1: smartest way to rebalance things. After you have this personal
Speaker 1: loan and your car loan falling off your credit report,
Speaker 1: I would just let things live and let live if
Speaker 1: you're really worried about those credit cards and how that
Speaker 1: may hinder or hurt your credit score, you could see
Speaker 1: how things go. You know, I don't know how long
Speaker 1: it will take for your car note or your personal
Speaker 1: loan to stop contributing to your credit score. Probably a
Speaker 1: little bit after you make those final payments and the
Speaker 1: loans the accounts are closed, but just wait for it,
Speaker 1: see how things go. What you could then do is
Speaker 1: take out another personal loan and consolidate the remaining credit
Speaker 1: card debt that you have. And with that consolidation loan,
Speaker 1: with that new personal loan, you'll get that nice credit
Speaker 1: mix again where it's not just credit cards, but you've
Speaker 1: also got an installment loan. And you may also save
Speaker 1: on interest rates because if you're able to take out
Speaker 1: a personal loan that's a much lower interest rate than
Speaker 1: your credit cards, then you get double win. You make
Speaker 1: your debt less expensive to pay down, and you get
Speaker 1: the benefit of adding to the mix of your credit
Speaker 1: and installment loan versus another credit card. Okay, Denisha, thank
Speaker 1: you so much for the question. Thanks for making me
Speaker 1: go back into my like the caverns of my brain
Speaker 1: and remember all these credit scoring models and rules. Yeah,
Speaker 1: it's not meant to be easy. This is why these
Speaker 1: credit scoring models are so complicated, because they don't want
Speaker 1: us to know all this stuff. So hopefully I broke
Speaker 1: it down for you in a way that was easy
Speaker 1: and simple to understand. Denisha, I really appreciate your question.
Speaker 1: Let me catch my breath, take a little sip of water,
Speaker 1: and I'll be right back with another of your personal
Speaker 1: finance questions. This is Brown Ambition all right, Va, fam,
Speaker 1: it's Mandy. I am back with another of your questions again.
Speaker 1: You can hit us up at Brown Ambition Podcast at
Speaker 1: gmail dot com or head over to our ig to
Speaker 1: submit your question. We are at Brown Ambition Podcast on
Speaker 1: the gram. All right, this question comes from a listener
Speaker 1: who would like to remain anonymous. So what's your fun
Speaker 1: spy super hero name going to be? For your pseudonym,
Speaker 1: let's call you wonder Woman? Why not? Wonder Woman says
Speaker 1: I am currently paying on debt, but I want to
Speaker 1: buy a house in the next three to five years.
Speaker 1: I live in North Carolina and the housing market is
Speaker 1: just as crazy as the rest of the country with
Speaker 1: it being a seller's market. I know your thoughts on DR.
Speaker 1: Do you all know who DR is? Listen, we do
Speaker 1: not speak his name. He is the voldemort of personal
Speaker 1: finance in our world. But anyway, just imagine, just think
Speaker 1: about it. Who could DR be? So back to our question.
Speaker 1: I know your thoughts on DR. However, he was my
Speaker 1: intro into finance and debt repayment. It's hard for me
Speaker 1: to save for a down payment without thinking that all
Speaker 1: of my excess funds should go toward my debt. Essentially,
Speaker 1: I'm feeling bad or guilty that I'm not following those
Speaker 1: DR steps to a t. I am now trying to
Speaker 1: listen to more folks in the finance space to expand
Speaker 1: my views. I have a little credit card debt. However,
Speaker 1: I have about seventy thousand dollars in student loan debt,
Speaker 1: which is down from ninety seven k a few years ago.
Speaker 1: My question is should I continue throwing all my excess
Speaker 1: money to my student loans and wait until I'm debt
Speaker 1: free to start saving for a down payment or is
Speaker 1: there a way for me to do both and still
Speaker 1: see progress? Do I have too many financial goals? Please help?
Speaker 1: I know I can't buy a house tomorrow, but I
Speaker 1: do want to start taking steps to eventual home ownership.
Speaker 1: Oh okay, wonder woman. Listen, you are not the first
Speaker 1: DR follower who has found their way to to brown ambition. Okay, welcome,
Speaker 1: it's nice here. We welcome you. We want you to
Speaker 1: thrive young, We want you to thrive, live your best
Speaker 1: financial life. Yes, achieve all of your goals, yes, but
Speaker 1: we don't want to do things to such an extreme
Speaker 1: extent that you are feeling guilty and feeling like making
Speaker 1: the right decisions on a personal basis for yourself are
Speaker 1: somehow bad or they are somehow wrong. And I think
Speaker 1: that's one of the issues that we have with DR
Speaker 1: and his advice is just that it can be so
Speaker 1: it's either this or you're the scum of the earth.
Speaker 1: You know, it's either this way or you're a hot
Speaker 1: pile of steaming garbage. And that is just not our style,
Speaker 1: you know, it's some people's style, and they seem to
Speaker 1: dig it. He is a very wealthy man. Okay, but
Speaker 1: we are open to a world where it's not either
Speaker 1: or when it comes to saving or pain down debt.
Speaker 1: But it's a both and kind of situation. And honestly, like,
Speaker 1: if you want to buy a house in North Carolina
Speaker 1: and if you're anywhere near Charlotte, that housing market is insane.
Speaker 1: So if you wait to start saving for a down payment,
Speaker 1: when are you ever going to have the money? Like
Speaker 1: It's it's like time as a ticking and the market
Speaker 1: is only getting more expensive. Right, So here's why I
Speaker 1: want to kind of break down my answer into So,
Speaker 1: you've got some debt, right, You got about seventy K
Speaker 1: of student loan debt, well, at least until May. We
Speaker 1: don't know about any longer, but at least until May,
Speaker 1: you haven't had to make payments on that debt for
Speaker 1: a couple of years now because of the pandemic. So
Speaker 1: with those extra funds you've been earning, I feel like
Speaker 1: there's nothing wrong with giving those extra funds a couple
Speaker 1: of different jobs. One of those jobs can be working
Speaker 1: on that credit card debt that you've been working to
Speaker 1: pay down, and the other job can be putting it
Speaker 1: in savings for your future down payment, and then that's okay.
Speaker 1: It's okay to have multiple, multiple goals at one time.
Speaker 1: That's just what it's like to be an adult. I
Speaker 1: feel like in the working world today, there's never just
Speaker 1: here's your one mission for today, and here's what you
Speaker 1: can focus on. All of us like, we all feel
Speaker 1: like our attention and our dollars are being pulled in
Speaker 1: multiple deaths. So for me, it would make sense to say, Okay,
Speaker 1: I've got some extra money this month, so how much
Speaker 1: am I going to put toward my credit card debt?
Speaker 1: And then how much am I going to put aside
Speaker 1: for my future savings? And if that makes you feel
Speaker 1: more excited about making progress toward your goal of saving
Speaker 1: for a house, it makes you proud to have that
Speaker 1: money sitting there in the bank, then yeah, I'm going
Speaker 1: to say go for it. Now there's the mathematical argument here, right,
Speaker 1: It's okay, Well, you've got credit card debt, and let's
Speaker 1: just go ahead and assume that the interest rate is
Speaker 1: double digits because it tends to be right, and you've
Speaker 1: got a savings account for your down payment, and your
Speaker 1: savings account rate is crappy because they all are because
Speaker 1: fed's been slashing rates since the pandemic started, and yes
Speaker 1: they're just starting to increase rates again, but it's barely anything.
Speaker 1: And I don't even think it's hit savings rates quite
Speaker 1: yet the impact of that. But you're not earning barely
Speaker 1: anything at all with your money in a savings account
Speaker 1: right Somatically, the logic says, put all your money towards
Speaker 1: your credit card debt, because that's what's most expensive, right
Speaker 1: And the sooner you paid off, the less money you'll
Speaker 1: spend in the long run on that credit card debt.
Speaker 1: But that's the mathematical side of things. And while I
Speaker 1: do think it it's great to follow the math and
Speaker 1: do things that make logical sense, a lot of the
Speaker 1: time money is emotional, and I know how emotionally rewarding
Speaker 1: it can be to see yourself putting dollars toward a
Speaker 1: goal of home ownership. Okay, So I want to acknowledge
Speaker 1: and validate those feelings and give you permission that I
Speaker 1: want you to give yourself as well, which is that
Speaker 1: it's okay to take the heart earn money that I
Speaker 1: have and know that I'm setting it aside for my
Speaker 1: future home down payment and start putting it aside, as
Speaker 1: long as you're not also taking your eye completely off
Speaker 1: that credit card debt. Now, it would be a different
Speaker 1: story if your credit card debt was a huge amount.
Speaker 1: You say, a little credit card debt, So I'm going
Speaker 1: to say, like less than a thousand dollars. I don't know,
Speaker 1: but something that you can reasonably be tackling on the
Speaker 1: side while also saving towards your down payment. I think
Speaker 1: one of the other things that can be really overwhelming
Speaker 1: about saving up for a house is knowing how much
Speaker 1: should I save, especially when you're in a very expensive
Speaker 1: real estate market. So what I would like to recommend
Speaker 1: you also do is start, like already kind of putting
Speaker 1: yourself in the position of, Okay, if I were shopping
Speaker 1: for a house, what's the average price of a house?
Speaker 1: And then what kind of loan would I want to
Speaker 1: take out? Do you qualify for any zero interest mortgage financing?
Speaker 1: If you're a veteran, if you live in a rural area,
Speaker 1: you may qualify for loans that have very low low
Speaker 1: interest rates. But let's say you don't. Okay, Well, there's
Speaker 1: actually loans like the FHA loan, which is like the
Speaker 1: most most popular loan for first time home buyers. That's
Speaker 1: a very low down payment. It's like three point five percent,
Speaker 1: so it may be a little bit less than what
Speaker 1: you may think you have to save. If you've been thinking, Okay,
Speaker 1: I need like twenty percent down, that's just what everyone does. No, no, no,
Speaker 1: no no, there are affordable financing options. So just start
Speaker 1: with like, Okay, realistically, if I want to own a house,
Speaker 1: what is a percentage that would be realistic for me
Speaker 1: to put down three point five five percent whatever it
Speaker 1: may be, and then make that the target, you know,
Speaker 1: for your savings account, and then just start working towards
Speaker 1: that goal. Your second goal, of course, is going to
Speaker 1: be the credit card debt okay, which you're going to
Speaker 1: pay down as you're bringing an extra income. So additional
Speaker 1: information in your question that didn't really get around to
Speaker 1: sharing is that you're working overtime at your full time
Speaker 1: job to bring in extra money, and you're working part
Speaker 1: time at a grocery store and you're side hustling with
Speaker 1: a dolt with a job at DoorDash. Okay, So with
Speaker 1: that extra money that you're bringing in, how much of
Speaker 1: that will you put to work on your credit card debt?
Speaker 1: And then how much of that do you want to
Speaker 1: put toward your home down payment. That's up to you.
Speaker 1: It may be like, I'm going to put fifty dollars
Speaker 1: toward my home down payment fund, but that's going to
Speaker 1: make me feel so freaking excited to take one step
Speaker 1: close toward whole my goal of home ownership, then do it,
Speaker 1: even if some personal finance gurus philosophy is to put
Speaker 1: every last dollar incent you have toward the debt. First
Speaker 1: we have to know ourselves right, and we have to
Speaker 1: know what motivates us, and we have to know we
Speaker 1: have to understand the emotional side to saving money. Neither
Speaker 1: of these is a wrong decision, Like saving for a
Speaker 1: house is not a wrong decision on any day of
Speaker 1: the week. Neither is paying down credit card debt. These
Speaker 1: are both right decisions. It's just up to you. You
Speaker 1: know how much you want to put in nature of
Speaker 1: those buckets, And either way I think it's like the
Speaker 1: right decision. Is it the mathematical best decision? Maybe not,
Speaker 1: But math is not the only thing that happens when
Speaker 1: it comes not the only thing that matters when it
Speaker 1: comes to personal finance. It's called a freaking personal finance
Speaker 1: for a reason, and that's why here a Brand Ambition,
Speaker 1: we get that. That's why we talk to y'all. We
Speaker 1: level with y'all, and we want y'all to understand that
Speaker 1: we see you, we feel you. I know what it's
Speaker 1: like to make those two choices, you know. So that's
Speaker 1: what I'll say on that topic. Thank you, wonder Woman.
Speaker 1: I'm so glad I chose that name for you because
Speaker 1: you are well wonder woman working to full time with
Speaker 1: one full time job plus two side hustles like you
Speaker 1: will achieve your dreams if you keep working that hard. Okay,
Speaker 1: So I thank you for sharing your story. Thank you
Speaker 1: for sharing your question, y'all. If you want to submit
Speaker 1: a question to have read on the show, hit us
Speaker 1: up at Brandnambisson podcast dot com. You can also go
Speaker 1: to ig we are at Brandabission podcast or email us
Speaker 1: directly at Brannamission podcast at gmail dot com. Until next week.
Speaker 1: I am Mandy Woodrif Santos. Thank you so much for
Speaker 1: listening to Brand Ambition.