Disbands the Popular Belief that Paying Down Debt Will Always Benefit One’s Credit

Share Article men’s lifestyle and finance magazine alerts consumers to the little-known drawbacks to paying down installment loan debt, taking its inspiration from a recent MSN Money article which explains the difference between installment loans and credit card debt

Even stashing away an emergency fund in case you get a whopping dental bill, or need to fly across the country for a family emergency is a better idea than paying your loan off quickly and being left with nothing at the end of each month. men’s lifestyle and finance magazine today released its warning against consumers paying off installment loans quicker than their loan terms, giving explanations for why it may not help consumer credit to do so, and ways that the extra money could be put towards better investments.’s statement comes in the wake of an MSN Money article that pointed out that paying off installment loans can actually make the borrower seem less creditworthy.

Deanna Templeton wrote a recent article for MSN Money which explored the ways in which paying off loans could impact credit. Templeton reports that paying off credit card debt is much different than paying down installment loans, such as mortgages, cars, or student loans. She explains that credit cards are revolving accounts, so even if a card possesses a low or zero balance the account will still be open. Not only will it be open, but a low or zero balance will look very good on the consumer’s credit. However when installment loans are paid off, the account is closed. It will stay on a consumer’s credit for up to ten years, but after that will disappear, giving the consumer fewer accounts on their credit score. understands that most people would be in favor of paying of an installment loan faster than the loan obligation terms, but encourages consumers to heed the fact that it might not be the wisest decision.’s Senior staff writer is quoted as saying, “I think it’s very natural to not like the feeling of being indebted to someone or something, whether it’s credit card debt, student loans, or owing a friend money. I also think it’s natural to want to pay these debts off as quickly as possible, to be allowed to keep what you earn instead of having to pay off a loan. But what most people don’t understand is that not all debt is considered equally on a credit report. Credit card accounts are a big percentage of how credit bureaus determine one’s credit score, whereas installment loans are not worth quite as much. Also, it looks awesome if you pay off a credit card, essentially holding a zero balance and therefore possessing a huge gap between money owed and your credit limit. But paying down an installment loan doesn’t work quite the same way.” points out that credit cards tend to come with much higher interest rates than installment loans. Mortgage loans are currently experiencing the lowest interest rates in nearly 60 years, and consumers with good credit can typically get car loans with interest rates of less than 6%. calls attention to the fact that it makes far more sense to focus on paying off credit card debt, as credit cards can hold interest rates of up to 15%. believes that in many cases, it would be wiser for consumers to pay the minimum each month on an installment loan and use the excess money to do things like pay down pricier credit card debt or create an emergency fund, or even to invest in a business or other investment.’s Senior staff writer is quoted as saying, “You can bust your butt to pay off a student loan, for example, but then you’re left with zero at the end of every month. But if your interest rate is only, say, 6%, then you’re not actually paying that much more for the luxury of paying the monthly minimums, taking your time paying the loan off—while simultaneously earning goodie points on your credit report for timely payments on an open account in good standing—and putting the extra cash towards something that can actually make you money, like investing in a website or buying a piece of property. Even stashing away an emergency fund in case you get a whopping dental bill, or need to fly across the country for a family emergency is a better idea than paying your loan off quickly and being left with nothing at the end of each month.”

The above-mentioned MSN Money article reports that credit-scoring models prefer to see open and active accounts in good standing, meaning a history of timely payments. It will not hurt a consumer’s score to pay off such a loan early, however the consumer will not continue to reap the benefits of this account if it’s closed early. Leaving it open as long as one can while making on-time payments ensures that they are gleaning all of the benefits that they can from such an account. Templeton does point out that it certainly depends on each individual’s situation, whether it’s a better idea to pay off an installment loan for the purpose of eliminating debt and saving money on interest payments or whether it’s better to continue to make payments throughout the life of the loan.

About is an online publication for men in their 30’s and 40’s, designed to report on lifestyle and financial topics of interest to this demographic. routinely features articles about dating tips for men, restaurant reviews, hotel reviews, and luxury items like watches and cars. The magazine is typically enjoyed by men who have already achieved a moderate success in life, and are on the hunt for their next quest.’s finance articles include tips on budgeting and money, as well as why credit scores are so important. is owned and operated by Purpose, Inc.

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David Klein
Purpose Inc.
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