Which credit card should I keep?
June 4, 2012 5:57 AM   Subscribe

I have $25,000 of credit card debt, spread out evenly over 3 cards. My interest rates are 18% (on a card I've had for almost 20 years), 15% (on the card with the highest limit), and 13%. Which one of these should I keep to minimize my debt but maximize my credit score?

My credit union has offered me a $10,000 debt consolidation loan (11% APR) and a $10,000 balance transfer to their credit card (10% APR), in exchange for closing the two accounts that this pays off. So...which account should I keep? Specifically, I'm worried that getting rid of my oldest card and my card with the highest limit will damage my credit, even though I know they're the highest rates. Is that irrational?
posted by anonymous to Work & Money (8 answers total) 3 users marked this as a favorite
If you accept their offer, you will change $10000@18% and $10000@15% to $10000@11% and $10000@10%. That is, you will save $1200 per year on interest alone (and, of course, those savings will be compounded by paying off the principal faster).

I don't know whether accepting their offer will change your credit score, and -- if it does -- how much it will affect you. But I think it is hard to believe that the hypothetical downsides will cost you $1200/year.
posted by katrielalex at 6:16 AM on June 4, 2012 [3 favorites]

Keep all three, but pay them off (highest percentage first). Then put the 18% and 15% away (the classic way is to freeze them in a big solid block of ice), don't use them at all: use only the lowest-percentage card.

Your credit score is predicated on *how much* credit you have available to you (not how much of that available credit you actually use), so having all three will keep your score higher than getting rid or one or two and reducing the amount of credit available.
posted by easily confused at 6:20 AM on June 4, 2012 [1 favorite]

Get a debt consoldation loan to pay off all cards, and then get rid of them. Don't transfer more debt to another credit card, use a lower interest loan to deal with all of the CC debt.

Shop around to different banks for the best rate. If you like your credit union, then go back to them and ask them to match or beat your best offer elsewhere. Or else switch banks if they won't.
posted by thermonuclear.jive.turkey at 6:35 AM on June 4, 2012

What is your goal here? To reduce your debt? To ease your monthly interest payments? Or to improve your credit score? Are you planning to buy anything that will be contingent on your credit score in the next year or two?

My calculations agree with katrielalex: you'll save yourself $90-$100 per month in interest payments if you take your credit union's offer. You're quite likely to take a short-term credit score hit by choosing this scenario. You'll still have $25000 in debt, but you'll be closing out your longest-term account and reducing your available credit by closing out two lines of credit. If that extra $90 a month enables you to pay down the principal balances faster, though, it may still make sense. And unless you're needing to buy something contingent on your credit score, it doesn't matter how your score looks in the short term.

The most ideal scenario for your credit score is to simply pay down the balances of all three while keeping the accounts open. But we don't know enough about you to know if that's a viable path.

By the way, 18% is pretty high for a card I'm assuming is in good standing with 20 years under your belt. You have quite a good reason to call them and tell them you're considering paying off the balance and closing the account, as a negotiating position for a better rate.
posted by asciident at 6:40 AM on June 4, 2012 [4 favorites]

If this is indeed the bast offer available, I would transfer the highest interest cards to the lower interest loans. As katrilalex said, it's possible this will impact your credit score, but you really have bigger things to worry about than this, and being able to pay an extra grand+/year off the balances is going to help your score.
posted by deadweightloss at 6:40 AM on June 4, 2012

While it is an imperfect measure, the credit score tries to be a score of how well you manage your finances. So, manage your finances the best way you can, and your score will eventually reflect that.

Also, what's the end game? Why do you want to improve your credit score? The only actual reason to do this is to get a better rate on some loan you are wanting to take out in the future. Except for some very marginal cases, you are never going to get such a good rate on this new loan that it will counteract paying the extra 5-7% on the old loans.
posted by gjc at 8:33 AM on June 4, 2012 [1 favorite]

No one is really answering the OP's question, which is which two cards to close in order to cause the least ding on the credit score.

I'd recommend calling all three and telling them the deal you've been given. Ask each one to lower your rate in order to keep you as a customer, or you're going to choose their card to close. Then, keep the one that gives you the best interest rate unless they're all pretty close, in which case keep the one you've had the longest.
posted by Capri at 10:02 AM on June 4, 2012 [5 favorites]

Having that much debt will damage your credit far more than closing one of your cards. Take the deal and close the two with the highest interest rates.
posted by twblalock at 12:05 PM on June 4, 2012

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