moving debt around on credit cards
January 15, 2016 9:28 AM   Subscribe

I have 3 credit cards and am trying to determine the best decision to arrange my funds to accumulate minimum interest. Bringing up my so-so credit score would be a bonus.

Card A - $1600 balance (was a transfer with a year at 0% interest, interest jumps to 18.99% in April if not paid off)
Card B - $2500 balance at 28.99% interest. $10,000 credit limit
Card C - $1250 balance at 15.99% interest. $3500 credit limit. Balance transfer offer of 2.99% fixed for 12 months

Obviously I need to pay card A off before April. I can do this no problem.
My plan is to pay Card C down $250 and transfer the entire balance of Card B. I can pay the monthly payments no problem, and can probably pay it down faster.

but, I have about $2000 in checking and $5000 in emergency savings which means I could pay off all 3 cards at once if I dip into savings. Should I do this? On the one hand I hate paying interest, but on the other I hate not having savings.

Before you judge, cards B and C are almost entirely medical bills, and card A was for legal fees. I have no problem saving or curtailing spending. 99% of my expenses go on a debit card; before the medical expenses I was using cards B and C occasionally & paying off the balance each month.
posted by anonymous to Work & Money (12 answers total) 1 user marked this as a favorite
 
I'd pay off card B, then work on card C while making minimum payments on A. April only feels like a deadline; it's not, and you'll be paying interest on the other(s) in the meantime. I would not dip into my savings any further than needed to pay off B. And no judgement. I've been more in debt than you (and paid it off eventually).
posted by Kriesa at 9:44 AM on January 15, 2016


Somethings to be aware of: (a) the balance transfer may come with a balance transfer fee and (b) the limit for "cash advances" (which a balance transfer usually is considered) is often lower than the regular credit limit. Check on both of those things.

I would actually pay off Card B in full out of savings, because that interest rate is crazy and it will relieve some of the pressure.

Then, I'd pay the minimum on Card A through April and direct any extra funds to Card C. (This assumes the 18.99% will not be retroactive -- non-store-based credit cards usually don't add retroactive interest, but double check).

In/around April consider transferring remaining balance of A to C (depending on whether there's a fee). If transferring doesn't make sense, pay off Card A with priority, then Card C.

With this plan, you'll be out of debt faster, and the money you were putting toward the cards can go toward rebuilding the emergency fund.

Unbury.us can help you visualize the payoff.
posted by melissasaurus at 9:47 AM on January 15, 2016 [1 favorite]


I like the balance transfer idea but you already know that if you continue to use the cards you can end up in bigger trouble.

It might be worth a call to Card C to see if they will increase your credit limit that would allow you to put more than $3500 on that low rate transfer.

You might call the other cards and see if they are offering low rate transfers right now too.

Watch the fees on these transfers. There is usually a percentage charged up front to do the transfer.

As far as credit scores, I've heard they like balances to be under 75% of your limit but I think paying the debt off cheaply is more important.
posted by littlewater at 9:48 AM on January 15, 2016


Pay off all three cards. The cards are now your emergency fund until you save up a new one. If you need to put more money onto them, at least the amount should be less than it is now.
posted by chaiminda at 10:05 AM on January 15, 2016 [30 favorites]


In April, would you rather be debt-free with three months' contributions to your new emergency fund, or still juggling payments on 16, 19, or god forbid, 29 percent interest?
posted by gyusan at 10:38 AM on January 15, 2016 [2 favorites]


I came in here to say a modified version of what Chaiminda said. Other than rent, there is almost no emergency that cash can solve but a credit card can't. So, keep 2-3 months of rent in cash, but otherwise pay off your cards. I'd recommend:
1) pay off card B immediately
2) pay off as much of Card C as possible while planning to pay off card A in April + saving 2 mos of rent
3) pay off card A in April
4) Continue to pay off Card C over the following months

The cards are now your emergency fund, plus your two months rent.

Also, there's no judgment. Even if you racked up debt on frivolous items, making steps to improve your financial health is never something to be judged. Good luck and I hope you're feeling better!
posted by samthemander at 10:40 AM on January 15, 2016 [2 favorites]


Pay off all three cards at once, because you are spending more on CC interest than the savings generates in interest.

When I was paying down my card, I had a minimum checking balance. Each month I calculated the interest I could avoid if I went below the minimum balance, vs. the penalty for doing so. It was always worth going below the minimum balance.
posted by JawnBigboote at 10:48 AM on January 15, 2016 [1 favorite]


I came in here to say a modified version of what Chaiminda said. Other than rent, there is almost no emergency that cash can solve but a credit card can't. So, keep 2-3 months of rent in cash, but otherwise pay off your cards. I'd recommend:

I agree with this, as long as once the cards are paid off your priority number one becomes rebuilding that emergency fund.
posted by Dip Flash at 11:44 AM on January 15, 2016


Another vote for paying off all three... and if you don't do that, pay on card B first for sure. Always pay your higher-interest 'bad' debt first, as a rule.

And I've had far more debt than you do, and mine was a combo of school and stupid stuff. It took me years to get debt free. No judgement.
posted by Huck500 at 11:58 AM on January 15, 2016


Use this google docs template to model your strategy.
posted by srboisvert at 1:13 PM on January 15, 2016


Cards B and C should be paid off immediately if you feel comfortable doing so. You know yourself better than I do. What are your odds of having a >$1000 emergency in the next few months?

In return for $3750 - 3/4 of your emergency fund, but only about half of all of your cash on hand - you'll stop paying $77 per month in interest - over $2.5 per day.

I'm writing this about six hours after your initial post. You've already paid about 70 cents of interest on those cards in that time.

Transferring $2500 from B to C for a year at 2.99% interest - assuming you pay it off in that time - will cost you about $125 in transfer fees (I'm assuming 5%) and another ~$40 in interest over that time frame. That's still 50 cents per day.
posted by Hatashran at 3:52 PM on January 15, 2016


Also, this should go without saying... if you're going to use your savings to pay these cards off as many of us are recommending, you need to make a real commitment to yourself to stop using the cards for other spending in the meantime. Hide them in a drawer, freeze them in a block of ice, whatever — but make rules to limit yourself until you get that emergency fund back up in full and have some other savings to boot.
posted by amoeba at 1:04 PM on January 16, 2016 [1 favorite]


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