Gather Little by Little

This article is part of the Ask the M-Network series.  Christina sent in a question and asked:

My husband and I are currently working on paying down our debt, and should have it paid off this year. All of our debt was consolidated onto one credit card over a year ago. The interest rate on the bulk of our debt is 2.99% and will go up to 7.99% in March. About $1800 of our debt is from cash advances, which were taken out a few years back. The interest rate is 20.99% and costs us about $30 a month. We are trying to decide if we should open a new card to do a balance transfer. We have good credit (our FICO is 772) but we have opened many credit cards in the past, and don’t want to hurt our credit score by opening another, especially since we plan on purchasing another house within the next 2 years or so. Should we deal with our interest rate while we pay down our debt, or transfer the balance? I know it’s only $30, but every bit helps. Thanks.

Pinyo says:

The current low rate is good, unfortunately, credit card companies pay down your lowest interest rate balance first — meaning your 20.99% cash advance will be paid off last. This is why cash advances are a bad idea, especially when you already have low interest balance on the card.

I guess the answer really depends on how many more months it will take to pay down your debt. If it’s going to be a long time, then I think you should go for it and do the balance transfer. This will save you considerable amount of interest expenses. However, the key thing to consider here is that most balance transfer offers nowadays are only 6 to 12 months. Would you be able to pay off the balance in that time frame? If not, you may also consider other funding sources you can use to pay down your credit card debt — for example, a loan from your credit union or bank may be a good option.

772 is a very good score and I wouldn’t worry about damaging your credit score by opening another card or taking out a loan.

Patrick says:

You mention that you should be able to pay off your debt this year, even if you don’t get the balance transfer. So basically it comes down to a question of being able to save a few hundred dollars and whether or not it will affect your credit score when you try to buy a house in a year or two.

Your credit score is already well above the national average and is in the range lenders like to see. I don’ think taking out one credit card will drop your score enough to make a big difference, especially if you will have the card paid off before you apply for a mortgage. You can repay your credit cards much more quickly by applying the money you save on interest toward the principle.

If you open a balance transfer credit card, then consider lowering the credit limits on one or two or your other credit cards, which can help improve your credit score by lowering the amount of available credit you have. Either way you go, I think you should be in good shape when you go house shopping in a couple years.

David says:

Yes, go for it. Taking out another credit card is not going to have a major impact on your credit score, especially if you don’t plan on buying a home for a few years. The tiny ding to your credit score is definitely worth the savings in interest that you would otherwise have to pay the credit card company. Besides, having all your debt consolidated onto one 0% interest card will be a lot easier to manage, too!

Glblguy says:

Hi Christina, I agree with my fellow M-Networkers. Your credit score is really top notch and having another code and doing a transfer will not have any significant impact. I just recently transferred one of my balances over and it feels great to know I’m not paying the 28%+ interest each month! I ended up getting a Discover More card, which thus far I’ve been really happy with.

Thanks for your question. Readers, what do you guys think? Do you agree with us? Disagree? Give Christina your thoughts, add a comment!

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