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Personal Finances / Credit Cards and Consumer Debt


Subject:  Re: Cash in mutual fund to pay CC? Date:  1/19/2000  1:46 PM
Author:  yhuh Number:  24735 of 312304

The idea of moving your credit card debt over to a fixed loan with car loan people is definitely a good idea, for two reasons. First, it's good because the 9.9% interest is almost certainly going to be lower than your CC APR. Secondly though, it reflects more favorably on your credit rating to have debt in installment loan form instead of in unsecured, revolving debt form. Unsecured "bankcard" debt (aka credit card debt) is considered riskier b/c there is no collateral in case you decide to default. All other things being equal, your credit bureau score is likely to be a bit better if you have a $2,000 car loan than if you have a $2,000 Visa balance. (More on this in my post to last week's dueling fools board if you find this sort of info at all useful.)

As for pulling money out of mutual funds to pay CC debt, in *this* case, wouldn't it be good to leave the money in the mutual fund? Assuming that you do transfer your CC debt to the 9.9% loan from your bank, and assuming that your mutual fund is growing at least at market average, your choice is between making payments on a 9.9% loan or keeping the money in investments with an 11%+ rate of return. (And even higher than 11% these days.)

Plus, it is always nice to know you are building a nest egg...

Best wishes,

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