No. of Recommendations: 4
We have $9500 in cc debt. Was much more, we've been doing the snowball method and it was working great until the financial crisis sent our rates sky high and a few things that wiped out our emergency fund. Credit Karma had an offer showing I could consolidate with a company at 6.8%. All but one card is at 11 - 14%. One card is at 3.9 for life. Is this a good option or will it have unexpected consequences for my credit rating, which is currently excellent?

Whether it's a good option or not depends on a lot of things.

One big caveat before you transfer any balances - you need to understand the terms of how the minimum payment on the new card would be calculated, and if the minimum payment is more than the sum of the minimum payments on your current cards. If the new minimum payment would be more, then you need to be sure that you can afford to make that payment. Also, some cards make you pay the BT fee as part of the first monthly payment. So be sure that you will have enough money to do that, if that's the case with the new card.

Then, have you called your credit cards to see if they will drop your rate? That might be cheaper than doing a BT. Do you have better offers on any of your current cards than the 6.8% offer for the new card? You should check the terms being offered on any cards that you have available before you apply for a new card.

What is the balance on the higher rate cards, and how long do you estimate it will take you to pay that part of the debt off, using your snowball? How much interest will it cost you on those cards in that time, vs. how much will the balance transfer fee plus the 6.8% interest cost you in the time that it would take to pay off using the new card? Many BT fees that I have seen are either 4% or 5%. The 11% - 14% you are paying is on a declining balance, so the interest paid will depend on how long you think it will take you to pay off those cards. In comparison, the 4% - 5% BT fee is a one time additional cost that is based on the entire balance that is transferred. So you really need to run the numbers to see which one will cost you more.


As far as credit score impacts, you will have a credit inquiry hit when you apply for the new card, and the new card will decrease your overall account age, both of which could decrease your credit score. In addition, just having a 'new' card can trigger a credit score decrease.

Depending on how much of the credit line you need to use to transfer all of the balances to the new card, you could run into the issue of having high utilization on the new card, which could lower your credit score. In order to minimize the utilization impact for your overall utilization, you should keep the other cards open until you pay off the entire debt. If you are already at a utilization over 10% overall (meaning, with a $9500 debt, that you have less than $95k in available credit on your cards), a new card could actually increase your score a bit by decreasing your utilization. It's hard to tell without looking at your credit score and the reasons that are given for your credit score being what it currently is.

CreditKarma has a score simulator that you can run to estimate what the impacts on your score will be if you get the new card and transfer balances to it.

AJ
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