Transfer Or Pay It Off?

Transfer Or Pay It Off?

Q: I currently have a Visa card with a $1,500 balance and a 10.9% interest rate. I’m considering obtaining a Visa with my credit union with a rate of 8.9% and transferring the balance. Would this negatively affect my credit score? Would it be better to use my savings to pay off the balance?
— N. Powell, Via the Internet

A: If you have enough savings, it is always better to pay off your debt. This will improve your credit score and save you the monthly 10.9% interest you would have to pay on any balances. Over the course of a year, those interest payments add up to hundreds of dollars.

It may also be beneficial for you to obtain the lower interest rate credit card from your credit union. This will save you a few dollars in interest on any future credit card purchases, and it is always better to obtain a lower interest credit vehicle before you really need it.

If you obtain the credit union card and transfer the balance from your original Visa, it would be viewed as a payoff of your original Visa card, which is favorable, and will not hurt your credit score. If the balance transfer includes a promotional zero interest rate, you could then pay off your debt over a period of months without incurring interest. Paying off the balance of your new credit union card would also be viewed as responsible debt handling — another plus for your credit score. However, the addition of a new line of credit could also hurt your credit score.