Better to Pay off Credit Card Now/Later

[KK7]

Hello community,

This is my situation. I currently have a CC debt ratio of about 75%. With tax returns coming in at just the right time, would it be better for me to...
A) pay off as much of my current CC balances with the tax refund and chip away at the residual
B) open a new CC and transfer all the current balances to the new CC - pay off as much as possible and eat the 3% transfer cost.
C) open a new CC, transfer the residual of whatever I a able to pay off with refund, and eat only 3% on the remainder balance.

Hope this makes sense, at the moment I am leaning towards option C considering it would 1. Open another line of credit. 2. Pay off as much debt as possible with refund. 3. Refinance the remainder at only a 3% cost versus attempting to close the current CC balances. Also, one balance is easier to pay off versus having 2 balances.

Again hope this makes sense - thanks in advance 🙂

[dc01876]

Not sure option B would ever make sense as, if you are planning on transferring and then paying down a big chunk of the transfer almost immediately, you'll end up paying what sounds like 3% on the money transferred and option B results in the largest sum of money to be transferred. Even if there is a big interest rate drop on the new CC opened under option B, if you were to pay down a big chunk of debt right away with your tax refund, the finance charge difference on the money to be paid down in the short term would be negligible between the old card and the new card (because interest charges accrue daily).

Now that we've eliminated option B - you need to decide bewteen A and C. You haven't given enough information for me to give you an opinion of which option is superior - the answer will depend on 1.) the interest rate differential beween the old card and the new card and 2.) how long and in what fashion you plan to pay down the residual balance after you've applied your tax refund toward reducing a portion of your outstanding balance in the short run.

If there is a material interest rate drop in going from the old card and the new card and you plan to pay down the residual debt load slowly over time, option C probably makes sense. (i.e., if the interest rate drops by more than 3% per annum and you're going to need more than a year to pay off the residual debt, you'll likely end up paying less over time in option C even factoring in the 3% transfer fee). 

If the interest rate differential between the old card and the new card is small and/or you plan on paying down the residual balance in a fairly short amount of time, then option A may be the better option.