Say you had 9,000 (0% apr) on one card and 400 spread out on 2 other cards..whats better take money out of savings and pay off totally or consolidating to (0%) for 2 years and pay off slower?
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From a strictly dollars and cents point of view you should pay off the $400 on the higher rate credit cards immediately, using part of your savings if necessary. However, you should pay only the minimum on the 0% card until higher rates kick in, and only then either transfer it to another 0% card or pay it off using savings. That way you will pocket the extra interest your savings will make during the full extent of the 0% offer.
What could go wrong? Well, one of the other answers points out that the credit card company is hoping that you’ll miss a payment or do something else that will allow them to end the 0% and raise your interest rates. That’s true, so you have to be especially vigilant to make the minimum payments on time.
Another big issue is psychological – a lot of people would be tempted to slack off saving money if there is no pressure to pay off the card as soon as possible. You should think about how much you would be paying on the card if you were aggressively trying to pay it off as quickly as possible. Whatever that amount is, you should take the difference between it and your actual monthly payment and put the difference into your savings account. That way the money will be there when it finally comes time to pay off the balance.
Pay off the debts. Don’t mess around trying to save a buck or two in interest.
Short answer- no, consolidating debt is not better for you.
Long answer: So you will pay $375 on the $9000 for the next 2 years and write a check for the $400. Think about this, for the next two years what could you use the $375 a month on if you weren’t paying it to the bank? How about an emergency fund? (should be 3-6 months of your expenses). What if you lost your job, what would an extra $375 not going out of your budget do for you? You could fully fund your Roth IRA for both years with that money, etc. What if you have a baby or a family emergency during the 2 years? What would $375 a month do for either a newborn or a family emergency (car breaks down, parents sick need a plane ticket, etc).
The cost of having debt is taking away the options of using the money for other things.
Just pay it all off! And then you can move on to saving that much money per month! Read The Total Money Makeover by Ramsey.
If you have the money in savings – pay off the 400 first. Then work the 9K as much as possible. These 0% intrest cards are a hoax – you miss one payment, by a single day, and it’s at 28%. Not worth the risk…. Take-down the little one as soon as possible, and then chew the big one down as fast as possible.
Go to daveramsey.com. His site and radio show are all about getting out of debt without getting scammed by the debt consolidators. He is a whiz at this and it will cost you nothing. He has written a couple of books that you should borrow from the library and get going. This guy is a genius!