Is paying off CC debt always the best thing to do

[jerseyguy]

I have about $4000 CC debt with an interest rate of 4.9%. I have the cash to pay it off in full but wondering if I am better off investing the extra reserves instead. Thanks.

[terry1156]

Originally Posted by jerseyguy

I have about $4000 CC debt with an interest rate of 4.9%. I have the cash to pay it off in full but wondering if I am better off investing the extra reserves instead. Thanks.

When a rate becomes low like that it is sort of a toss up. Personally, I would probably pay off the debt, but keep the card in case there were an emergency. While it may be possible to find some fairly liquid investments that pay a bit more, I don't think it's worth the effort or chance that the rate may be hiked up.

The main issue is that you have taken steps to address the problem that led to the $4000 build up on the card in the first place. If that is settled, you can really go either way.

[jerseyguy]

Thanks for the reply. My CC debt is there only from when I consolidated from a higher rate card. I recently sold a house and could utilize some of the profit to pay off the card or reinvest into something else, including another house.

[terry1156]

Originally Posted by jerseyguy

Thanks for the reply. My CC debt is there only from when I consolidated from a higher rate card. I recently sold a house and could utilize some of the profit to pay off the card or reinvest into something else, including another house.

Why was the $4000 put on credit cards in the first place? (you don't have to answer that - you just need to know if the problem that lead to it is solved so your don't have it happening again). Even though the transfer to a lower rate was smart, it doesn't address why it got on the cc in the first place.

I guess the question then becomes how long does the 4.9% rate last. Investing in another house will lock up that money - if there is an emergency or your cc rate gets bumped up, how would you pay it off?

Again, I would pay it off (as long as I knew the reason it got there had been addressed), but it isn't a definitive answer since the rate is pretty low.

[jerseyguy]

The rate is for it's life. Fixed rate. I have over $60,000 in reserves, so if emergency I'm ok. I'm not a mad credit card spender, so that amount of the card is going up. It's old debt. Hope that answers your questions.

[terry1156]

Originally Posted by jerseyguy

The rate is for it's life. Fixed rate. I have over $60,000 in reserves, so if emergency I'm ok. I'm not a mad credit card spender, so that amount of the card is going up. It's old debt. Hope that answers your questions.

First, there is no such thing as a "fixed rate" - even fixed rate cards can raise their rates as long as they tell you in advance (one of those lovely little things that cc companies never tell you) and believe me, they do it all the time. That rate is not likely to stay around if interest rates continue to rise.

I guess what you need to decide is whether you think you can get a much better return than a guaranteed 4.9%.

[marla]

I would pay off the debt then work hard to build an emergency fund.

[Ima saver]

Sounds like she has $60,000 in an emergency fund. I would pay off the credit card debt immediately and be debt free if it were me.

[lrjohnson]

As I am not experienced with investing at all, I would pay the debt off. It may not be the absolutely smartest move purely from a financial point, but in my view the psychological benefits of being debt free have a value too. Either way you go, it does sound like you are on a nice even keel, and your emergency fund is great, so I'm feeling pretty darn good for you. Good luck.

[Bluezy]

In perspective of having 60k in reserves, paying off 4k in cc debt would be a good move. Not only would you eliminate old debt, it would not take long to replenish the 4k and earn 100% of your interest on the 60k to profit. Remember when you have debt, you lose a portion of profit interest towards the cc interest...

[Bruce Wayne]

As with the other posters, if this is your only debt then you may as well pay it off. The only reason for keeping it is if you had other debts that were charging a higher interest rate, then obviously they would take priority.

[Tree0164]

I would absolutely pay it off.

Any credit card debt no matter what the rate is bad.

[VJW]

Yep. You would be much further ahead to pay off the debt and then explore ways to safely increase the yield on at least part of the $60K (I-Bonds ?).

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