Pay Off Credit Cards With Mutual Fund?

[questions]

Hello friends, I need some advice as I am in my early 20s and on my own
and clueless...

I have a 2500 in credit card debt on two cards. I have decided to pay
it off with part of a mutual fund-- American Century Ultra -- in which
I have some 5000.

My reason:

A) the fund over 13 yrs has preformed well but isn't going anywhere
this century and I have other funds such as Fidelity Value that I feel
are better managed.
B) I work at a book store and every single book stresses keeping your
FICO score up especially if you are starting out with little money.
C) I do not want debt b/c I have a low income and my wife is from
abroad and has no credit score despite a high income.

(I do not charge at will: the debt is medical related).

It will take me probably two or three weeks to take out sufficient
funds from Ultra to pay off the two credit cards with balances ($
2500). The reason is the issue of transferring custodial ownership to
myself.

The two cards with balances both have reasonable APRs--7.99 variable
and 9.99 fixed.
I have a third card-- cut up -- that I keep for health emergencies. It
offers 1.9 transfer rate but a 60 bucks per transfer fee (I tried to
negotiate... no dice).

Should I transfer to the third 1.9 APR card to both consolidate and
avoid higher finance charges should the process of mutual fund cash out
be delayed? Or should I just wait a few weeks hopefully, pay the
minimums, and pay off the whole thing when the fund is cashed out?
(What is the proper term for cash out? I watch too much poker on TV)!

I know!

This seems trivial... but I am young without savings and with severe
medical problems and anything I do regarding credit --be it insurance,
cell phones, apartments, cars, bank accounts, trips to the zoo, popcorn
at the movies -- seems to depend on a good FICO score. I want to keep
the FICO fascists happy. Should I stay or should I transfer? Does it
even matter seeing as I will probably pay the balances in two to three
weeks!?

Also- is American Century Ultra worth keeping some money in? It is so
much different now (larger, less aggressive, loves Dell, etc.) than it
was when I bought with my barmitzvah money.

Please any advice would be so helpful...

[questions]

Another question:

I have a citibank card for medical emergencies and prescriptions. The
balance is always paid off on time... by my mom... quite frequently..
I've had the credit card for some eight years now and no late fees, no
balance, nothing. It's in my name. Strange thing is: the APR is 15
percent. This is double my personal credit card --a Bank of America 9.9
fixed with a 1000 plus balance! I am a financial moron but this makes
no sense. Shouldn't citibank be rewarding me (errr.... my mom... but
financially me) with a low APR? Does this affect my credit score?
Should I try to bargain with them considering my volatile medical
situation? Basically, I want to get an upper hand due to possible
medical problems in the future and now seems the time to do so.

Thanks friends,

[sweeps]

First thing's first. You have to get over the obsession with your credit score. If you do smart credit management, your score will take care of itself. Just like you shouldn't make financial decisions solely based on tax considerations, you shouldn't make financial decisions solely based on what your credit score might or might not do.

The problem with your situation is it seems you have no cash as an emergency fund. It sounds like if something goes wrong, you have 2 choices: put the expense on a credit card or sell your mutual fund (usually at an inopportune time). Neither of these is good options.

Can you pay off the credit card in a reasonable amount of time without tapping into the mutual fund? If so, I would do it that way and then start to build your emergency fund. I don't know much about the American Century Ultra fund, but the last 5 years has been tough for all stock mutual funds -- you may be getting out right when things are getting good.

If you can transfer the balances to another card with a lower interest rate, that sounds like a good deal. Just be sure to read the fine print for fees and make sure you don't make any purchases on that card.

The APR of your credit card itself has no effect on your credit score. Feel free to call them and ask for the APR to be reduced. But not carrying a balance is even better. Again, if you're doing these things just to micromanage your credit score, you're focusing your time and energy on the wrong thing.

[jmjj215]

I echo what Sweeps said. Focus on getting your income up and managing your outflow and your credit score will begin to take care of itself (aside from the annual or semi-annual report checks everyone should be doing).

[Gavriel]

Thanks for the reply.

My obsession with credit score viz debt is due to a few things:

First and most important- I've seen Suze Orman and other gurus talk about credit scores and how important they are and how bad it is to be in debt. (Note- I don't see buying a house or anything big in the future... maybe a new TV but nothing that needs financing). Most of this is directed at young people... she has some book, Young, Fabulous and Broke.

Second- My income is minumum wage and will probably stay there for a while. Medical bills are covered but not much $$$ is coming in. There is, however, hope for the future (I sound like a politician) meaning I am getting better slowly and will be able to make more money. When? I can't say.

Third- The mutual fund was great but seems like junk now. Also, it is little money compared to, say, other investments. I noticed this on my taxes when the preparer laughed at my dividends.

(That said, the comment about the upsurge in the economy and the fact that there are other mutual funds out there -- duh! -- negate the fund = junk point, no?)

Fourth- My friend with low credit could not even get a cell phone even though she earns way more than me.

Man, I'm just talking to myself, sorry... bottom-line is how bad is it to be 2,500 dollars deep in credit card debt versus 5,000 dollars in a solid/aggressive mutual fund (fidelity value, for example)... in your opinion of course. You are right, I'm obsessed with the credit thing AND it's difficult to think in the long term

Thank you much,

Gavriel

[sweeps]

Yes, credit scores are important. However, beyond paying your bills on time and not overextending yourself, much of your score is out of your hands. If you read other postings on this site, you'll see how people's scores swing 100 points up or down for no apparent reason. Plus once you think you have a bead on the perfect scoring tactics, the industry changes the rules on you (see the postings about the new credit scoring method coming out).

According to American Century's web site, the Ultra fund has had an average annual return of 12.45% in the last 3 years. That's not too shabby. Finding a stock fund that was in the positive in 2000 and 2001 is going to be rare. Maybe the fund isn't right for your needs, but you don't want to get in a situation where you're chasing performance. Japanese stocks, Canadian stocks, oil stocks and gold have been on a tear recently -- doesn't mean they're necessarily good investments now.

If it's going to take a couple years for you to pay off the $2500 in credit card debt, then I would grudgingly say to sell the mutual fund and pay it off. It will be difficult to overcome the CC interest with returns from the mutual fund. However, start building a cash buffer for future unexpected expenses (such as health problems). Then once your income grows, start looking at investing for retirement -- the earlier the better.

[Ima saver]

I would not sell the mutual fund, you will have to pay taxes on the sale. I would roll your balances onto the card with the lowest interest rate and pay more than minimum every month.