0% credit card balance vs savings question

[jonathanbewell]

Recently bought a couch and put it on my chase card that’s 0% until Oct 2024. Approximately 3000$, should I just pay it all off or let it sit? I have 8k cash currently making 4.5% in Sofi HYSA. Only reason I’m debating on paying it off is because my credit score tanked 60 points just because of this balance. Does it make more sense to let it ride, or pay it off?

 

[paullivesgaussabides]

@jonathanbewell Do you have any big purchases planned in the near future? If not, I wouldn’t worry about the temporary score hit. Make payments and be sure to completely pay it off before the 0% expires

 

[jonathanbewell]

@paullivesgaussabides Tru that’s definitely something I will consider for sure. And I definitely will pay it off before the 0% expires.

 

[michael1974]

@jonathanbewell $250 for the next 12 months seems like the math to pay it off without interest accruing. Lots of other factors that others have tapped into in other comments.

 

[williamfrawley1887]

@jonathanbewell But make sure you pay it off before you are charged interest.

Edited to remove incorrect information.

 

[nothinges]

@williamfrawley1887

Another reason to pay it off in instalments while it's 0% interest, is to help build your credit history.

There's no reason to do this for credit purposes.

Literally the best way to "build credit history" is to open a credit card and then never use it. You don't need to take on actual debt to build a credit score, where a large component of that score is debt:income ratio.

 

[davidolonge]

@williamfrawley1887

Another reason to pay it off in instalments while it's 0% interest, is to help build your credit history.

Credit card payments themself do not positively affect your credit history. Late payments, however, negatively affect your credit score. In essence, you build credit history by keeping a card open, and build credit score by not paying anything late. If you never use the card, both of those things are still true (the card is open and you aren't paying anything late).

 

[davidolonge]

@jonathanbewell The most efficient way in terms of pure dollar efficiency is to pay it off with minimum payments until September 2024, then pay off any remaining balance in October (before interest begins to accrue). During this time, take the money that would go towards paying it off today and put it in a HYSA or some other short holding like a CD or something (make sure they mature prior to when you need to use the money).

However, realize that this can backfire...if something comes up and you need the money for other things in September 2024, you may not be able to afford paying off the card and instead will start accruing interest.

That said, don't worry about the credit hit unless you're getting ready to need it. 60 points is nothing unless you're getting ready to buy a house and those 60 points will bump you to a better rate. They'll come back with time.

 

[nothinges]

@jonathanbewell Personally, I'd pay it off.

You don't know what will happen in the future that would make you spend that ear marked money on something else at the last minute. Then you're saddled with a high interest payment. And mentally you're going to look at your savings account and say "I have $8000" without subtracting your future liability, which could cause you to over-spend. You even did this in your original post - you don't have $8000, you have $5000.

That's a lot of risk to absorb for an extra $135.

Meanwhile if you pay it now, your financially responsible behavior will naturally make you cut some kind of expenses to replenish your savings.

PS: Your credit score will go down anytime you ring up more than half your credit card limit on the card. The best way to build credit is to shred your card and never use it. You can use it for routine expenses like groceries and pay it off in full every month, but big purchases should be made in cash or immediately paid off.

 

[dddblueyes]

@nothinges There are parts of this that are good advice. But with cash back, 0% APR, and bonuses (especially while in the military) it's hard to think that it doesn't make sense to put everything on the credit card. Get a good card and be reasonable with your spending and you're living most of your life 2%+ on sale.