Paying tuition with credit card (question about interest)

For just about anything you want to get off your chest about credit cards.
5 posts
shaneco
 
Posts: 1
Joined: Tue Feb 16, 2016 10:09 am

Paying tuition with credit card (question about interest)

Postby shaneco » Tue Feb 16, 2016 10:21 am

Hi,

So I have 5k in CC dept and 6k in savings in my bank. I am returning to school and will need to pay 3k in tuition. What I'm wondering is should I pay off all my CC debt then turn around and pay my tuition with my CC? What worries me is that such a large purchase would cause huge interest charges (20% of 3k). So I guess what I'm wondering is is it better to have a bunch of small older purchases, or one large younger purchase?

Thank you


Tubpbs
Centurion Member
Centurion Member
 
Posts: 827
Joined: Mon Oct 19, 2015 2:08 pm

Re: Paying tuition with credit card (question about interest)

Postby Tubpbs » Tue Feb 16, 2016 4:03 pm

shaneco wrote:Hi,

So I have 5k in CC dept and 6k in savings in my bank. I am returning to school and will need to pay 3k in tuition. What I'm wondering is should I pay off all my CC debt then turn around and pay my tuition with my CC? What worries me is that such a large purchase would cause huge interest charges (20% of 3k). So I guess what I'm wondering is is it better to have a bunch of small older purchases, or one large younger purchase?

Thank you


"Better" in terms of what? If, by "orders", you mean transactions on your credit card, the bank doesn't care (in theory) if you have one transaction or 40 to get to that total.

Again, depending on what else is going on with your account and any other credit accounts you may have, etc etc. the lender probably doesn't care how long ago it was. It is also highly dependent on your utilization ratio (percentage of total credit limit you are carrying as a balance on your card).

When you carry a balance on a credit card, you walk the line of the bank appreciating the profitability of your account and being afraid that you're becoming a risky borrower.

The specific answer to your question is that we need a lot of additional information to answer your question as it pertains to you. In general, the bank theoretically does not care either way about either of the questions you had.
Amex - BCP, Platinum, Business Gold
BoA - BankAmericard Cash Rewards
Chase - Freedom, CSP, RC, Ink Plus
Citi - DC, Prestige
Discover - It

User avatar
Vattené
Centurion Member
Centurion Member
 
Posts: 1157
Joined: Sun Jan 26, 2014 3:55 am
Location: US

Re: Paying tuition with credit card (question about interest)

Postby Vattené » Tue Feb 16, 2016 5:10 pm

So are you going to continue carrying around $5k in credit card debt either way? If I understand you correctly, the options you are considering are (1) pay at least some sizable portion of your current credit card debt with savings now, but turn around and add $3k in tuition to your credit card; or (2) keep carrying your current credit card debt and use the savings to directly pay the tuition. If that's the case and you'll be carrying roughly the same on your credit card, as mentioned it really makes no difference. A carried balance is a carried balance, and it all accrues interest the same way.

You'll save more money if you use the savings to pay off the credit card (if that's an option for you, and the savings isn't for an emergency fund or some other designated use) and get into the habit of paying your card in full each billing cycle, and getting a traditional student loan or even a personal loan for tuition as the APR will likely be much lower (again, if this is an option).
-Vattené
FICO-8:
EX - 809 (11/16) | TU - 803 (11/16)
Primary Cards:
American Express EveryDay - $20,000 (10/14)
Discover it - $23,000 (2/14)
AU on Barclay Sallie Mae - $10,000 (8/15)
plus several store accounts of varying usefulness now

takeshi
Centurion Member
Centurion Member
 
Posts: 1733
Joined: Wed Jun 05, 2013 3:12 pm
Location: US

Re: Paying tuition with credit card (question about interest)

Postby takeshi » Wed Feb 17, 2016 2:25 pm

shaneco wrote:So I guess what I'm wondering is is it better to have a bunch of small older purchases, or one large younger purchase?


Use an interest calculator to help you sort it out. Either way you're paying X% on $Y. The number of transactions doesn't really matter.

Kevin86475391
Centurion Member
Centurion Member
 
Posts: 237
Joined: Wed Feb 18, 2015 9:04 pm
Location: Texas

Re: Paying tuition with credit card (question about interest)

Postby Kevin86475391 » Wed Feb 17, 2016 2:37 pm

shaneco wrote:Hi,

So I have 5k in CC dept and 6k in savings in my bank. I am returning to school and will need to pay 3k in tuition. What I'm wondering is should I pay off all my CC debt then turn around and pay my tuition with my CC? What worries me is that such a large purchase would cause huge interest charges (20% of 3k). So I guess what I'm wondering is is it better to have a bunch of small older purchases, or one large younger purchase?

Thank you


Hi and welcome to the forum!

It's certainly true that if the only two options are: 1) Use the savings to pay the tuition or 2) use the savings to pay the credit card, then pay the tuition with the credit card — then yes, you'll pay the same interest rate on $3,000 whether it's from a single big purchase or several smaller ones. If your overall debt load doesn't change and your utilization doesn't change, then no in theory the credit card companies won't really 'care' which route you take.

However, I do think there could be a few other things worth considering that I'll point out.

1) As Vattené mentioned you're better off with a student loan, or likely even a regular loan, as far as APR rate goes. So if that's an option it's certainly worth considering.

2) Are you 100% positive your university will accept credit card payment for tuition. I'm not meaning to imply they won't, just that you need to be absolute certain. Otherwise you might end up paying the credit card down with the savings and discovering that - uh oh, you CAN'T use the card to pay tuition after all.

3) If you are 100% sure a credit card payment is an option (and again if a lower rate debt isn't an option)...then yeah, I think I'd lean toward paying the card down with the savings first then using the card for tuition. I say this because depending on when you need to re-rack up the debt you MAY save some money on interest in the meantime. Like if you won't be paying tuition for 3 months, pay the card down now, then you can avoid the interest you would have paid for those 3 months. If you have exactly a 20% APR on the credit card, then saving 3 months worth of interest on 3K would be $150...so even though you'd 'end up' in the same place you'd save a little money getting there.

4) If the credit card happens to be a rewards card you're also a little better off getting the rewards on the 3K than not since the same amount of money ends up on the card regardless. It still certainly won't be 'worth' the 3K debt, but better than nothing.

5) You'll see a short-term benefit to your credit score by temporarily having your utilization lowered the 3K before you put it back. If your credit score was a factor in preventing you from qualifying for a lower interest loan it COULD make the difference in allowing you to qualify. Of course that's a big if, and definitely don't count on that, but if you have enough time between paying the card down and paying the tuition it may be worth at least looking into.


IMO the biggest risks with paying the tuition with the card are:
1) The university won't accept the card after all.

2) Somehow for some reason the credit card company could lower your credit limit between the time when you pay it down and need to use it again.

3) You may be tempted to use the new available credit for something else in the meantime and wind up with more debt...but you already had the savings sitting there untouched, so I guess that isn't a factor? You'd obviously know your personal psychology and temptation level best.

Anyway, best of luck with whatever you decide and with the new semester.



Return to “General Credit Card Talk”

Who is online

Users browsing this forum: No registered users and 0 guests