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?
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.