BT offer - WWYD?

[chiver78]

hi ladies,

I used a CC this week that usually just collects dust, and when I logged in to set up the payment I noticed a BT offer on that card. obviously, I can't do anything until the payment posts, but I'm curious what y'all think about the numbers. thanks in advance!

the BT is a 0% until October 2012, with a 4% fee. I'd be transferring $4500, so that fee is $180.

where I'm at: I am still racing, and down to the last 2 cards. one is 2.9% for the life of the balance, and will be minimum-payment paid until that balance is gone. the other is a 0% that will reset to 11.9% in December. this is the $4500 I'd be transferring.

my logic is this: right now, I am "paying" my old snowball funds into a high-yield savings account, from which I will pull out enough to totally pay that card off just before the interest rate resets. however, I've got a major renovation to my kitchen just waiting until I have the money to do it all. if I were to transfer the balance, I would have another year of 0% on that balance. I would also have the extra money I've been putting aside to put toward the renovation. fwiw - I opened the high-yield account barely a month ago, and have already made two separate $1000 deposits.

[Deleted]

4% Balance transfer fee and I assume about 1% for the high yield savings. Bad plan numberswise. You are not getting another year of 0%, you are getting a year at 4%.

[munjoyhill]

Chiver - I know the BT offer sounds good, but you would just be delaying paying off the credit card. I would stick with the plan of paying off the $4,500 credit card, whether you pay it off now or before the December 2011 date when the 0% increases to 11.9%.

If you're "paying" $1,000 twice a month into your high yield account, can you keep up that pace? If so, you'll have the $4,500 to pay off the credit card in a few months.

I know you want a new kitchen, but I would still unload the balance on that card. Also, how much is owed on the other card, the one that's at 2.9% for the life of the balance?

Saving $2,000 per month could knock off those credits cards in no time, then settle in and save for the new kitchen.

Just my 2 cents.

[mizbear]

chiver- I don't know a whole lot about how the interest and everything works, but I DO know that BT always seems to have a whole lot of small print. I think you are better off with you current plan.

[chiver78]

thanks for the replies this is why I come here, financial math just baffles me most of the time.

gin - but the 4% would be a one-time thing, vs interest on the savings account over time. it's an AmEx account - 1.15%. I'm with mizbear, I can't crunch it all out. I guess in my head it worked out OK because the $180 fee is less than what a few months of interest would be at the reset rate that would kick in this December. I'm still operating on the "way in the red" methods of juggling balances. I'm not used to having cash to play with just yet.

munjoyhill, you nailed it. I really want the kitchen, because I've hated my current one since I bought the place, and it's the last room left to do! I don't think I could keep up the $2k/month pace, but I do have a 3rd paycheck in July that would completely be going over to savings.

[jdnstl]

chiver - i'm having sort of the same dilemma. i have 3 cards with balance transfer balances where the promo ends during different months of the 3rd quarter this year and i'm really working on how to NOT have to BT them again. i feel like i'm paying more in "interest" than i really know.

say i started with a balance of $5k that i transferred for a 0% promo for 12 months & the BT fee was 4%. i've paid $200 - essentially 4% interest on the total balance. at the end of 12 months i have a balance of $4k that gets transferred to another card with a 0% promo for 12 months & again the BT fee is 4%. that's $160 i've paid in addition to the 4% paid the year prior. that makes the total "interest" paid for that balance of $4k a whopping 8%. if i'm unable to pay the balance in full and have to transfer again, well that's an additional BT fee. so say my balance is down to $2500 & i pay another 4% BT of $100. on that $2500 i have essentially paid a total of 12% interest. of course, spread out over the course of 3 years it comes out to 4% per year but if you take BT offers with shorter promo periods the % per year will be much higher.

[Deleted]

$4500 in a savings account for one year is $51.75 and you pay tax on that. The interest you would pay for the year on the year is $180. The fact that it is up front and not over time like then saving account makes the making the transfer a worse idea not a better one. Just pay off the card and stop transferring the balance.

[shanendoah]

Chiver: Yes, the 4% is a one time fee, but its 4% of the whole balance, making it $180, as you mentioned. However, the 11.9% is an ANNUAL percentage rate, making the monthly percentage rate closer to 1%. That means that even if you didn't make any payments on this $4,500, you could not pay it off until March and still pay the same amount in interest as you would if you transferred it (not considering any late fees, obviously)
If you don't make any payments until December, and then make 4 equal payments, the monthly interest rate will be charged on a smaller amount each month and you'd only end up paying $112.00 in interest.

Here's another way to look at it. Say you decide you don't want to pay off the $4,500 until next September anyway (when you'd have to make the final payment before the 0% APR ran out). Assuming that you've already made your June payment, that gives you 15 months of equal payments at $300 to pay off the card.
In the next 5 months of 0%APR on the current card, you knock $1,500 off the balance. You then have $3,000 to pay off over the next 10 months at 11.9% APR. Your equal monthly payments then come out to $316.60. So that's $16.60 of interest each month for 10 months, giving you a total of $166.00 in interest payments, as opposed to $180 in interest for the exact same pay off date.
So no, don't do the balance transfer. Even if you decide not to pay off the card until next September, you're still saving money keeping it where it is.

[chiver78]

Jun 15, 2011 14:48:34 GMT -5 shanendoah said:

Chiver: Yes, the 4% is a one time fee, but its 4% of the whole balance, making it $180, as you mentioned. However, the 11.9% is an ANNUAL percentage rate, making the monthly percentage rate closer to 1%. That means that even if you didn't make any payments on this $4,500, you could not pay it off until March and still pay the same amount in interest as you would if you transferred it (not considering any late fees, obviously)
If you don't make any payments until December, and then make 4 equal payments, the monthly interest rate will be charged on a smaller amount each month and you'd only end up paying $112.00 in interest.

Here's another way to look at it. Say you decide you don't want to pay off the $4,500 until next September anyway (when you'd have to make the final payment before the 0% APR ran out). Assuming that you've already made your June payment, that gives you 15 months of equal payments at $300 to pay off the card.
In the next 5 months of 0%APR on the current card, you knock $1,500 off the balance. You then have $3,000 to pay off over the next 10 months at 11.9% APR. Your equal monthly payments then come out to $316.60. So that's $16.60 of interest each month for 10 months, giving you a total of $166.00 in interest payments, as opposed to $180 in interest for the exact same pay off date.
So no, don't do the balance transfer. Even if you decide not to pay off the card until next September, you're still saving money keeping it where it is.

thank you for this detail, that makes absolutely perfect sense when you explain it out.

[3jsmom31]

Thank you for pointing out that the "with only a 4% transfer fee" ends up being a higher interest rate when you consider that you will pay that balance down over a years time. I've been aware of this but hadn't actually run the numbers to see how much it really costs. I had considered getting cash on a bt offer so that we could pay off our current debts, and I'd just have one bill with "zero" interest... After thinking it out, I decided to continue with the mortgage, cc payment we currently have. The 4% would have cost us more money up front than just plugging away until we finish (soon, I hope). It would have only saved me from having to budget/figure out how to accumulate the payoffs .....

So you are stuck with your kitchen for another 6-12 months or so, and maybe it would be worth getting a bt offer when you decide to do it. If you know it will cost you 5,000 and you get zero for a year and a 4% transfer, it may be worth the $200 to get the renovations a year sooner. You'd get to use them a year longer as a consolation