Credit card interest rate question

[sunflower.mama]

I am about to carry a credit card balance for the first time in years, at least for a couple of months. The card has about $3500 on it, at an interest rate of 7.99%. I could switch it to another card with a rate of 2.99% if I want, and pay a 3% transfer fee. I am not inclined to open a card for a 0% rate because I really do want to pay this off over the next couple of months. Any idea of how the interest rate would be computed on this balance, actually at both rates, so I can decide whether it's worth it to pay the transfer fee? I couldn't find an online calculator to do it, and I don't know what the calculation process would be.
Thanks!

[dogmom327]

Not worth transferring unless you are going to leave it on there for longer than 6 mo. Think about it this way...it's 7.99% a year...if you leave the balance for 6 mo. then it's about $140 in interest. If you leave it for a year it's $280 in interest (approximate numbers). If you transfer to the other card, you will pay a $105 transfer fee plus $53 in interest over the same six month period. For a year you would pay $211 in interest and transfer fees. Therefore, after 6 months or so, you do start saving money.

The other thing to consider is whether those rates are all fixed...many times those transfer rates are only for a short period of time.

[sunflower.mama]

Oh - so the interest rate is calculated on an annual basis and then divided by 12 months? I wasn't sure whether credit card interest was somehow special - and you paid 7.99% every month or something.
So do you apply the 7.99 to the $3500 to get annual interest of $276 and then divide by 365 days and then multiply by 31 days in a month? That would work out to $23 a month. I just have no idea how it's done. But thank you!

[cristina47454]

Did you try the calculators on bankrate.com?

[llamalluv]

Originally Posted by sunflower.mama

Oh - so the interest rate is calculated on an annual basis and then divided by 12 months? I wasn't sure whether credit card interest was somehow special - and you paid 7.99% every month or something.
So do you apply the 7.99 to the $3500 to get annual interest of $276 and then divide by 365 days and then multiply by 31 days in a month? That would work out to $23 a month. I just have no idea how it's done. But thank you!

Yeah, it would be about $25 the first month. Less as you pay down the balance.

Before you decide to do the BT, remember to annualize the BT fee. Divide the number of months you expect to carry a balance into 12, then multiply by 3%. So, if you expect to carry the balance for 4 months:

12 months / 4 months = 3

3 x 3% = 9%

9% is your effective annual interest rate of the BT fee.

The longer you carry the balance, the lower this will be. If you carried the balance for a full year, the interest rate of the BT fee would be 3%, and if you carried it for two years, it works out to 1.5%.