A credit card question: Does this make sense?

[Jenelle]

We have been snowballing and not using the cards for several months now. The card with the worst interest rate is the one we are tackling first. Since there are no great balance transfer offers right now on my other cards (especially none with no transfer fee) -- I thought of this:

Today we bought groceries, and instead of paying out of our checking account, I used one of our lower-interest cards. Then I came home and immediately sent that same amount, out of our checking account, to our highest interest rate card.

My thought is that it is like doing my own balance transfer... slowly, yes, but hacking away at the worst-interest card, little by little.

Thoughts? Am I missing something about the way that interest is calculated on new purchases, for example, vs. how it is calculated on a revolving balance?

I could really use the advice of credit card experts here, to tell me if this is a good or bad idea, from a COST perspective.

Edited to say: Thanks!

[Amys1st]

To start, I/We do not have any revolving balences or keep balences on credit cards unless its a interest free card that has a special limit how long you can have it etc. Like pay in 6 mos interest free.

So basically whatever money you saved on your food, like buying loss leaders or things on sale is lost with having to pay an additional interest even if its pennies now, its rolled right into your debt and now your paying interest down the line on food you have already eaten. I think for things like food, gas etc, if you have the money in your checking acct, pay for the food with that and also tackle your debt which it sounds like you're doing a good job at.

[naupakamama]

I have thought of this too. I think it isn't a bad idea assuming that you are ABSOLUTELY vigilant and continue to pay off the higher interest rate card with more debt snowball money too.

Cards can up their rates too at any time for basically any reason, so make sure to stay completely on top of all of your payments. And don't go over your limit on the low interest card.

[JTA Mom]

Originally Posted by naupakamama

Cards can up their rates too at any time for basically any reason, so make sure to stay completely on top of all of your payments. And don't go over your limit on the low interest card.

Because of this above, right there, I would NOT do that. CC companies are engaging in really shady practices. I'm scared to think that the low interest card holder will see your payments increasing during this recession and either slash your limit to below your balance or raise the interest rate insanely high. Then you are worse off than before. I say don't add any more charges to any of your cc and just pay them down.

Ami

[Jenelle]

FWIW, I am talking about "moving" debt to a card that has already tried to raise our rate to 24.99%, at which time I opted-out, which means that we kept our current terms (prime + 5.99 = 9.24% currently) and the account will close in November. We can use the card at this rate until then, at which time we also repay under our current terms. So, I guess I am not "afraid" of what they will do to us... Because it's already been done.

[TiredX2]

It makes sense to me. If I understand what you are saying, with random numbers. Usually you would spend $500 on groceries from checking. Instead, you put $500 of groceries on the lowest rate card and send the $500 from checking to the highest rate card. So, at the end of the month you still have the same amount of debt TOTAL, but the average interest rate paid would have decreased. Especially assuming you have a high credit limit on the low interest rate card and/or it is locked in some way (which it seems to be) I would definately consider doing it. Do you have online bill pay? If so, you could send the exact amount to the highest card each time you grocery/whatever shopped.

Of course, since you are already paying interest on all of your cards you don't get a "free" window anymore. So that purchase starts accruing interest right away.

[JTA Mom]

Originally Posted by Jenelle

FWIW, I am talking about "moving" debt to a card that has already tried to raise our rate to 24.99%, at which time I opted-out, which means that we kept our current terms (prime + 5.99 = 9.24% currently) and the account will close in November. We can use the card at this rate until then, at which time we also repay under our current terms. So, I guess I am not "afraid" of what they will do to us... Because it's already been done.

I thought that if you 'locked in' like that that you can either no longer charge more on the card or that the WHOLE thing becomes due whenever the account is supposed to close. Are you sure they are letting you keep this rate until November, with no expectation that the entire balance MUST be paid off by the deadline?

Ami

[Jenelle]

Nope, the deal was that we could use it under our current terms until the expiration date of our card -- and that we would repay under those terms also. Believe me, I went over and over to clarify this before I opted out. I didn't really want to close this account, but I was not willing to accept the new changes.

[Delicateflower]

I can only make payments every three days to my card, so keep that in mind.

[JTA Mom]

Originally Posted by Jenelle

Nope, the deal was that we could use it under our current terms until the expiration date of our card -- and that we would repay under those terms also. Believe me, I went over and over to clarify this before I opted out. I didn't really want to close this account, but I was not willing to accept the new changes.

Well then, carry on! lol I just don't trust CC companies at all. I just had to deal with a 'slip up' in processing my payment. Thank goodness I caught it before the due date, thanks to my constant checking, but jeez, I think they were going to hold on to it until it was 'late' to jack up the rate. And I'm only carrying $300 on it too. I think they are trying to milk every last cent out of me, since I usually pay off every month.

Would you also be working down on paying off the actual debt amount or just moving it around? If there's any way to move it onto the lower interest card while lowering the total amount of debt you owe at the same time (not counting the difference in interest) I'd do that.

Good luck!

Ami

[Jenelle]

Originally Posted by JTA Mom

I just don't trust CC companies at all.

I hear ya.

Yes, we are snowballing and I am sending extra to this card with the higher interest rate. So we are slowly paying down the debt. And, like I said, we have made a real effort at not using the cards, starting last summer... And haven't used them for several months. So we aren't adding to the debt, or just "spinning our wheels" if you know what I mean. We ARE making progress.

It is just slow. So I was thinking this was an extra way to chip away at it.

[~Megan~]

It would be better to pay with your checking account than putting more on your card - any card.

[Jenelle]

Originally Posted by ~Megan~

It would be better to pay with your checking account than putting more on your card - any card.

But I am still spending the money out of my checking account, and I am not racking up any more debt -- I am moving debt to a different card with a lower interest rate, with no transaction fee.

[Jenelle]

I know in my mind this makes sense -- I am moving debt from a card with 16.99% to a card with 9.24%. The only way this doesn't make sense is if I am missing something in the way that interest is calculated... Like "old" debt that has been revolving vs. "new" debt that has just been charged, kwim? That's why I wanted to put this out there and see if any "experts" came and said "No, no! Don't do this!" (I know there are folks who frequent this board who work in the financial industry...) I am not a total idiot when it comes to credit cards, I understand a lot and have read the fine print... Just wanted to see if there was anything I was missing, like I said, from a COST perspective.

Thanks for everyone's replies.

[Kyamo]

I think it makes sense. Just make sure you are also paying extra to reduce the debt, and you don't buy something you wouldn't have paid from chequing anyways.