A balance transfer question...what is the strategy?

[cristina47454]

I have a credit card that is offering 0% for 12 months.  After that, it goes up to 16%. I currently have a large balance on a different card with an interest rate of 12%, Because the balance is so large, the interest fees every month are making it a challenge to pay down the card with much speed. I could transfer a portion of the balance so that it is 0% for 12 months.  But then in what order do I pay the debt down? Do I focus on the 0% and get rid of it while the other card sits there, accruing interest? Or do I get rid of the 12% interest card and just deal with the fallout of the BT card jumping up to 16% for awhile?

Just to make the numbers easy, lets say I transfer 10k to 0% and 10k is left on the card with 12%. There is a 3% fee to do the BT. And let's say I can pay down 1k/month over the minimums. The card that is offering the BT figures minimum payment as 2% of the balance. The other card figures it as 1% of balance + interest fee or 1.5 of balance, whichever is higher.

My brain just isn't working after the long weekend!

[heatherdeg]

Do you mean that you can pay $1,000/month over the minimums on EACH CARD?  As in, you have $2,000/mo to throw at the debt towards paying it down?

If that's the case, if you leave the balance where it is, you'd have it paid off in less than a year and pay $985 in interest.  I'm using interest+1% for the calcs on the 12% card for the minimum and on $10,000, that equates to $200/mo--so I ran the numbers based on that.

If you do the transfer, split your monthly extra between the two cards, you still pay off the $10k on the 12% card in 9mo with a cost of $495 in interest; and you'd pay off the other 10k in 11mo with a cost of $300 (the 3% transfer fee) of interest.  So in the second scenario, you save about $200 in interest overall and it's only okay because you're going to pay off the BT before the higher rate kicks in.

Now, if you meant that you only have $1,000 TOTAL to send over the minimums...

If you paid only the minimum payment on the BT for 12 mo (or rather, just a fixed, flat $225 rather than the declining amount that would be the min payment amount), you would:

Pay off the 12% card in 9mo with a cost of $495 in interest (assumes you're sending them $1200/mo) and be left with 3mo to pay down the BT--which would have a remaining balance of $8,275.  You could pay all of your available money to this card ($1425/mo) until it's paid off, but you'd be at a balance of $4,000 when the 16% kicks in.  It would take you 3 months to pay that off at an interest cost of $105 plus the original $300 interest you paid to transfer it for a total of $495+$105+$300=$900... close to a wash.

[cristina47454]

I have $1000 total over all minimums, so the second scenario.  

That is EXACTLY the kind of breakdown I was looking for. my brain is in such a fog from waking up super earlly with the baby I had to read your response a couple of times to get it, lol, so thanks for taking the time. Could not have figured that out on my own today :)

[cristina47454]

Heatherdeg (if you aresubscribed to this thread) did you use a particular on-line calculator to figure this, or did you just put pencil to paper? All the online calculators I've found aren't quite right to figure what I'm trying to play with.  Would appreciate any direction!

[yeahwhat]

I would do the balance transfer, then throw everything above minimums at paying down the 12% card.  Hopefully it would be done before the 12 months at 0% are over, then you can start attacking the 0% card before it goes to 16%.  When it does revert to 16%, then it's time to look for another offer for a balance transfer.  If you pay off the 12% card, you're likely to get some sort of balance transfer offer from them, or at least that's my experience with paying off credit cards.