Interest-free Credit Card Offers
credit card balance transfers
Are they a good deal?
You get the interest free credit card offer in the mail, but is it a good deal? Well, that depends. Let’s look at an example, to illustrate the questions we should ask. This is a real credit card balance transfer offer that I got in the mail recently:
0% Promo APR Until 10/1/2019
After that 14.99% variable APR applies
on Balance Transfers including direct deposits
Your fee for this offer is 5% (min $10)
And let’s say I have a $5,000 balance on a different credit card, that I am unable to pay off right away, so I’m considering transferring that balance to this card. The fee I will pay is 5% of $5,000, or $250. Let’s see how that compares with keeping the balance on the current card, and paying interest. My current card has a 17.99% APR interest rate, charged on the average daily balance. So the interest for a 31-day month on a balance of $5,000 would be $76.40 (I can get this number from my credit card company, or use one of several on-line resources to calculate it). Already you’re starting to see where this is going. I have to compare the interest on the current card, to the fee on the new card. In the simplest of terms, if I can pay off the $5,000 in 3 months, I am better off not transferring the balance. Where did the 3 months come from? Dividing the fee of the “new” card, by the interest charged on the current card ($250 divided by $76.40 per month, and to keep things simple, ignoring changes in the principle amount of $5,000) gives me 3.27 months.
I hope this simple example illustrates the questions you need to ask yourself, before deciding to transfer a credit card balance. What is the fee that the new card will charge? ($250 in our example). What is the interest I will pay if I leave the balance on the current card? ($76.40 per month in our example). How long will it take me to pay off the current balance? Using our example, if you can pay it off in 3 months or less, you’re better off leaving the balance on the current card!
Figuring this stuff out on your own can be difficult. The good news is, you’re not alone! These are the kinds of questions that JB WAGG INC Daily Money Managers help answer for our clients, every day. We are certified by the American Association of Daily Money Managers (AADMM), and if you would like help with this or other matters related to daily money management, send me an email at firstname.lastname@example.org. We would be happy to help you!
In Love Your Life, Not Theirs, Rachel Cruze shines a spotlight on the most damaging money habit we have: comparing ourselves to others. Then she unpacks seven essential money habits for living the life we really want--a life in line with our values, where we can afford the things we want to buy without being buried under debt, stress, and worry.