0% CC and debt paying question...

[mrodgers]

Just wondering what others would suggest since I already know what the Dave Ramsey folks would say.....

I have 2 offers, 1 in my name and 1 in my wife's name. One is for 0% for 21 months, the other 0% for 18 months. There is a 3% transfer fee and it was never worthwhile with 6 or 9 months, but with 18 and 21 months, it would save me a pile of interest and expedite the debt repayment much much quicker. They are 0% for the time allotted, then moved up to normal rates. It wouldn't be like you see at stores where if you don't pay it off they charge back interest.

I am wondering on how others would suggest to work to pay debt off when there are several small debts. I have a car that will be paid off in February 2013, it is my largest payment by far, and about $5500 is owed. That is average of most of the individual debt amounts. Two of my credit cards I want to transfer to the new 0% cards. I will have 2 other CC cards, one of them being the smallest at $2500.

After switching two debts over to 0%....

• - would you then concentrate on paying extra on the vehicle loan? That would get quite a large chunk of monthly funds available faster.
  
  - concentrate on largest interest %?
  
  - concentrate on the largest balance?
  
  - concentrate on the smallest balance?
  
  - Finally, concentrate on those debts that were moved to 0% in the thoughts of kicking them out the quickest since they were transferred?

Just wondering what other folks would think of this....

 

[natenapril]

Just wondering what others would suggest since I already know what the Dave Ramsey folks would say.....

I have 2 offers, 1 in my name and 1 in my wife's name. One is for 0% for 21 months, the other 0% for 18 months. There is a 3% transfer fee and it was never worthwhile with 6 or 9 months, but with 18 and 21 months, it would save me a pile of interest and expedite the debt repayment much much quicker. They are 0% for the time allotted, then moved up to normal rates. It wouldn't be like you see at stores where if you don't pay it off they charge back interest.

I am wondering on how others would suggest to work to pay debt off when there are several small debts. I have a car that will be paid off in February 2013, it is my largest payment by far, and about $5500 is owed. That is average of most of the individual debt amounts. Two of my credit cards I want to transfer to the new 0% cards. I will have 2 other CC cards, one of them being the smallest at $2500.

After switching two debts over to 0%....

• - would you then concentrate on paying extra on the vehicle loan? That would get quite a large chunk of monthly funds available faster.
  
  - concentrate on largest interest %?
  
  - concentrate on the largest balance?
  
  - concentrate on the smallest balance?
  
  - Finally, concentrate on those debts that were moved to 0% in the thoughts of kicking them out the quickest since they were transferred?

Just wondering what other folks would think of this....

You should try creditboards.com. They are great at these questions!

 

[prncess674]

DR may say to do the smalllest balance first so you "feel good" about paying off debt, but as an accountant and educated person the most logical (and mathmatically correct) answer is to start with the CC with the highest interest rate. Pay the mins (at least) on all debts to avoid any penalties, but any other money for debt repayment should go to the highest interest rate loan.

I think you haven't given enough information. Do you think you can knock out all the debt if you transfer it all to the 0% CC? How many small debts do you have? What is the current interest rates?

 

[plummer925]

One thing to remember - the balance transfer fee (the 3%) WILL continue to accrue interest while you are paying down on the 0% so you will have a tiny bit of interest each month, but likely still worth doing!!

 

[HeyIt'sMe]

One thing to remember - the balance transfer fee (the 3%) WILL continue to accrue interest while you are paying down on the 0% so you will have a tiny bit of interest each month, but likely still worth doing!!

This wasn't the case with us. We did a transfer to a 0% interest credit card earlier this year and paid the 3% transfer fee. When we made payments they were applied to the principal. We paid off the balance about a month before the 0% promotional rate expired and we never paid a penny of interest.

 

[ilovemk76]

I would be worried about the 0% cards not being paid off when the interest time comes and then all that accrued interest comes back to haunt you. Normally I would say do the highest one first.

Do you think you can get the 18 and 21 paid off before the 17th and 20th month?

 

[mrodgers]

One thing to remember - the balance transfer fee (the 3%) WILL continue to accrue interest while you are paying down on the 0% so you will have a tiny bit of interest each month, but likely still worth doing!!

Good point that I hadn't thought of.

I would be worried about the 0% cards not being paid off when the interest time comes and then all that accrued interest comes back to haunt you. Normally I would say do the highest one first.

Do you think you can get the 18 and 21 paid off before the 17th and 20th month?

I have never seen a credit card 0% offer like that. Store cards do that with their 0% for 6 months thing, but I've never seen a normal credit card transfer offer like that. You get the 0% for the allotted time, then interest starts to apply with no back interest.

Unless something changed lately as I use to do the 0% transfer offer all the time in the past. Back then they never charged a 3% transfer fee either, so I guess if that changed, then the back interest thing could have changed as well. I didn't see anything about back interest though, just that after the time period, the rate would go to xx.xx%.

 

[SandrA9810]

Read the fine print closely, and don't just assume. Don't need it to bite you in the rear in the next year.

I would transfer the smallest balances to the 0% and pay it off. Keeping up the same payment amount. So if you were putting a $150 towards that amount each month, continue to put $150 towards that amount.

Who knows, you might get another offer for a 0% transfer within a few months and you can pay off the larger credit cards.

 

[Princesca]

I think it depends on whether or not you have a debt *problem*. Dave Ramsey's method of paying the smallest off first is great for people who need the encouragement because it gives you a feeling of accomplishment. And I have to say, even as someone who lives pretty frugally, I get a thrill out of knocking those debts down in quick succession. Debt is also easier to manage, IMHO, if you have fewer of them... it makes it easier to see the big picture and look for additional ways to save/pay them off.

Paying off the highest interest rate doesn't always make sense. If you have a 15% debt on $200, that's not going to rack up nearly the payments as a 2% debt on $200,000. I'm exaggerating to make my point, but you get the idea. You have to take both the principle AND the interest into account.

 

[mrsklamc]

ANother thing to be aware of with something like that is a plan for what happens if something unplanned causes you to be unable to pay off the debt as scheduled, like a job loss - a plan of what will happen if the 20% interest or whatever kicks in.

 

[drinkme]

One thing to remember - the balance transfer fee (the 3%) WILL continue to accrue interest while you are paying down on the 0% so you will have a tiny bit of interest each month, but likely still worth doing!!

I don't think that is correct information.

I would figure out how much you would have to pay to get the 0% debt paid off right up to when the promotion ends. For example, if you have $1800 debt on the 18 month 0% card, you would need to send in $100 each month. After you figure that out with the two 0% cards that you transfered debt to, then see how much is left over for debt repayment. I would work on putting the rest of the repayment onto the next cc debt that has the smallest balance. My reason for this is because if you can pay it off in 2-3 months, then you will eliminate paying that interest.

I would then pay the next cc off. I would pay the car last.

HTH. And good luck. I just did 2 balance transfers to 0% cc's too. Having the 18 months to pay off the debt frees up other money to pay off other things. kwim?

 

[Karenj2]

I would be worried about the 0% cards not being paid off when the interest time comes and then all that accrued interest comes back to haunt you. Normally I would say do the highest one first.

Do you think you can get the 18 and 21 paid off before the 17th and 20th month?

I was going to say this - just be REALLY careful, and make sure you pay the balances off WAY before the last month, because the interest rates usually jump up to 24% or something rediculous like that... And don't use them for ANYTHING else - because I *think* that the new purchases don't count towards the 0% interest. (In otherwords, read the fine print CAREFULLY)

 

[mrodgers]

I was going to say this - just be REALLY careful, and make sure you pay the balances off WAY before the last month, because the interest rates usually jump up to 24% or something rediculous like that... And don't use them for ANYTHING else - because I *think* that the new purchases don't count towards the 0% interest. (In otherwords, read the fine print CAREFULLY)

FYI, I didn't say what the interest rate is. It would be 13.99%, on par for most credit cards these days, along with the 2 cards I want to transfer. Also, the 0% is for balance transfers in the first 4 months. Additional purchases are also 0% for the 18/21 months. No where does it say that the balance accrues interest to be applied if not paid off in the time frame. It is simply a 0% transfer for x months to entice you to get their card. It is Citibank, a very common credit card.

Disney Visa allows you to pay 0% on a Disney vacation for 6 months, and it doesn't accrue interest to be applied during that time. Same thing for this card. I have never heard of a credit card accruing interest to be applied later if not paid off.

 

[prncess674]

Paying off the highest interest rate doesn't always make sense. If you have a 15% debt on $200, that's not going to rack up nearly the payments as a 2% debt on $200,000. I'm exaggerating to make my point, but you get the idea. You have to take both the principle AND the interest into account.

Wrong O! Math proves you wrong!
Think of it as 3 debts.

$200 @ 15%
199,800 @ 2%
$200 @ 2%

Once you see it as three debts then it obviously makes financial sense to pay off the highest interest rate first.

 

[MommyPoppins]

One thing to remember - the balance transfer fee (the 3%) WILL continue to accrue interest while you are paying down on the 0% so you will have a tiny bit of interest each month, but likely still worth doing!!

This is 100% wrong information. We have been bouncing credit cards for years thanks to being a one income family that lost their job for 7 months and started over at the bottom of the ladder.

You never pay interest on the transfer fee. Your first months payment is sometimes larger than the rest due to the transfer fee. But that hasn't always been the case either.

OP - Don't forget that after that 18 months is up you can transfer to a new 0% offer. You just can't transfer from the same bank. So no chase to chase.

 

[rookie78]

If it were me I would pay off the smallest balance first, that way it is paid and out of the way. Then you can focus on the larger ones at hand.