budgeting question and DVC

[iwrbnd]

I didn't know if I should put this on the budget board or DVC but I think it's more appropriate here.

Okay, 6 months ago we bought 2 contracts at BLT all totaling 270 pts. We financed knowing we would pay it off in the next year. All was going as planned and we have the first contract paid off and were planning to pay off the last one this year. Problem is our recession proof jobs weren't as recession proof as we thought! I lost my job this month (just part-time so not a huge deal) and my DH had to take a salary cut for the next 2 years. My DH has a great job and we'll be okay but it might take longer than we planned. We could pay it off right now if we wanted to but I have a number in my head that I won't let our savings go under and paying it off would do that. This makes me insane because I HATE paying interest! We have no debt (except for our house) and I pay our credit cards off every month. Here's my question...I got an offer from our Discover card for transfering debt in and having no interest for 72 months. Would this be a bad idea? I hate putting debt on a credit card but I also hate paying interest. What would you do?

Before I get flamed here, I realize now that buying one contract at a time so we didn't finance might have been better but I didn't want to pay a bigger point cost later. (We bought in before the big price increase) And my DH just had to have BLT!

Like I said, financially we're okay but just not as good as we were 6 months ago.

 

[Sandisw]

We have done this before and it worked out fine for us. If you can get 72 months at a lower (or no interest), and understand the terms of the card, go for it.

Just a caution, though. We had this offer years ago with Discover, and had to charge at least monthly (no minimum). What I found, however, was that my payments went for the low balance transfer and not the purchases, so I was paying more than I thought. Basically, the only way to eliminate it was to pay in full immediately, which defeated the purpose of transferring.
Be sure you are clear as to what gets paid when if you have to use the card.

On a side note, Disney Visa does give you 6 months, 0% interest on DVC. It may still be possible to pay some of that balance using that to eliminate some of the interest.

Just a thought.

Good luck!

 

[iwrbnd]

Thanks for the info! What if we put the DVC debt on our Discover card and then put no other purchases on it and only used our Disney Visa? Would that help with the confusion of what is getting charged interest and what isn't?

I asked about putting the DVC on my Disney Visa for the 6 months 0% interest. They said it would only work for the initial down payment. Bummer.

 

[Chuck S]

As the previous poster stated, most credit card low/no interest transfers apply any payment to the transfer first, so any new charges, unless the entire CC balance is paid, accumulates interest. It is "the hook" in the deal. So you would need to start with a fully paid off CC, then not charge anything to it until your DVC is paid off. If you have any current charges on the CC, be sure any payment you make is applied and the balance is $0 before doing the balance transfer.

 

[iwrbnd]

As the previous poster stated, most credit card low/no interest transfers apply any payment to the transfer first, so any new charges, unless the entire CC balance is paid, accumulates interest. It is "the hook" in the deal. So you would need to start with a fully paid off CC, then not charge anything to it until your DVC is paid off. If you have any current charges on the CC, be sure any payment you make is applied and the balance is $0 before doing the balance transfer.

That's exactly what I was planning to do. With that in mind, is it a good idea or should I just keep paying off DVC with interest?

 

[DMKEDM]

I've done this "zero percent interest game" often...it makes me very nervous, but so far has worked perfectly...

Bought 4 of my 5 DVC contracts w/either Disney Visa 0% financing, or w/new-card 0% (I've never seen one good for 72 months...the longest I've ever gotten was 12 months)...

You will run into the usual credit card interest rate (on anything but the 0% Disney purchase "special deal" on Disney Visa) if you charge anything at all...I found that out the very hard way...I had a recurring charge automatically set up on one credit card that offered me a zero percent balance transfer, and that automatic monthly charge on the card each month prevented the 0% interest benefit...if your Discover charge offer requires you to charge something every month, the 0% offer is essentially worthless...

Another "hook" that requires looking at: the banks charge a "transfer fee"...my very first 0% loan the fee was 3% of the amount transferred (or taken as a loan using one of their courtesy checks), capped at $75...lately, I've not seen one that has a cap...so you pay 3% of the amount, no matter what (and on a $15000 purchase, that's significant money!)...

Lastly, I've read recently that the number of cards you have open as well as the total amount of debt you have can affect your credit score...in your case, you don't change your debt load, you just switch it to a different creditor...so all you have to consider is whether opening a new card (if that's what you choose to do) will affect your score...

But, so long as you keep the card you're using "clean" of any other charges during the time you're paying off the loan, and you know about/choose to pay the balance transfer fee (or fee for using the courtesy check), the 0% cards can be a great way to "finance" big purchases...as noted above, I've done it multiple times...I've never yet paid interest; I've always paid off the loan before the 0% period expired--even the time I discovered the hard way about new charges "killing" the 0% benefit, I was able to pay off that card (transferring the balance to a different 0% interest offer on a card that didn't have any new (or recurring) charges on it...). But it's easy to foresee a scenario where there might be a problem with the ability to pay off the loan before the 0% interest period expires...it's a risk you have to consider carefully...

Good luck!

 

[iwrbnd]

Wow, DMKEDM, you're a wealth of knowledge! Thanks for all your input. I didn't know about the transfer fee. I'll have to compare the transfer fee to the interest charged by DVC and see which is cheaper. Also, I read the fine print a little closer and you're right the 0% isn't for the full 72 months! I'm leaning towards paying that darn interest towards DVC. It's less risk, especially in this economy...which is supposably getting better, right?

 

[DMKEDM]

You're smart to compare costs...I've never financed thru Disney, so don't have first-hand knowledge, but have read their interest rate is very high...it could be that the credit card interest rate is lower (for purposes of assessing risk of not being able to pay in full prior to the end of the 0% time frame)...

But I do know from first-hand experience that the transfer fee is "killer"...it may actually have stopped me from doing the 0% interest thing any more...

I also get frequent offers for "low interest" balance transfers...I don't have balances on my credit cards, so haven't explored those...but you should look at their fine print to see if their transfer fees are lower...it may make sense to put your DVC loan on a 1.99% or 2.99% or 3.99% card, depending on the specifics of those offers...

I so agree w/you about not wanting to pay interest...but lower interest is better than higher interest and what the best process is really depends on your own math--the cost of whatever alternative credit is available to you (or the cost of "lost earnings" if you decide to use savings) as compared to the cost of DVC-charged interest...

Lots of good luck to you...

 

[hellerjw]

If you have the money sitting in the bank and it won't take your emergency fund down too far it would make more sense to pay off the loan than pay interest. You can then turn around and replenish the emergency fund with the money that was going toward monthly payments.

If we assume your DVC loan is at roughly 11% (if you didn't do a 1 year term) and your savings are earning 3-4% (probably less and usually taxable) then you are potentially losing hundreds of dollars each month in loan interest.

 

[iwrbnd]

If you have the money sitting in the bank and it won't take your emergency fund down too far it would make more sense to pay off the loan than pay interest. You can then turn around and replenish the emergency fund with the money that was going toward monthly payments.

If we assume your DVC loan is at roughly 11% (if you didn't do a 1 year term) and your savings are earning 3-4% (probably less and usually taxable) then you are potentially losing hundreds of dollars each month in loan interest.

That's a good point, thanks! Yes, the interest rate is 11% which is really high! Maybe we should just pay the dang thing off!

 

[crisi]

Read ALL the fine print on the contract and be prepared for a sudden change in terms. Credit card companies can be very aggressive.

 

[Mick@Tink]

I totally get the "I don't want to pay interest" thing. I'm allergic to interest myself!

 

[Sandisw]

Thanks for the info! What if we put the DVC debt on our Discover card and then put no other purchases on it and only used our Disney Visa? Would that help with the confusion of what is getting charged interest and what isn't?

I asked about putting the DVC on my Disney Visa for the 6 months 0% interest. They said it would only work for the initial down payment. Bummer.

That's too bad. Last year, I was able to put my entire add on purchase on the card and got the entire cost at 0% interest. They told me at the time that it would only be for the first $2500, but it applied to it all. I was set to pay it off had it not happened so there was not a huge risk for me.

If you put on the Discover card and don't charge (providing there is no requirement), then you would avoid the interest charges for however long it is.

I think if you way all the options and know this is short term, it would be okay.