Tax Writeoff vs. Low Interest CC Purchase?

[hmerritt]

We just bought, FINALLY!! And we went through Disney Financing. Now that we are home, we are wandering if it wouldn't be a better deal to just pay it in full with one of our 3.99% for the life of the balance CC's? We're trying to figure if the ability to write off the interest on our taxes is a better incentive over the immediate interest savings. We figure we would save $45-50 a month over the 10 years if we actually took 10 years to pay it off..... equating to around $6000.

Thanks for any input!
Heather

 

[Donald is #1]

I don't know the answer to your question, but I just wanted to say:

Welcome Home!

 

[crisi]

There are a few things to consider. Your interest rate on your DVC loan adjusted for the tax deduction will be Interest Rate * (1 - Your Marginal Tax Rate). It will probably be higher than 4% BUT....

Very few credit cards are going to guarentee a 4% return for 10 years. Most will use any excuse at all to jack up the rate. A 4% rate is a teaser rate. You'll be moving that around from card to card for ten years - often in reaction to seeing the interest rate suddenly jacked up for a "late" payment or because your teaser rate ran out. You'll find yourself suddenly subjected to fees. You'll really need to watch the card statement and I bet you'll spend at least three or four hours over the next ten years arguing with credit card companies over penalties in order to break even. I wouldn't trust putting it on a card to save money.

 

[flyerron]

That interest is not tax deductable last I checked. A home equity loan is tax deductable. Depending on how much you financed it may not make a big difference. $6000 over 10 years is $600 a year or $50 a month. May or may not be worth exploring other options.

 

[CapeCodFam]

We transfered our first purchase to a low fixed CC to save on interest. We made payments for 2 years and then paid it off. Having said that, the payments are much higher then they would be in a 10 year loan. CC minimums tend to be 2-4% of the balance each month.

If you are looking to save more on the total cost and can absorb the bigger payment and never be late, fixed low-rate CC is as cheap as it gets.

If you looking for a low monthly payment, Disney financing over 10 years is good. However, total cost of a 10 year loan at 10+% is a lot of money.

I'm not a fan of home-equity loans as I don't believe in risking your home by using it as a piggy bank. Besides, equity loans are somewhere north of 7-8% these days.

 

[crisi]

That interest is not tax deductable last I checked. A home equity loan is tax deductable. Depending on how much you financed it may not make a big difference. $6000 over 10 years is $600 a year or $50 a month. May or may not be worth exploring other options.

If they financed through Disney it is PROBABLY tax deductible. Not certainly, but most likely. You should consult your own tax adviser, etc., etc., but financing through DVC is secured by the property itself and counts as a mortgage. A home equity loan would also PROBABLY be tax deductible. Credit card interest would not be, at least not generally.

Once again, consult your own tax adviser. We got rid of our primary home mortgage because it didn't create a tax deduction for us - everyone's tax situation is different.

 

[browniemtb]

Good question. Using home equity would be tax deductable. What you should figure is what is better. What rate is the home equity loan at.....less your actual deduction from your taxes. Rough figuring if the home equity rate is around 7% in reality after your tax deduction you would be paying some where in the neighborhood of 5%. So the CC idea at 3.99% for the life would be great as long as their rules do not get broken. I'm sure there are some real finance wiz people here that can explain this better. Wlecome Home!

Brownie

 

[Slakk]

There are a few things to consider. Your interest rate on your DVC loan adjusted for the tax deduction will be Interest Rate * (1 - Your Marginal Tax Rate). It will probably be higher than 4% BUT....

Very few credit cards are going to guarentee a 4% return for 10 years. Most will use any excuse at all to jack up the rate. A 4% rate is a teaser rate. You'll be moving that around from card to card for ten years - often in reaction to seeing the interest rate suddenly jacked up for a "late" payment or because your teaser rate ran out. You'll find yourself suddenly subjected to fees. You'll really need to watch the card statement and I bet you'll spend at least three or four hours over the next ten years arguing with credit card companies over penalties in order to break even. I wouldn't trust putting it on a card to save money.

Don't forget the fact that unless you have an enormously large credit limit anytime a card goes over 50% usage the CC companies get squirelly and not just the one with the high balance.

I was rate jacked because my online banking screwed up. They admitted it and attempted to rectify it but Citibank still rate jacked me to 29.95%.

I now buy a pack of gum every 6 months to keep it active and pay it off.

 

[flyerron]

All in all don't get hung up on the interest rate. Cash flow is much more important. The difference in interest rate may be several points but the cash flow may be just a few dollarsCareful that you don't knock yourself out trying to maneuver into a better interest rate with risk and lots of mental work for a small cash flow difference.

 

[mikeandkarla]

The low cc rate of 3.99 is definitely the way to save the most money long term. However ther are a few things you consider:
- only use that card for DVC. Do not use it for any other reason. It is easier to maintain doing it that way
- You must not be late with ANY payments, not just on the cc with the DVC balance, but all off your monthly payments. In the fine print of your 3.99 statement, I am sure you cannot be late on any payments.

Always be wise with which ever way you choose. Try to have a backup plan in case something does go wrong that really isn't your fault, ie.. banking error. If that is the case your 3.99 will jump to around 28.99. Be ready to move that money off the card if that should happen.

 

[crisi]

The low cc rate of 3.99 is definitely the way to save the most money long term. However ther are a few things you consider:
- only use that card for DVC. Do not use it for any other reason. It is easier to maintain doing it that way
- You must not be late with ANY payments, not just on the cc with the DVC balance, but all off your monthly payments. In the fine print of your 3.99 statement, I am sure you cannot be late on any payments.

Always be wise with which ever way you choose. Try to have a backup plan in case something does go wrong that really isn't your fault, ie.. banking error. If that is the case your 3.99 will jump to around 28.99. Be ready to move that money off the card if that should happen.

It doesn't even have to be a banking error. These credit card companies will HOLD YOUR PAYMENT to get out of the rate. I've had cases where I've done an electronic transfer ten days before the due date and been "late." "Well, we didn't credit your account until the 15th, and it was due on the 14th." They are slimy as a rule.

 

[grumpynomore]

Well, I can't believe it, but we are awaiting ROFR on a potential purchase at BWV.

Anyway, speaking of credit cards, does anyone know whether we can basically pay the entire purchase price with a credit card? I'm guessing it's a no-no, but it would be a great way to accumulate some credit card rewards points, and our credit limit would certainly handle it. Also, we'd pay it off immediately, so I'm not concerned about that.

Has anyone done it and/or know if it's possible? Thanks.

 

[CarolMN]

You really need to ask your broker (or seller) since you are buying resale. Payment policies vary. Most will not allow credit cards since they do not want to pay the credit card company fees.

Disney will allow it - several have reported paying for their add on purchases with a credit card and at one time, DVC even had a Disney Visa promotion going for DVC purchases. Not sure if it is still going.

Good luck on the ROFR!

 

[grumpynomore]

Thanks. I guess I should have done a more thorough search before asking. Lots of info in the archives pretty much confirming that it's a "fuggedaboudit" for resales. Oh well.