topic Re: Need a math wiz!!! in Credit Cards

Need a math wiz!!!

BIRDWRITER — Tue, 05 Mar 2013 00:32:54 GMT

Hi all,

I'm trying to figure this out, but it makes my brain hurt!

DH and I recently purchased a new home, and of course we felt compelled to buy new furniture. We also had to buy some appliances for our old home, which we still own and rent out.. We financed the purchases through the furniture company's lender on an offer of no interest for 12 months. After the 12 months, the accrued interest and new interest rate become ridiculous. We knew we wouldn't have it paid off in 12 months, but we also knew we could transfer it to a lower-interest credit card when the deal got close to expiration.

Well, now we're getting close to that time, and I can't decide which is a better deal. We owe about $10,000 and will need about 24 months to pay off. We have two options. One cc is offering us 0% for 12 months with a 2% transaction fee, and remaining balance will revert to 17.99% (no accrued interest). The other option is 4.99% for 24 months with zero transaction fee. I'm having a hard time calculating which is the better deal. Can anyone help a math-challenged English major?

Re: Need a math wiz!!!

SnackTrader — Tue, 05 Mar 2013 00:42:34 GMT

The 4.99% will only cost you $500 a year on a $10,000 balance assuming that you are referring to APR. But, we need to know how much you are paying down in the first 12 months to do any serious calculations on the 0% offer. The transaction fee will be $200, but the interest during the second year could be well over $1,000 If you don't make good progress during the first 12 months.

Re: Need a math wiz!!!

Anonymous — Tue, 05 Mar 2013 00:43:18 GMT

take the 5% no fee for sure.

Re: Need a math wiz!!!

BIRDWRITER — Tue, 05 Mar 2013 00:51:32 GMT

Thanks! I knew I left something out of the equation. I would probably pay it in half in 12 months...divide the starting balance by 24 and make those payments. I would be entering the second year with (give or take) about 5k balance. Only issue is that the required payments would likely be much much lower, making it very easy to lapse into smaller payments and drag it out beyond 24 months. That's why I'm trying to get my head around the various scenarios.

Re: Need a math wiz!!!

Cdnewmanpac — Tue, 05 Mar 2013 00:56:28 GMT

assuming you stick to 24 months, the 4.9 option will cost about$520, while the 0 then 17.99 will cost about $700

Re: Need a math wiz!!!

SnackTrader — Tue, 05 Mar 2013 01:03:10 GMT

In a situation where you only pay off $5,000 in the first 12 months, you would be paying under $75 a month in interest during the second 12 months, but you would need to pay that balance off in under 6 months to end up in a better scenario. Better scenario means spending under $300 in Interest.

Basically - take the 4.99% offer.

First month:

5,000 * (17.99/12) = $74.95 interest. That is after a $200 transfer fee you paid early on.

then you pay 5,000*.08333 to reduce debt = 416.67

Second month:

$4,583.3 *(17.99/12) = $68.75 interest.

Third month:

$4,166.66 * (17.99/12) = $62.46 interest

That's $206 interest in just 3 months. So, I will stop there.

Re: Need a math wiz!!!

Anonymous — Tue, 05 Mar 2013 01:16:03 GMT

Original amount
$10,000.00	Transfer fee	Rate
	0%	4.99%

payment #	Balance	Payment	Interest
1	$10,000.00	($438.67)	($41.58)
2	$9,602.91	($438.67)	($39.93)
3	$9,204.18	($438.67)	($38.27)
4	$8,803.78	($438.67)	($36.61)
5	$8,401.72	($438.67)	($34.94)
6	$7,997.99	($438.67)	($33.26)
7	$7,592.58	($438.67)	($31.57)
8	$7,185.48	($438.67)	($29.88)
9	$6,776.69	($438.67)	($28.18)
10	$6,366.20	($438.67)	($26.47)
11	$5,954.01	($438.67)	($24.76)
12	$5,540.10	($438.67)	($23.04)
13	$5,124.47	($438.67)	($21.31)
14	$4,707.11	($438.67)	($19.57)
15	$4,288.01	($438.67)	($17.83)
16	$3,867.17	($438.67)	($16.08)
17	$3,444.58	($438.67)	($14.32)
18	$3,020.24	($438.67)	($12.56)
19	$2,594.13	($438.67)	($10.79)
20	$2,166.25	($438.67)	($9.01)
21	$1,736.59	($438.67)	($7.22)
22	$1,305.14	($438.67)	($5.43)
23	$871.90	($438.67)	($3.63)
24	$436.85	($438.67)	($1.82)
25	$(0.00)	($438.67)	$0.00
		total interest	($528.06)

Re: Need a math wiz!!!

Anonymous — Tue, 05 Mar 2013 01:17:02 GMT

Original amount	Transfer fee	Rate after intro 0%
$10,000.00	2%	17.99%

payment #	Balance	Payment	Interest
1	$10,200.00	$(425.00)	0
2	$9,775.00	$(425.00)	0
3	$9,350.00	$(425.00)	0
4	$8,925.00	$(425.00)	0
5	$8,500.00	$(425.00)	0
6	$8,075.00	$(425.00)	0
7	$7,650.00	$(425.00)	0
8	$7,225.00	$(425.00)	0
9	$6,800.00	$(425.00)	0
10	$6,375.00	$(425.00)	0
11	$5,950.00	$(425.00)	0
12	$5,525.00	$(425.00)	0
13	$5,100.00	($467.54)	($76.46)
14	$4,708.91	($467.54)	($70.59)
15	$4,311.96	($467.54)	($64.64)
16	$3,909.06	($467.54)	($58.60)
17	$3,500.12	($467.54)	($52.47)
18	$3,085.05	($467.54)	($46.25)
19	$2,663.76	($467.54)	($39.93)
20	$2,236.15	($467.54)	($33.52)
21	$1,802.13	($467.54)	($27.02)
22	$1,361.60	($467.54)	($20.41)
23	$914.47	($467.54)	($13.71)
24	$460.64	($467.54)	($6.91)
25	$0.00	($467.54)	($0.00)
		total interest	($710.52)

Re: Need a math wiz!!!

SnackTrader — Tue, 05 Mar 2013 01:27:34 GMT

Things we all learned today:

When one has access to Excel, they can give better answers than the lazy guy on the iPad.

Great job, Mauve.

Re: Need a math wiz!!!

Sevenfeet — Tue, 05 Mar 2013 01:27:58 GMT

I won't add anything to the figures above other that they are all correct. Comparatively, both deals need about $450 a month payment to end at paid in full in 24 months. But the 4.99 deal over 24 months racks up about $50 less in interest over the same period of time (the other deal with 17.99% for a year's time is a real financial drag). Top it off with a $200 balance transfer fee and you're $249 more out of pocket with the 0%/12mo+17.99%/12mo deal versus 4.99%/24mo.

Best of all, you can model all this yourself if you know the right website.

http://www.calculatorweb.com/calculators/creditcardtrancalc.shtml

One thing to add to all this...my wife and I were in a similar situation a couple of months ago where we needed to pay off some "toxic" debt (i.e. higher interest credit cards) and we wanted to do it with a 0% credit card. One of the options we considered was the Penfed Platinum Rewards Visa. We needed a gas rewards card anyway but Penfed is doing a 0% for 18 months offer through the end of this month (March). We applied and asked specifically for the credit limit we needed in order to do the balance transfer (unlike waiting for another company just to grant us a specific number). The amount was approved and we began the balance transfer process immediately. Best of all, Penfed allowed us to balance transfer from a line of credit as opposed to a credit card, which is were one of our debts was. There is a 3% fee but it's capped at $250. A Penfed card is not easy to get approval for but I put that out there as an option.

Re: Need a math wiz!!!

Anonymous — Tue, 05 Mar 2013 03:17:33 GMT

@SnackTrader wrote:
Things we all learned today:

When one has access to Excel, they can give better answers than the lazy guy on the iPad.

Great job, Mauve.

Thanks! Excel is a large part of my job...I play with it all day. I've got spreadsheets that I play with to estimate *exactly* how much I need my house to appraise for to qualify for a refi...what the PMI would be at 85-95% LTV...how long it would take to pay it off in the same amount of time...how much I can expect to pay in property taxes based on various taxable values...it references my current payment plan to pull the payoff balance given the date...that's just the refi sheet. Then there's the credit card balance payoff sheet and the "How much can expect my take-home pay to be if I raise/lower my 401(k) contribution" sheet...and the "when does my balance on my car loan get to be lower than the value of my car" sheet...it goes on and on. Oh, and of course, none of those sheets are actually FOR my job.

Re: Need a math wiz!!!

tcbofade — Tue, 05 Mar 2013 06:43:39 GMT

I just KNOW that I'm going to get yelled at for this...

...but in theory, you could do the zero percent BT offer for 12 months, then do it again in 11 months to a different card.

Just sayin....

Re: Need a math wiz!!!

distantarray — Tue, 05 Mar 2013 06:51:40 GMT

@tcbofade wrote:
I just KNOW that I'm going to get yelled at for this...

...but in theory, you could do the zero percent BT offer for 12 months, then do it again in 11 months to a different card.

Just sayin....

This....

Re: Need a math wiz!!!

BIRDWRITER — Tue, 05 Mar 2013 14:41:14 GMT

wow, thanks everyone!!! I was intuitively leaning toward the 4.99%, but having a hard time plotting it out. Gotta set up some Excel spreadsheets like Mauve. And tcbofade, I was thinking the exact same thing!

You guys are the best.

Re: Need a math wiz!!!

Sevenfeet — Tue, 05 Mar 2013 15:01:41 GMT

@tcbofade wrote:
I just KNOW that I'm going to get yelled at for this...

...but in theory, you could do the zero percent BT offer for 12 months, then do it again in 11 months to a different card.

Just sayin....

True in theory. But there are usually balance transfer fees to consider.