? for someone good at understanding compounding interest please

[Anonymous]

Is there a way to understand how a 3% transaction fee for a 0% interest BT for 6 months compares to paying 7.9% APR on the same balance for same amount of time? (Minimum transfer fee of $10. My balance to transfer would be $2000 - which I can pay down during that time because I just finished my car loan!) Which way am I ahead? Is there a compounding calculator that can help me figure this out for myself?

[Cleanmachine]

This, in my opinion, would be a good financial move.

The transaction fee on $2000.00 at 3% would be $60.00.

Compare that same $2,000.00 at 7.9% for the same time period.

You can find Calculators at: http://www.bankrate.com/brm/rate/calc_home.asp

Hope this is helpful.

[smallfry]

Why would you want to BT a small amount like 2K in this credit climate? What is the upside to keeping this balance? Interest rates are extremely low even if they were higher we wouldn't be talking a lot of money here.

[Anonymous]

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@smallfry wrote:
Why would you want to BT a small amount like 2K in this credit climate? What is the upside to keeping this balance? Interest rates are extremely low even if they were higher we wouldn't be talking a lot of money here.

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BT'ing is not an automatic death sentence to an AA.  I personally have a 4K balance that I BT'd over a year ago to my Chase card and I've gotten nothing but 2 new CC's this year and CLI's.  Yes I had 2 accounts closed due to inactivity, but no CLD's and no accounts closed because of an AA. Knocking on wood.

And for some people, even $25 is unmanageable.  I don't know the OP's personal situation, but if they're trying to save money, then the upside is saving money and we can't simply say, we're not talking about a lot of money here.  

[laz98]

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@smallfry wrote:
Why would you want to BT a small amount like 2K in this credit climate? What is the upside to keeping this balance? Interest rates are extremely low even if they were higher we wouldn't be talking a lot of money here.

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not everyone can afford to immediately pay off the balances they have accrued, just because the economic climate has changed.  while i am sure many of them would like to, sometimes it's just not possible when they would like to.

[Anonymous]

The critical factor is how much you intend to pay each month.

If you intend to pay off the $2000 in six equal payments (approximately $341 per month), then the 7.99% option is actually less expensive - total interest would be about $47.00, about $13.00 less than the BT fee.

If you pay a bit less during the first few months, and a bit more at the end, there is less difference between the two options. But, if you paid a small amount (less than 12% each month) for the first 5 months and the balance in the 6th month, the BT option would be slightly less expensive.

Remember - the BT fee is applied to the entire balance at the beginning. And since you are only getting 6 months free use of the BT, the 3% fee is more like a 6% APR.

On the other hand, the 7.99% interest is applied to the $2000 balance the first month, but to a smaller balance each successive month. If you pay in six equal payments, and compared the total interest you paid to the original balance, it is more like a 4.7% APR.