3% up front or 4.99% all along?

[IOBA]

Ok guys, help  me out here.  That tempting BT for 3% transaction fee, 0% interest for 1+ (until January 1, 2012) yrs is teasing me!  (BT would be about 11.5k)

I have a cc debt, at 4.99%, calculated on the average daily balance.  I  am sooooo tempted to take the one time hit of 3% to do the BT and then make minimum payments on the BT at 0%, with a balloon payment at the end.  Meanwhile, socking everything else I can to the 4.99% to get it paid off.  

Normally, I am against having debt and most definitely against robbing Peter to pay Paul.  But in this case, would I save money?

Stats -

Debt at 4.99% - significant, has to be paid off by May 19, 2012

BT at 3% fee - 11.5k, has to be paid off by December 31, 2011

What do you think?  To do or not to do the BT?

[haulingthescoreup]

OK, that would be for fifteen months (sorta), if you took it now. So that would be 3% spread over 1.25 years, so the rough equivalent of 2.4% per annum.

Would you BT the entire balance, or just part of it, and knock down the rest of the 4.99%? (sounds like that's what you were saying)

Depending on whether you made an October payment on the BT, it might be more like 14 months, which would closer to 2.6%, but that's still better than 4.99%.

I know you're ruthlessly self-disciplined, so I assume you have a way of knowing that you can kill off the BT balance at the end.

Sounds to me like the BT is a good deal, although I'm still trying to get my coffee intake up to an acceptable level.

[IOBA]

I haven't had coffee yet either...

There would still be significant debt left at 4.99% which has to be paid off by May 19, 2012.   Doing the balance transfer of 11.5k knocks down that debt a little bit.    

So some debt at 4.99%.  Strategy is to pay as much on that debt as possible, while paying the minimum on the 0% debt.  Then doing a balloon payment on the 0% debt to have it paid off December 31, 2011.

The BT is with Citibank.  Their wording is suspect - it says 3% fee, 0% on the bt.  SO...does that mean that they would charge interest on the bt fee?  Logically, no.  Profitably - yes.

Check your PM.

[haulingthescoreup]

The way that BT fees work is that the fee is included in the balance that is transferred. So your total balance with Citi will be $11.5K + 3% = $11,845. Since it's a 0%, it doesn't matter. If it were a 1.99% or 3.99% or whatever, you would definitely be paying interest on the fee.

Maybe Citi sneaks interest onto the BT fee, but I've never seen another bank that does this. Definitely worth asking them to be sure, though.

btw, the new Credit Card ACT requires banks to apply a payment to the lower interest rate first (it's a bit more complex, but that's the gist), so technically you can put purchase on a BT card and pay them off separately. It used to be that in that case, all your payments would go to the lower-APR balance while the higher-APR balance, sat there untouched, chuckling away, increasing every month. This is no longer the case, but you have to watch your statements like a hawk to make sure that the payments are applied properly. Just tossing that out there for anyone else reading.

It sounds like you've got it planned out right. This would be awfully risky for someone who hadn't gained control of their credit usage, but I'd think you'd be fine, as long as you have some savings tucked away to make minimums if something blew up in the interim.

[IOBA]

Thanks for the replies!  

A phone call to Citibank cleared a few fuzzies up and totally chilled my interest in doing a BT.

The BT fee *IS* charged interest at the current interest rate for purchase for your card.  So in this case, if I do a BT for 11.5k the fee would be $345.   That fee would be subject to interest charges, although the rest of the money is not.   To avoid the interest charges, you have to pay the bare minimum PLUS the $345 off when the first statement cuts.

If you are taking advantage of two different BT offers from Citibank - same card - different pay off dates, this is how they said they would apply the payments.

Minimum payment is alloted to both BT's.  (Remember they have the same interest rate - zero.)

Anything over and above the minimum balance would be charged to the newest BT.  In my case, it looks like this...

Current balance 0% $2300 due in full by 12/31/2010

New bt 0% $11.5k due in full by 12/31/2011

Minimum pymt $207 (1.5% of the balance)

I pay $300 - they distribute

a) 2300-35= 2265

b) 11,500-172=11,328

So I will continually making progress on BT #2, but literally no progress on BT #1 until BT #2 is paid off.  Come 12/31/2010 when BT #1 is due to be paid off, it won't be (unless bt2 is).  So come 01/2011,  Citibank is now charging me interest on BT #1.  Now that BT #1 has the higher interest rate, the bare minimum will be applied to BT #2, and all else on BT#1.

The c/s rep even checked with someone else to make sure he had that right.  He acknowledged if I took advantage of two offers, then I would never get ahead.  And he told me to just do it and so what if I have to pay interest on BT #1 for a month or two - no big deal.

Uh, it is a big deal!

SO beware!

[IOBA]

Thanks for the replies!  

A phone call to Citibank cleared a few fuzzies up and totally chilled my interest in doing a BT.

The BT fee *IS* charged interest at the current interest rate for purchase for your card.  So in this case, if I do a BT for 11.5k the fee would be $345.   That fee would be subject to interest charges, although the rest of the money is not.   To avoid the interest charges, you have to pay the bare minimum PLUS the $345 off when the first statement cuts.

If you are taking advantage of two different BT offers from Citibank - same card - different pay off dates, this is how they said they would apply the payments.

Minimum payment is alloted to both BT's.  (Remember they have the same interest rate - zero.)

Anything over and above the minimum balance would be charged to the newest BT.  In my case, it looks like this...

Current balance 0% $2300 due in full by 12/31/2010

New bt 0% $11.5k due in full by 12/31/2011

Minimum pymt $207 (1.5% of the balance)

I pay $300 - they distribute

a) 2300-35= 2265

b) 11,500-272=11,228

So I will continually making progress on BT #2, but literally no progress on BT #1 until BT #2 is paid off.  Come 12/31/2010 when BT #1 is due to be paid off, it won't be (unless BT #2 is).  So come 01/2011,  Citibank is now charging me interest on BT #1.  Now that BT #1 has the higher interest rate, the bare minimum will be applied to BT #2, and all else on BT#1.

The c/s rep even checked with someone else to make sure he had that right.  He acknowledged if I took advantage of two offers, then I would never get ahead.  And he told me to just do it and so what if I have to pay interest on BT #1 for a month or two - no big deal.

Uh, it is a big deal!

SO beware!

[haulingthescoreup]

Important enough to share twice!

---

@IOBA wrote:

...The BT fee *IS* charged interest at the current interest rate for purchase for your card.  So in this case, if I do a BT for 11.5k the fee would be $345.   That fee would be subject to interest charges, although the rest of the money is not.   To avoid the interest charges, you have to pay the bare minimum PLUS the $345 off when the first statement cuts...

---

Whoa! BofA didn't do that on my BT's. Glad you checked.

[MarineVietVet]

I recently did a BT on my Citi card and didn't even think about this. It doesn't matter now because it's paid off but I'll definitely give this a closer look next time. Thanks for sharing.

From a BK years ago to:
EX - 9/09 pulled by lender 802
EQ - 7/06-663, 3/10-800, 10/10-813
TU - 8/10-772
You can do the same thing with hard work

[IOBA]

LOL - my math was off (did anyone notice?) and for some reason the post posted twice!

My rule of thumb has always been to pay off whatever interest (new) is on the account, as well as a generous payment if I am financing something.  

When I did the first BT, I paid the interest off immediately, as well as a generous payment.

All's I can say is be careful and ask questions.  BT's are not what they use to be!