I can do math fairly well, but figuring out how credit payments work confuses me. If any of you math types have a moment, I’d appreciate the help.
I recently transferred $9000 of debt to a new credit card. The new credit card charged $100 for the transfers, so I now owe $9100 on the new card. The transfer deal was for 0.0% interest until January 2007. After that time, the interest is 9.74% (APR) or 0.02668% (daily periodic rate). The minimum payment is 2% of the new balance, plus interest due, plus late fees, etc.
Therefore, at the beginning of the payments, my payment is $182 (2% of $9100) plus zero interest, for a total of $182. Of course, this goes down as the balance is reduced. What I want to do is pretend that I’m being charged interest now and pay accordingly. I want to do that so that (A) the balance goes down faster, and (B) when the interest does start to be charged, it won’t be such a shock to my monthly budget. Interest is not accumulating now. I will be charged interest on the amount owed in January. If I paid the entire balance before January, I would only have been charged the $100 for a $9000 loan. This is more than offset by the more than $200 in interest I’ve been paying each month on the same $9000.
So, how do I figure how much to send under my plan?
Actually that is silly. I just stuck the figures in the spreadsheet and came up with payments of:
$255.12 first time in May
$250.35 June
$240.95 July
$236.44 August
$229.75 September
$221.12 October
$216.99 November
$208.84 December
$204.93 January
$199.13 February
The last one should be about what they ask for in February for January when you opening balance should have been about $7,035.
Get the “Snowball Calculator.” [1]
Plug in your card. The only tricky part of this (which isn’t solved by the spreadsheet, btw) is figuring your minimum payments, except for the fact that your minimum payments don’t matter; you’ll be paying tons more than those amounts.
Go to the “Available Monthly” field. This number can be used as a proxy for your payment so long as you are only running the spreadsheet against a single card. Ratchet the number up and down until you have a 12 month pay-off with equal monthly payments.
Incidentally, if this didn’t have the 0% teaser rate for 9 months, $793 gives you 11 months of payments at $793 followed by one payment of $782, with a total interest paid of $505. If they use “trailing month interest” you’ll wind up with a small amount of interest due in month 13, I’m guessing under $30, but that part varies from lender to lender.
If you stick with $793 in the real world, WITH your teaser rate, I’m showing 11 months of payments of $793 followed by one month of $305, total interest paid of less than $28. Then, in month 13, you’ll get a stupid interest charge for trailing months, but probably less than $30.
Your minimum payment for a 12 month payoff with a 9 month 0% teaser and 9.74% standard rate would be $754. This would give you 11 months of $754 followed by one month of $744, total interest paid of $37.67, except for the stupid trailing interest charge for month 13. Again, probably under $30.
Disclaimer: Please do not trust a stranger on the internet to plan your finances.
I could have easily made an arithmetic mistake which may cost you thousands. I relied upon tools I did not write; while I believe these tools to be trustworthy, I have not regression tested them for flaws. I am a computing professional and not trained or licensed in any financial planning, tax or accounting field. Consult the terms of your agreement with your card issuer, as these terms may be sneaky and underhanded!
Good luck. In your shoes, I would make the largest payments I could. Remember that at its sole option and without any right on your part to decline, your CC issuer can change that 9.74% to 23.9% with only 14 days notice to you, at any point after the teaser rate has expired… also, get out of the habit of using credit. No debt is good debt!
Well, the only if, and , and but is that they can raise the rate at their discretion. Of course, I can also move the balance elsewhere, including right back where it came from.
One thing to be very careful of is not to use this card for any new purchases. Quite often with balance transfers like this, any payments are first used to pay off the transfered balance. (You know that portion of your balance that doesn’t get charged interest.) So if you make a $100 new purchase and pay $100, you will now owe interest on the $100, since your payment will be first applied to your old balance.
Yes, thanks. I created this new account for the specific purpose of transferring these balances. Actually, the 0% rate will continue past January if I make certain required purchases or advances. I’m sure that they’re expecting me to do that and charge interest on that. I intend to look at it come January and see if it is less expensive for me to make the required purchase or to pay the interest or to transfer the whole thing to another account.
Unfortunately, I don’t see me paying this balance in twelve months. However, I would like to put a serious dent in it by January.