The Do It Yourself Balance Transfer

Discuss anything related to interest rates & fees, like balance transfer offers, low rate cards, annual fees, etc.
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big37guy
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The Do It Yourself Balance Transfer

Postby big37guy » Tue Jun 21, 2011 8:22 am

I wanted to look at balance transfer options for my higher interest cards, but no offers were available for my lower interest cards so I thought I would take matters into my own hands and do it myself.

My theory is that if I spend like $100 in cash/direct debit on groceries per month, then I could conceivably put that charge on the lower interest card and put the cash toward the higher interest card. This assumes that I'm in a strict paydown mode and no additional spending is going on with these two cards

Example: Card A has $5K balance and 20% interest. Card B has $2.5K balance and 10% interest.

Normal pay minimum on card B and lets say balance of $200 paydown budget on card A has me paying nearly $2900 on interest over the 52 months it would take to payoff the two cards.

But if I keep the $200 paydown budget and add in the $100 grocery costs towards card A while still paying the minimum on an increasing card B, then I would realize savings of about $800 in interest and be out of debt 5 months sooner without changing any of my spending habits.

I'm only just starting this myself right now but if you have done this with success (or failed miserably), I would like to hear about it. I know this would take a lot of work and discipline but if you're committed then, you can get even better savings. Assuming you pay cash for gas and pay a lot more than just $100 on groceries, you can get that money each month from the high interest card over to the lower interest one.


jeffysdad
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Postby jeffysdad » Tue Jun 21, 2011 3:16 pm

How about this: Find/get a card with no balance and use that for everyday spending and pay it off in full by the due date every month, thus incurring no interest. Take whatever money you can spare and pay as much as you can on the balance-carrying card with the highest effective APR. Pay the minimum on all the other cards you have balances on. When the high-interest card is paid off, focus on the next highest, etc.
American Express: Blue Cash Preferred (groceries, 6%; gas, department store, 3%); Gold Delta SkyMiles (Delta Air Lines, 2 miles/dollar, free checked bag).
US Bank: Cash+ (utilities, phone, internet, restaurant, 5%; drugstores, 2%).
FIA Card Services: Fidelity Amex (everything, 2%); Fidelity Visa (everything, 1.5%).
Chase: Freedom (rotating, 5%); Amazon (Amazon.com, 3%); PriorityClub (IHG hotels, 5 points/dollar); Sapphire (not in use).

*All cards are registered with PriorityClub IDine program for 8 points/dollar at participating restaurants.

big37guy
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Postby big37guy » Tue Jun 21, 2011 5:00 pm

I'm not suggesting that I shouldn't put everything I have to spare toward the card with the highest interest. That's what I will do. But as an added benefit why not put the cash that I would spend for everyday items (or in your case the cash to pay off the 0 balance card) toward the highest interest and do the spending on the card with the lowest interest (continue paying minimum of course). This way the interest paid is reduced. The only potential draw back is the fact that you might take your lower interest card above 30% of your credit, but I'm already so far past that, it's not really a negative to me right now.

By my calculations, there is a pretty decent savings by doing this especially depending on your every day savings amounts and the difference between the interest rates of your two cards.

jeffysdad
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Postby jeffysdad » Tue Jun 21, 2011 8:37 pm

Interest will accrue immediately on any charges you make on a card on which you are carrying a balance; in other words, there is no grace period.
American Express: Blue Cash Preferred (groceries, 6%; gas, department store, 3%); Gold Delta SkyMiles (Delta Air Lines, 2 miles/dollar, free checked bag).
US Bank: Cash+ (utilities, phone, internet, restaurant, 5%; drugstores, 2%).
FIA Card Services: Fidelity Amex (everything, 2%); Fidelity Visa (everything, 1.5%).
Chase: Freedom (rotating, 5%); Amazon (Amazon.com, 3%); PriorityClub (IHG hotels, 5 points/dollar); Sapphire (not in use).

*All cards are registered with PriorityClub IDine program for 8 points/dollar at participating restaurants.

big37guy
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Postby big37guy » Wed Jun 22, 2011 10:58 am

Indeed, but interest will also immediately stop accruing when I make the payment to the other card. If I charge $100 today on a card that carries a 10% rate, then I will pay $.83 in interest in the first month. If, at the same time, I pay that same $100 toward the card that has the 20% rate, I won't pay $1.67 in interest in the first month. Not much but stretch the compounding interest over several months or even years, and you have significant savings.

You can take that even further and say that if I know I need to go the grocery store this weekend and I'll spend $100, then I can put that $100 toward the high interest card today and not spend on the low interest card until the weekend. Thereby eliminating any worry about a lack of grace period or transaction delays.



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