Credit Card Interest Question

[AhsanDaredia]

Hi all!

I am new to this forum and this is my first post. I was using Google to search on budgeting advice and thankfully came across this wonderful website!

Just a few facts about me:

24 years old
Started work as a Financial Analyst 2 months ago
I have no issues in saving or living off my income, but I did have a credit card question.

I've had a Bank of America Platinum + card since I was 16 (parents co-signed for it) so it's been nearly 8 years since I've had it! Now that I am getting my career started, I finally started studying the real nature of credit cards and I was so stupid to NOT do it earlier! Here it is:

I don't use the card at all.

Card Limit: $3000.00
Card Balance: $2815.29
APR %: 27.99 (kill me now)
Monthly payments I can make: $250.00

Here's the thing, making $250 a month or even $300 a month is do-able, but the interest is killing me! If I make a $250 payment a week before the due date, will I save a little (even if its $20) in interest over the course of the year, or am I just okay making the payment a day before the due date? I spoke to a BoA specialist and she said the only way to avoid any interest is to pay off the entire $2815.29 in full which I can't afford now obviously. Making $250 a month will mean I'll be debt free in about 14 months. Might as well bump up the payment to $275 and be debt free in 11 months. What do you all think? I don't use the card at ALL, I just want to get the feeling of paying off the entire card since this is my first real job and first time on my own without my parent's support. For the first time in my life I am financially independent and I am proud to say that! I just don't want to pay this ridiculous interest rate.

I also tried to call them and plead them to lower the % rate, no luck.

Thank you all so much in advance and I look forward to posting on this forum more often!

Ahsan

[~bs]

Just pay more than the minimum as much as youre comfortable with. If you pay 250 per month it should almost be paid aftter 1 year. Maybe 14 months? Theres loan calculators that will tell you the payoff date.

[Petunia 100]

Hello and welcome to the SA forums,

Credit card interest accrues every day on your outstanding balance. So yes, the sooner your payment posts, the less interest you pay.

Do you have a good credit rating? If so, I suggest you look for a balance transfer offer. Suppose you qualified for a 0% offer for 12 months with a 3% transfer fee. The transfer fee would be $84.46 and there would be no interest at all for a year. If you paid $263.62 per month, you would be DONE in 11 months (I always shave 1 month from the 0% term, to be certain everything is posted before the promotional rate ends).

Another strategy you might try is to set up bill pay, then pay what you can every payday. Have a few bucks left from your last payday? Send it in. Receive a tax refund? Send it in. Grandma gives you $50? Send it in.

The good news here is you have learned your lesson early, and your debt is small. This lesson should serve you well for many years to come.

[kork13]

Have you looked at the possibility of getting a new card that offers a promotional rate for balance transfers? Those promo rates are typically between 2%-6%, or sometimes even 0%, for 12-18 months. That would give you enough time to pay off the balance while saving you hoards in interest charges.

[AhsanDaredia]

Just pay more than the minimum as much as youre comfortable with. If you pay 250 per month it should almost be paid aftter 1 year. Maybe 14 months? Theres loan calculators that will tell you the payoff date.

That's exactly what I'm thinking. Anything above the minimum is better!

Hello and welcome to the SA forums,

Credit card interest accrues every day on your outstanding balance. So yes, the sooner your payment posts, the less interest you pay.

Do you have a good credit rating? If so, I suggest you look for a balance transfer offer. Suppose you qualified for a 0% offer for 12 months with a 3% transfer fee. The transfer fee would be $84.46 and there would be no interest at all for a year. If you paid $263.62 per month, you would be DONE in 11 months (I always shave 1 month from the 0% term, to be certain everything is posted before the promotional rate ends).

Another strategy you might try is to set up bill pay, then pay what you can every payday. Have a few bucks left from your last payday? Send it in. Receive a tax refund? Send it in. Grandma gives you $50? Send it in.

The good news here is you have learned your lesson early, and your debt is small. This lesson should serve you well for many years to come.

Thank you for your quick reply! My credit rating is about 702 (could be better but my sister has a car loan of $9000 which she pays herself but its under my name) so my rating takes a hit. I have a another CapitalOne credit card that is in its introductory rate of 0% but I only use it for gas and have no balance on it. I asked CapitalOne but I don't qualify for a balance transfer just yet.

Bill pay sounds like a great idea. Can I pay small amounts every few days or would it be best to pay on payday? I always have savings from my paycheck!

Have you looked at the possibility of getting a new card that offers a promotional rate for balance transfers? Those promo rates are typically between 2%-6%, or sometimes even 0%, for 12-18 months. That would give you enough time to pay off the balance while saving you hoards in interest charges.

I already have two cards, if my debt was higher I would consider this no doubt!

Once again thank you all! Glad to be here.

[neatdesign]

I've had a Bank of America Platinum + card since I was 16 (parents co-signed for it) so it's been nearly 8 years since I've had it! Now that I am getting my career started, I finally started studying the real nature of credit cards and I was so stupid to NOT do it earlier!

I don't use the card at all.

Card Limit: $3000.00
Card Balance: $2815.29
APR %: 27.99 (kill me now)
Monthly payments I can make: $250.00

Okay, a few things don't make sense to me:

You said that you don't use the card at all, but yet you have a balance on it that's taking up 94% of your credit limit. Which is it? How did you end up with that balance? And how long has your balance been that high?

You've had a credit card for 8 years and have a 27.99% APR. Have you had any missed, late or bounced payments? Ever gone over your $3000 limit? That's an extremely high APR for an account open for so many years. How long has this account had the 27.99% APR?

You said your parents co-signed the credit card. Are they still listed on the account? What is THEIR credit like? Is is possible that they have poor credit and that negatively affected this card?

I spoke to a BoA specialist and she said the only way to avoid any interest is to pay off the entire $2815.29 in full which I can't afford now obviously.

I recommend calling back and asking to speak to a manager. And if the manager says the same thing, ask to speak to the manager's manager. If your account has always been in good standing (I don't know if it has been or not) then sometimes you just have to keep going up the ladder until you talk to someone who actually has the ability to change your APR.

[AhsanDaredia]

NeatDesign,

I used to live off that card but while I was dependent on my parents they would pay it off in full every time I'd use it. Over the past two years I used it here and there but would barely pay the minimum payment. I haven't used the card in about 4 months now. My balance has been that high for about...a year now. I tried calling a few times. I wouldn't call the account in good standing because I have had late payments on it but none bounced.

Parents are no longer listed on the account. Does APR depend on your income as well? I only started working two months ago...do you think they'll lower it knowing I have a paycheck coming in?

[neatdesign]

NeatDesign,

I used to live off that card but while I was dependent on my parents they would pay it off in full every time I'd use it. Over the past two years I used it here and there but would barely pay the minimum payment. I haven't used the card in about 4 months now. My balance has been that high for about...a year now. I tried calling a few times. I wouldn't call the account in good standing because I have had late payments on it but none bounced.

Aaah... That's what jacked up your APR. I have no doubt about that.

It probably goes without saying, but it is absolutely crucial that you not miss any payments. And by "miss" I mean 1) no late payments and 2) no monthly payments (be it one lump payment or combined, smaller payments) that are less than the minimum due. If you pay $249 by the due date but your minimum due is $250, that's still considered late.

I worked at a credit card company several years ago. Every company is different -- even seemingly identical accounts with the same company are different -- so I obviously can't give any specific advice or insight. But I will say that, when I worked there, an account had to have 6 consecutive on-time monthly payments before it would be eligible for an APR decrease or credit limit increase.

Parents are no longer listed on the account. Does APR depend on your income as well? I only started working two months ago...do you think they'll lower it knowing I have a paycheck coming in?

I don't believe it does. There are people out there with very high incomes but crappy APRs, and people who have no income but have great APRs. That said, I can't say for sure whether it's a factor or not. Common sense just tells me that it isn't because otherwise that means only rich people would qualify for the lowest APRs.

[AhsanDaredia]

NeatDesign,

Thank you so much for the insight you provided. Like someone said earlier in the post, since I already know I have the money to make the payment, might as well make it a week early to save 7 days worth of interest

[disneysteve]

I'd love to see you post your budget. We may be able to point out ways to trim spending and redirect money towards this debt to get rid of it a lot faster than 11 months.

[jpg7n16]

Have you looked at the possibility of getting a new card that offers a promotional rate for balance transfers? Those promo rates are typically between 2%-6%, or sometimes even 0%, for 12-18 months. That would give you enough time to pay off the balance while saving you hoards in interest charges.

I already have two cards, if my debt was higher I would consider this no doubt!

Why does having 2 cards prevent you from opening a 3rd to move the balance for less interest during the payoff period? I've never heard of that happening. I've certainly heard of being declined for other reasons (bad credit), but not because you have 2 cards.

Have you actually looked into 0% transfer options? Or are you avoiding it because you don't think it'd work for you?

If you have a 2nd card already, what's the interest rate on the other card? Could you transfer all/part of the balance to the lower rate card?


Keep in mind these are just tactics to help reduce the symptoms of your debt, but DisneySteve's point gets at the real disease -- your budget.

I'd love to see you post your budget. We may be able to point out ways to trim spending and redirect money towards this debt to get rid of it a lot faster than 11 months.

Agreed

[AhsanDaredia]

Hey all,

Here is my current budget as a few of you all asked for it:

Current take home pay per month: $2732.00

Out of that, 10% I direct deposit into my savings so that's $273 gone into savings.

Remaining: $2459

Rent + water + trash: $900
Verizon Internet and Cable: $92 (Barely home so don't have time for TV so this can be cut down)
Electricity: $60
Gas: $140(Civic, economical car but I drive quite a bit)
Cell phone: $90
BoA Payment: $250
Groceries: $100 (roughly $25 a week, single and don't have too large of an appetite and I pack my lunch everyday)
Fast food/going out/alcohol: $60 a month
Misc needs- $50 (printer ink, car washes, etc) $40

That leaves me with roughly $727 per month. Almost 80-85% of this at the end of the month is then put into savings and the monthly cycle starts over as paychecks start coming in. I know, this is a lot saved up but I am currently saving up for two things:

1.) A mod to my laptop, most likely a SSD drive (NOT a necessity, but a want) - $250
2.) Engagement ring (this is the big one, I'm getting engaged in June)

I already have about $800 saved up and the ring I want to get my girlfriend is about $1500 so saving for that shouldn't be too difficult in the next month.

Thank you all for your feedback.