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How is this card's interest calculated?

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    How is this card's interest calculated?

    After two years of being debt-free, we bought a house. Turns out, we need some things we did not plan for. >.< Anyways, we will have about $2,400 in debt after paying some off with tax returns (all of our returns, that is).

    These are on three cards, currently. One of those cards is from my credit union, and I just received an offer for no-fee/no-interest balance transfer for 6 months.

    This card is the only variable interest card I have, and it also has the highest limit. The $2,400 would still be under half the card's limit. However, none of my other cards are at half either. The current rate on this card is 8.9%. The minimum payments on the other two cards are $13 and $35. The statement for the credit union card has yet to come through, so I am not sure what the minimum will be. I am not sure if transferring to the credit union card would make it any less.

    To top it all off, the wording of the calculations explanation is strange. Here it is:

    Method G- To avoid incurring Finance Charges on the balance of the Purchases reflected on the statement, you must pay the entire New Balance on or before the Payment Due Date shown on your statement. If you do not pay the entire New Balance on or before the Payment Due Date, the unpaid portion of the New Balance will accrue interest beginning on the first day of the billing cycle in which the payment is due. We calculate the Finance Charge by multiplying the Average Daily Balance by the number of days in the billing cycle and then multiplying by the Daily Periodic Rate. We calculate the Average Daily Balance of Purchases by taking the beginning balance of your account each day that is attributable to Purchases, add any new Purchases as of the date those charges are posted to your Account and subtract any additional payments, credits, and unpaid Finance Charges and other charges (unless you have been notified in advance that Return Check Charges will have Finance Charges assessed). Then we add up all the daily balances for the billing cycle and divide the total by the number of days in the billing cycle. If you paid the entire New Balance shown on the previous monthly statement by the Payment Due Date shown on that statement, the portion of the New Balance shown on the current statement that is paid by the Payment Due Date shown on that statement will be excluded from the calculation of the balance each day.
    Could anyone help me out on this one? Would transferring be a lower payment? Ugh. Sucks we got to this point after enjoying two years of no debt. "/

    Credit Union Card APR: 8.9% (v)
    Card 2: 22.99% (fixed) minimum $13
    Card 3: 25.99% (fixed) minimum $35
    Last edited by Frügal; 01-15-2014, 05:19 PM.

    #2
    Yes, transferring the debt to your credit union card with the no-fee/no-interest offer WILL save you the interest charges for those 6 months. That quote from the cardholder agreement just explains exactly how your interest is calculated, but what's there is quite typical of credit cards. Basically, interest accrues daily. However, because you'll be doing a no-interest transfer, its "daily periodic rate" will be 0% on the transferred amount. Just keep in mind that if you continue to use that card for OTHER purchases, those purchases will start accruing interest at 8.9% from the day you charge it (the grace period goes away because you still have a balance on the card).

    The most important question, of course, is "How long will it take you to pay off this debt?"
    Close behind, "Do you still have an Emergency Fund in place?" Especially with your recent home purchase, hopefully you didn't totally wipe out ALL of your cash savings...?

    I'd say take the transfer offer for the 6 months, and do everything you can to pay it off in 5 ($480/mo). If you get to the 6 month mark, I would draw from your EF to wipe out any remaining debt on the card so that you don't start getting hit with interest payments all over again. After the debt is gone, focus on building up your EF back to the level at which you need it to be.
    "Praestantia per minutus" ... "Acta non verba"

    Comment


      #3
      Frugal, congratulations on being a new home owner. Your 1st credit card at 22.99% is a smidgen from 23%, card #2 at 25.99% is brushing 25% and both are incredibly high interest rates. Card # 3 at almost 9% [8.99%] is more tolerable.

      Transferring to the lower rate would help to keep the balance from spiralling particularly if you avoid adding any other purchases. It would be wonderful if you could take advantage of the 6 month interest free period but it would take large payments of $ 400. to clear the total sum $2,400. It would not apply to the sum already charged on that particular card.

      Is there anything you would be willing to give up for the short term to free up money to increase your payment from [$ 35. + $13] $ 48. for more than 50 months, 5 years plus so much interest.

      Comment


        #4
        Originally posted by snafu View Post
        Frugal, congratulations on being a new home owner. Your 1st credit card at 22.99% is a smidgen from 23%, card #2 at 25.99% is brushing 25% and both are incredibly high interest rates. Card # 3 at almost 9% [8.99%] is more tolerable.

        Transferring to the lower rate would help to keep the balance from spiralling particularly if you avoid adding any other purchases. It would be wonderful if you could take advantage of the 6 month interest free period but it would take large payments of $ 400. to clear the total sum $2,400. It would not apply to the sum already charged on that particular card.

        Is there anything you would be willing to give up for the short term to free up money to increase your payment from [$ 35. + $13] $ 48. for more than 50 months, 5 years plus so much interest.
        Unfortunately, neither Chase nor GE Bank will decrease my rates, despite my long- and great-standing with them and my credit scores and history.

        And yes, we will be cutting the one budget that is unnecessary. Unfortunately, that budget is also the budget I use to learn about the future business we want to be in (coffee roasting). But, alas, that is the only one that can be cut. Just as for the last few years, we don't have cable or super fancy phone bills.

        Our EF is a little below what it should be, as we dipped into it a little bit. We will be getting that back up as well. We do need to purchase materials for me to build a privacy fence, as we have a dog. That should be under $600. We are also thinking of getting a second vehicle, but I am really wondering if that would be wise. Financially, it isn't the smartest thing, though it would be great if my wife and kid could get out while I'm away at work, and $1,500 isn't too much to spend on a vehicle.

        Lots of figuring out to be done!

        I'll be issuing those transfers. Thanks!

        Comment


          #5
          Frugal, perhaps the dog could be tethered on an 'in ground' system for the short term until fence bldg supplies are typically on sale. I wonder if you and wife would be willing to use the 'write down every dollar spent' system for two months or more to help identify any leakage or spending that could be delayed short term to help with this $ 2,400. debt.

          If you are willing to reveal your monthly spending, [balance,interest] in each category, SA participants may be able to offer helpful suggestions.

          Comment


            #6
            Originally posted by snafu View Post
            Frugal, perhaps the dog could be tethered on an 'in ground' system for the short term until fence bldg supplies are typically on sale. I wonder if you and wife would be willing to use the 'write down every dollar spent' system for two months or more to help identify any leakage or spending that could be delayed short term to help with this $ 2,400. debt.
            The fence is for the neighbor dog jumping over their chain-link fence, and so that our dog has free roam every so often. We don't believe in such entrapment.


            If you are willing to reveal your monthly spending, [balance,interest] in each category, SA participants may be able to offer helpful suggestions.
            I have done this in the past. It wouldn't really help now; we have it all under wraps, really. Just one non-necessary budget that we'll be cutting for the time. I just got a raise to the tune of around $110/mo more (after taxes), which will most likely be getting us off of food assistance ($70/mo), so we're looking at around $40/mo more. We should be fine. Just eating a bit more than we would like. Hah.

            Comment


              #7
              I know I said something similar in your blog, and I don't wish to belabor the point, but I think you need to be very very careful.

              Buying a house isn't just about the monthly payment. You say that your mortgage payment will be less than your rent - which is great - but that's not the whole story.

              You bought a house with very little down and without an adequate emergency fund. You had to charge appliances on a credit card with a 25% interest rate. You keep glossing over this point and I really don't think you inderstand how bad an idea that was.

              What happens if a pipe burts? Or the roof springs a leak? Or - honestly - at the margins you're running, a leaky toilet could add $100 to a monthly water bill. How would you manage that?

              You don't *need* a fence. You don't *need* a second car. You didn't *need* brand new appliances if you couldn't afford them.

              You were budgeted very close to the edge in your apartment, but I really don't think you're grasping how the same margin with a house that you own is so much riskier.

              You're making $40 a month more and you want to buy a new car because your inlaws are giving your daughter dance lessons at a place not on a bus line (from your blog). A second car would eat up that $40 and then some. If you want your wife to be able to get away, have her drop you off at work and pick you up every day, then she can have the car while you're at work.

              You have big plans, but you need to take everything in stride.

              What is your emergency fund at right now? I ask because if you had more than $2,400 you should have asked if you should pay off the 25% card - and since you didn't ask that I'm guessing that you don't have that much in your emergency fund, and to not have at least nearly a $10,000 energency fund whan you own your own home is really dangerous.

              All your posts scare me because they make me thing that you really aren't appreciating the risk to which you are exposing you and your wife and child.

              Comment


                #8
                Originally posted by BuckyBadger View Post
                I know I said something similar in your blog, and I don't wish to belabor the point, but I think you need to be very very careful.

                Buying a house isn't just about the monthly payment. You say that your mortgage payment will be less than your rent - which is great - but that's not the whole story.
                I understand and I appreciate your concern. We will be very careful.

                What happens if a pipe burts? Or the roof springs a leak? Or - honestly - at the margins you're running, a leaky toilet could add $100 to a monthly water bill. How would you manage that?
                I work in apartment maintenance. I have honestly dealt with all of those things - and worse - at 2 am, half asleep, and gone to work a couple hours later.

                You don't *need* a fence. You don't *need* a second car. You didn't *need* brand new appliances if you couldn't afford them.
                I don't want this to sound dismissive, but the fence is pretty mandatory. I cannot expect the owners of a possibly dangerous dog to do anything about it. That, itself, would be irresponsible. Also, there are portions of our yard that are not fenced that would allow our dog to get out freely (or others in freely). The section that needs to be blocked for the neighbor dog is only about 20 feet. I am buying the materials and building/installing myself.

                You were budgeted very close to the edge in your apartment, but I really don't think you're grasping how the same margin with a house that you own is so much riskier.
                I do. I am just confident that it is also much better for our way of life and confident in my ability to tackle anything needing done. Honestly, we looked at a lot of houses before even having an inspection done. This one passed inspection and appraisal with remarks of only very minor items needing repaired, all of which I can do. Only one of which I have not done in the past, but is very straight-forward.

                You're making $40 a month more and you want to buy a new car because your inlaws are giving your daughter dance lessons at a place not on a bus line (from your blog). A second car would eat up that $40 and then some. If you want your wife to be able to get away, have her drop you off at work and pick you up every day, then she can have the car while you're at work.
                Unfortunately, having her drive me 30 miles, then her driving back, and doing it twice in one day wouldn't be very good for our car or our sanity. Public transportation is also, unfortunately, not encompassing enough to consider. I have considered getting a high-MPG scooter for myself, but any that are road-worthy are too much.

                You have big plans, but you need to take everything in stride.

                What is your emergency fund at right now? I ask because if you had more than $2,400 you should have asked if you should pay off the 25% card - and since you didn't ask that I'm guessing that you don't have that much in your emergency fund, and to not have at least nearly a $10,000 energency fund whan you own your own home is really dangerous.

                All your posts scare me because they make me thing that you really aren't appreciating the risk to which you are exposing you and your wife and child.
                I understand. I really do. We both do. We just feel this is the right time. I've crunched numbers over and over again, and we won't be in dire straights at any point. We won't even be living paycheck-to-paycheck. We will have to cut down on our budget for a while, but we went quite a while like that and lived in a basement. Now, at least, we'll have our own home and a yard.

                I know that you are trying to give me honest advice, and I thank you for not trying to do it by calling us stupid - like I have seen done to other users on various internet communities.

                This is an important period in our life, and we feel that it is the best decision. Rent is only going up (due to go up another 10% this July), and that money is going... where? I would way rather be in the same financial situation in a home that we own, rather than a rental with 400-some-odd neighbors with no non-planted trees in sight!

                Comment


                  #9
                  One point to check in balance transfers is that after you do the balance transfer which payments will be reduced when you make further payments to your card. For example, you did a $2,000 balance transfer to pay other cards. Then, you had to use your card to buy some items and that was $500. When the next statement comes and you make $500 payment, would it wipe out the purchase or would the purchase stay and interest charged for it because that $500 went to pay the balance transfer that was done first (before the purchase). Some banks now guarantee that your future payments will always go to pay the highest interest spending on your card. It is a point to check.

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