March 3, 2009
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When to Consolidate, Pt.2
Crunching the numbers.Let's plug in some realistic figures now, using my most recent (2 months old) Chase credit card terms. Zero-APR for 12 months on purchases, balance transfers and transfer checks (yeah, it's a good deal, but I shop around). After the 12-month promo, everything jumps to 9% (8.99). No cap on the 3% transfer fee. Again, 12 free months from a former 12% credit card account on $12,000 with 4% payments saves about $1,200. After the credit card promo ends you still owe $6,547. At the new 9% rate, you will pay about $1,070 in finance charges over 13 years. With the 3% transfer, however, you will have to add $360 up front. Adding finance charges on this, you're now paying about $1,100 in finance charges. This is a $1,583 savings in interest over not transferring from the 12% account. If you could secure a $50 cap on the transfer fee, you would save an immediate $310 off the top and an additional $29 in interest. That totals another $339 in savings added to the $1,583 already saved, equaling a $1,922 savings in all.
APRs (%) Xfer Fee Fin. Charge Savings Time 8 0
$1,826 $0
13 yrs. 8,0,8 0 $925 $901 13 yrs. 9 0 $2,107 $0 14 yrs. 12 0 $3,043 $0 16 yrs. 12,0,12 0 $1,540 $1,503 15 yrs. 12,0,9 3% $1,100 $1,583 13 yrs. 12,0,9 3% w/$50 cap $1,071 $1,922 13 yrs. 9,0,12 3% w/$50 cap $1,540 $517 14 yrs. So you can see, the best credit card ‘bang for the $' is starting with an average to high initial APR, transferring to a 0% promo with a $50 fee cap and ending up with mid-lower APR ($1,922 savings). Even on a bad day when your APR starts at 9% and ends at 12%, you still save $517 (over 14 years). This assumes that you only pay the credit card minimum. This is key, here. If you pay ahead, things change. You're still looking at payments between $400 to $500 per month for the first and a potential savings of $1,200 in interest in the first year. The $360 fee reduces the savings some but, you still save about $840 in the first year even with no fee cap.