Author Topic: Money transfer - good idea?  (Read 5424 times)

island_guy

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Money transfer - good idea?
« on: September 04, 2014, 06:39:17 AM »
Hello

Long time lurker first time poster here.

By way of background I have 23,000 outstanding on a loan I took out two years ago before I discovered MMM.  Since discovering MMM I've repayed all of my debts save for this one.

This week I signed up for and was accepted for a money transfer credit card (i.e. one where they transfer cash to your bank account and place the balance on the credit card).  Other than a 4% processing fee this balance will then remain at 0% for nearly three years.

The reason I took this offer was because the loan has a break fee of 20,500.  If I transfer 20,500 from this card to my bank account and use it to break the loan I will save 2,500 in loan repayments for the cost of 820 giving a net saving of 1,682.  Given my now mustachian ways I should be able to repay this 20,500 balance in around a year - well within the three years 0% period.

My dilema is though, that I've been accepted for the card with a credit limit of 31,000.  Therefore I could get an additional 10,000 into my bank account (after paying off the loan) for a total cost of 400 for three years.  As above, I should easily be able to repay this within the period.

Unfortunately given my recent debt repayments I have little to no money in my bank account at the moment although hopefully this will change in the coming months now I have nothing further to repay save this one debt.

The question is - is taking the additional 10,000 a good idea?  On the one hand this would instantly give me a cash buffer of 10,000, would be very cheap debt (400 total cost for three years) and may hopefully save me money in the long term (e.g. by allowing me to buy a second hand car for cash when my current one breaks instead of financing a new one).  On the other hand, if I don't do this I will have less total debt and will hopefully build a buffer over the coming months anyway.

Does anyone have any thoughts or advice for me?

theadvicist

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Re: Money transfer - good idea?
« Reply #1 on: September 04, 2014, 07:49:27 AM »
I think your question boils down to, "Should I borrow an extra 10k because it's cheap". Is that right?

If so, my answer is no. Debt is debt is debt. If you won't be able to afford to replace the car, work on increasing income, or decreasing expenses, not the short-term solution of finding a way to finance it.

If I've misunderstood the question, please fill me. I read it a couple of times but some of the terms used are unfamiliar.

soccerluvof4

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Re: Money transfer - good idea?
« Reply #2 on: September 04, 2014, 08:08:45 AM »
I guess from what your only sharing it would be how did you come into 20k debt? I dont see a reason to take the 10k but if you did is it a money discipline issue? and if so are you sure you changed your ways?

again not knocking you but you didn't share a whole lot.

merula

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Re: Money transfer - good idea?
« Reply #3 on: September 04, 2014, 08:10:50 AM »
You don't have to pull out the $10,000 to use the card as a buffer. Pay off your debt and don't put anything else on it. If you run into a true emergency before you've built up a cash buffer, then use the card. This way, you've got the advantage of having an "emergency fund" but without the $400 carrying cost if you don't use it.

A side benefit is that you'll probably be more motivated to build up that cash buffer more quickly. Or at least, that's how I'd respond in your shoes.

Jack

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Re: Money transfer - good idea?
« Reply #4 on: September 04, 2014, 08:30:44 AM »
There are three kinds of ways to charge money on a credit card: balance transfers (for which your card offers 0% interest + 4% fee), purchases, and cash advances.

First of all, you want to be sure that paying off your loan using the method described either counts as a balance transfer, or that if it counts as a cash advance, that cash advances aren't charged at a higher interest rate.

Second, you want to make sure that putting the money in your bank account (without using it to pay off some other loan) would also qualify for the same rate.

Third, you should check whether purchases also have a 0% introductory interest rate. If that's the case, then you could use the card for your regular spending and slowly accrue the $10,000 without spending $400 for the privilege of accruing it all at once.

Fourth, the only reason to consider the idea is that you are damn sure you'd be able to pay it back before the introductory interest rate expires and you plan to invest the money to make a return in the interim (i.e., you're performing arbitrage) and you're willing to fully understand and accept the risk such a plan entails.

If you have any lingering doubts about your money discipline, employment security, etc., then don't do it.

island_guy

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Re: Money transfer - good idea?
« Reply #5 on: September 04, 2014, 08:41:46 AM »
I think your question boils down to, "Should I borrow an extra 10k because it's cheap". Is that right?

If so, my answer is no. Debt is debt is debt. If you won't be able to afford to replace the car, work on increasing income, or decreasing expenses, not the short-term solution of finding a way to finance it.

If I've misunderstood the question, please fill me. I read it a couple of times but some of the terms used are unfamiliar.

All very good points.  Regardless of how cheap it is, the money is borrowing and this could possible lead me to be more wastfull going forward.

I guess from what your only sharing it would be how did you come into 20k debt? I dont see a reason to take the 10k but if you did is it a money discipline issue? and if so are you sure you changed your ways?

again not knocking you but you didn't share a whole lot.

Apologies for the lack of background, I didn't want to include too much information in a single post.  The debt was originally 40K but I've got it down to this last 20 in the past 18 months. 

The debt was incurred simply by terrible money management.  Despite a higher than average income (joint income of 150k/year between me/my wife) I was terrible at managing it.  A classic cast of earning 150 but spending like I earned 200.

I'm fairly sure I've changed my ways.  Looking back at how I was before I cannot believe how increadibly wasteful I was being.  I still live a fairly un-mustachian life compared to most but in recent months I've still been able to put 3,000/month onto debt repayments.

You don't have to pull out the $10,000 to use the card as a buffer. Pay off your debt and don't put anything else on it. If you run into a true emergency before you've built up a cash buffer, then use the card. This way, you've got the advantage of having an "emergency fund" but without the $400 carrying cost if you don't use it.

A side benefit is that you'll probably be more motivated to build up that cash buffer more quickly. Or at least, that's how I'd respond in your shoes.

Think you're right on this one - no need for an emergency fund if I've got 10,000 of easily available credit.  Best to keep the debt low and focus on building up the buffer through savings. 

There are three kinds of ways to charge money on a credit card: balance transfers (for which your card offers 0% interest + 4% fee), purchases, and cash advances.

First of all, you want to be sure that paying off your loan using the method described either counts as a balance transfer, or that if it counts as a cash advance, that cash advances aren't charged at a higher interest rate.

Second, you want to make sure that putting the money in your bank account (without using it to pay off some other loan) would also qualify for the same rate.

Third, you should check whether purchases also have a 0% introductory interest rate. If that's the case, then you could use the card for your regular spending and slowly accrue the $10,000 without spending $400 for the privilege of accruing it all at once.

Fourth, the only reason to consider the idea is that you are damn sure you'd be able to pay it back before the introductory interest rate expires and you plan to invest the money to make a return in the interim (i.e., you're performing arbitrage) and you're willing to fully understand and accept the risk such a plan entails.

If you have any lingering doubts about your money discipline, employment security, etc., then don't do it.

I've checked the terms and this seems to be the balance transfer option.  This is a special promotion and specifically contemplates transferring the cash to your bank account with the card balance at 0% for three years.

Your third point is particularly helpful as I hadn't considered this - the card does indeed also charge 0% on purchases for 18 months - I can use this to build up an emergency buffer and, should it not be needed in the next few months, simply pay off the balance in full at the end!

Thank you all so far!

wtjbatman

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Re: Money transfer - good idea?
« Reply #6 on: September 04, 2014, 08:45:53 AM »
*snip*

There's a fourth way, and it's the one he's describing. It's basically a combination of balance transfer and cash advance. Me and my fiance did it to "combine" some other debts onto one card. Basically, for the fee (and then 0% interest for X months), you are given a check for (or the money is deposited into your bank account) the amount you put on your card. Unlike a cash advance, but similar to balance transfers, you can use your maximum balance, not just an arbitrary cash advance limit (don't forget to leave room for the 4% fee).

It made sense for us because we have the discipline to make monthly payments and get the card paid off well before the high interest rate kicks in. Just be sure you will be able to do it, because you're going to be staring at a lot of debt that needs to be paid off within a specific time frame.

Also be careful with this transfer/advance + future purchases. Our card was only good for ONE promo, either the transfer or the 0% on purchases. I chose the transfer. And in the fine print it says that if I was to charge anything to the card, the current 0% APR promo balance reverts to the regular 12% APR (yikes).

BooksAreNerdy

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Re: Money transfer - good idea?
« Reply #7 on: September 04, 2014, 09:38:04 AM »
Considering you are 'recovering' from poor money management, I would not do it. It sounds like you want to hold those cool crisp bills in your hands, without earning them, just because they offered it. No. That is poor money management.

No. Just don't even do it. There is a REASON this credit card is offering you so much money. Because, statistically, they can and will make money off of you.

What does the rest of your budget look like? How long will it take you to pay off the 20k debt? Then how long to save up 10k for an emergency? Is your car really on its last wheels? Or is that just a made up 'emergency' excuse for wanting the 10k balance transfer? How long would it take you to save up $3k to buy another car? Probably not long if you think you can pay off 20k in debt in a year. If you really are worried about an emergency fund, save up the 10k (or 5k, or whatever) and then start hitting the cash advance hard.

island_guy

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Re: Money transfer - good idea?
« Reply #8 on: September 04, 2014, 09:59:09 AM »
Considering you are 'recovering' from poor money management, I would not do it. It sounds like you want to hold those cool crisp bills in your hands, without earning them, just because they offered it. No. That is poor money management.

No. Just don't even do it. There is a REASON this credit card is offering you so much money. Because, statistically, they can and will make money off of you.

What does the rest of your budget look like? How long will it take you to pay off the 20k debt? Then how long to save up 10k for an emergency? Is your car really on its last wheels? Or is that just a made up 'emergency' excuse for wanting the 10k balance transfer? How long would it take you to save up $3k to buy another car? Probably not long if you think you can pay off 20k in debt in a year. If you really are worried about an emergency fund, save up the 10k (or 5k, or whatever) and then start hitting the cash advance hard.

Think this sums it up perfectly - I just want the bills in my hand without earning them - a very slippery slope to poor money management.  Easy money is rarely spent wisely.

The rest of my budget is looking fairly strong.

Income (after tax/pension/social security): 7600/month
Expenditure:  4600/month.

Still, as a 'recovering' spendaholic (good phrase btw) I agree, this is a recipe for disaster.

Think I'll keep the money transfer to the barest minimum to pay off the loan and look to build a cash buffer the old fashioned way!

Thanks all for the reality check - this seems such a clear choice now!

Jack

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Re: Money transfer - good idea?
« Reply #9 on: September 04, 2014, 11:48:05 AM »
The rest of my budget is looking fairly strong.

Income (after tax/pension/social security): 7600/month
Expenditure:  4600/month.

$4600/month is not at all a "fairly strong" budget for a mustachian unless maybe you're in a HCOL area and/or have a large household.

Still, as a 'recovering' spendaholic (good phrase btw) I agree, this is a recipe for disaster.

Think I'll keep the money transfer to the barest minimum to pay off the loan and look to build a cash buffer the old fashioned way!

Thanks all for the reality check - this seems such a clear choice now!

Good.

Calvawt

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Re: Money transfer - good idea?
« Reply #10 on: September 04, 2014, 11:50:20 AM »
Don't get the extra money.  It just adds more debt!


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island_guy

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Re: Money transfer - good idea?
« Reply #11 on: September 04, 2014, 11:53:34 AM »


$4600/month is not at all a "fairly strong" budget for a mustachian unless maybe you're in a HCOL area and/or have a large household.



Fair point, I was really meaning relative to income as this allows for 3000 a month savings, I do live in a very HCOL area but yes, there is a LOT of room for improvement in due course.

nakedput

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Re: Money transfer - good idea?
« Reply #12 on: September 04, 2014, 12:38:39 PM »
can you please let me know more deteails about the CC you got? I would like to do the same.

Lis

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Re: Money transfer - good idea?
« Reply #13 on: September 04, 2014, 01:48:16 PM »
can you please let me know more deteails about the CC you got? I would like to do the same.

+1. I'm interested in doing something similar with my student loan. $2 a day going down the drain in interest right now! If I can kick Sallie Mae to the curb...

island_guy

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Re: Money transfer - good idea?
« Reply #14 on: September 05, 2014, 02:06:08 AM »
can you please let me know more deteails about the CC you got? I would like to do the same.

Sure, no problem.

http://www.mbna.co.uk/credit-cards/mbna-credit-card/

Unfortunately it looks like it might only be available for UK residents....

wtjbatman

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Re: Money transfer - good idea?
« Reply #15 on: September 05, 2014, 06:24:19 AM »
I used my Fidelity Investment Rewards American Express card (USA! USA!) for my balance transfer/cash advance/whatever it is.