Author Topic: Use promo credit card "check" to pay off car?  (Read 2763 times)

Raislin

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Use promo credit card "check" to pay off car?
« on: June 29, 2015, 05:46:28 AM »
Hey, everyone. It's been a bit since I last posted. I got some mail from my credit card company yesterday with an offer to transfer a balance to it at 0% interest. Well, the only credit card balance I have is a retail card with my wife's computer on it at 0% until February. However, they also enclosed checks that could be used instead, with 0% interest, but a 3% fee up front.

I'm considering using this to pay off the remaining $4000 on our car.

We have a monthly income surplus of $1500-2000 (depends on work bonuses and food spending. It could be slightly higher, but not lower.) My intent is to restructure our short term goals. With this, we would pay a $120 (3%) fee to forego further interest, a minimum car payment, and a small amount of car insurance.

We could then divert this additional monthly income (~$150) to higher interest student loans earlier than expected, or start saving to buy a house.

What do you think? Am I putting to much effort in to a low impact decision? Is it great/bad idea?

poorboyrichman

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Re: Use promo credit card "check" to pay off car?
« Reply #1 on: June 29, 2015, 06:01:04 AM »
General principles of restructuring debt:

1. Are you trading flexibility for a few $$$ in savings. Don't do it.
2. Is there any danger of being charged a higher rate than the initial if you fail to make a payment...*
3. Is it really worth a few $$$ filling out forms and dealing with all the hassle when you could be getting on with something more interesting, like drinking a beer or riding your bike. Don't do it.
4. Is there a danger it is going to encourage you to take on more debt at a later date? Don't do it.

(*)I'll leave you to work this part out, it's dependent on your circumstances.

I'd say if you had a savings rate of 75% and you could have the loan gone in two months, why not. If you have a savings rate of 25% and some months can be tricky to save more, don't bother. You're digging yourself another hole, not filling it in. If it makes sense from a mathematical point of view its a good idea, but it all depends what rate you have on the car loan.
« Last Edit: June 29, 2015, 06:03:56 AM by poorboyrichman »

Raislin

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Re: Use promo credit card "check" to pay off car?
« Reply #2 on: June 29, 2015, 06:37:22 AM »
Let's see.

1. I think I'm doing the opposite: trading a few $$$ for flexibility. Unless I misunderstood you. It's difficult to determine if I'd actually save money, as the amount probably isn't that big.

2. Yes. It is still a credit card and I would lose the promo rate.

3. In this case, I'd just be writing a check. Not too much work.

4. This is tricky. If we decided to divert funds to school loans, then definitely not. That's the most likely route. However, we do have a desire to buy a house. We've lived in a small, less than nice apartment for almost two years. Renting a house is 50-100% more expensive than our current rent and so feels wasteful. However, we'd only be able to save a ~5% down payment during this restructured short term plan. That's less than ideal for me and makes this route less likely. On the other hand, heavy development of roads, a big retailer, and a new high school being built in our area make buying a house now enticing, as prices are quite comfortable. I don't know how significantly the community changes will impact house values.

Our savings rate, if including principal payments on car and student loans sits at about 60%.

poorboyrichman

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Re: Use promo credit card "check" to pay off car?
« Reply #3 on: June 29, 2015, 07:11:27 AM »
It's tricky to give an answer without seeing all the rates on your debts, but the above were some things for you to think about.

Treat your debt repayments as an expense, not a saving, minimum repayments are an essential all other savings are diverted to debt repayment (hopefully?)

I almost always value flexibility above all else. If I lost my job next week, however unlikely, would I be screwed more one way or the other? You can mitigate these risks with an emergency fund. If you have a few months expenses, including minimum repayment fees, you can avoid getting jack-hammered with late repayments fees and damage to your credit rating, particularly important if you need to buy a house with a mortgage.

Earning $1500-2000 and saving ~60% means you can pay down $900-1200 a month and therefore be done with the car loan. If it's going to be paid off in 3-5 months, why bother paying 3% on the balance to transfer? Assuming your rate on car loan is 8%APR (quite high? probably lower? sub your calc as you see fit),

Paying car loan off in 4 months, should be possible with your savings rate:
$4000*(0.08/12)*4= $106 interest over 4 months
0.03*4000=$120 balance transfer fee = not worth hassle.

Full disclosure, I balance transferred a CC to another card when I was in debt repayment mode and it made me slow down my repayments, so the higher interest rate while costing you slightly more will simulate hair on fire mode and get you payed down faster.

Interest rate differences like these only make differences over decades, not months. It's really not worth the hassle. If your quibbling over a $100 here or there, yes your smart, but surely there's something nicer to do with your time ;)
« Last Edit: June 29, 2015, 07:24:02 AM by poorboyrichman »

Dicey

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Re: Use promo credit card "check" to pay off car?
« Reply #4 on: June 29, 2015, 08:26:32 AM »
Earning $1500-2000 and saving ~60% means you can pay down $900-1200 a month and therefore be done with the car loan. If it's going to be paid off in 3-5 months, why bother paying 3% on the balance to transfer? Assuming your rate on car loan is 8%APR (quite high? probably lower? sub your calc as you see fit),

^^This^^

Also, if you do choose to buy a house with "~5% down payment", please do so with your eyes open. Do not be one of those people who pisses and moans about their evil PMI.

Raislin

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Re: Use promo credit card "check" to pay off car?
« Reply #5 on: June 29, 2015, 03:46:57 PM »
I'm aware of PMI and it's why I'm unlikely to buy a house without a proper down payment. Also, there appears to be a misunderstanding. $1500-2000 is our surplus income, after bills and minimum payments. Currently, it has been going entirely into paying things off.

Even so, the food for thought has been helpful in further tempering my mindset.

Dicey

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Re: Use promo credit card "check" to pay off car?
« Reply #6 on: June 29, 2015, 11:09:01 PM »
However, we'd only be able to save a ~5% down payment during this restructured short term plan.

Also, if you do choose to buy a house with "~5% down payment", please do so with your eyes open. Do not be one of those people who pisses and moans about their evil PMI.

I'm aware of PMI and it's why I'm unlikely to buy a house without a proper down payment.

Yeah, I was pretty sure I was quoting you accurately on that 5% down payment thing...

Please allow me to clarify, if I may. There is a place for PMI in this world. It is very limited, but it can be quite useful. It lets you get into the housing market without taking the time to save a 20% DP. In an area where the mortgage payment would be significantly less than rent, for example, PMI is an option worth considering. PMI (or more correctly, MI nowadays) is a tool. If you choose to use it, go in with your eyes open, make sure it makes good financial sense in your situation and then do.not.complain about it.

Using PMI/MI to buy a house you can't afford is NOT what I am referring to. You're mustachian, you would never do that, would you?

RyanAtTanagra

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Re: Use promo credit card "check" to pay off car?
« Reply #7 on: June 30, 2015, 11:04:51 AM »
It's difficult to determine if I'd actually save money, as the amount probably isn't that big.

That's all that's relevant.  Too many downsides, not enough (or no) upside, imo.  If you're that worried about the interest, take the $2000/mo surplus and pay off the $4000 loan balance in the next two months.  You'll pay $40 in interest in that time, vs the $120 fee to use the credit card.  Forgoing the $150/mo extra you think the maneuver gets you (questionable) over the next 2 months isn't going to throw off your saving for a house.