credit card question

[Rallispec]

okay - so i've got a credit card that i've had for the past 5 years - however have never used it for a single purchase. (just held on to it for emergencies)

i've always followed the rule that if i cant pay for it in cash, then i wont buy it... however now with 2 car payments, bills, rent.. etc.. thats becoming harder and harder to do. So to make a long story short, in the next month i am taking a short vacation in addition to making a large purchase - so the CC is coming out of retirement.

I had to call up my bank to find out what the interest on the card is becuase i didnt know anymore. It's 14%. is that decent?

that means for every 1000 dollars i charge, i'll owe $140 in intereset, each month, correct?

they are also allowing balance transfers directly to my checking account for 5% until october. (after that, the 14% kicks back in) there is also a one time 3% (up to $75) fee for the service.

so it sounds to me that if i knew i was going to be doing a lot of charging to my account -i should just transfer a few grand to my checking account and get the lower rate, as long as i can pay it off by october. (won't be a problem)


so am i missing something here? i know thier has got to be a hidden catch somewhere. Also, are these even good rates? I'm 24 with decent credit, this is the only CC i've ever had, never applied for another.


thanks.

 

[iamwiz82]

Its 14% over an entire year, or 1.16666666667% per month or .038% per day.

 

[woowoo]

It's 14% APR
(As in yearly)
It's not a good rate

Cash advances usually cost more.
I would call and get the rate reduced.

 

[radioouman]

14% APR (annual percentage rate) really isn't all that bad considering that you only have one credit card.

 

[kranky]

You're looking at it correctly.

Option 1 - transfer money to your checking account for a 5% APR (which equals 0.417% interest per month) until October, and count the impact of the 3% fee. Use the checking account to pay for what you need to buy.

Option 2 - charge on the card and pay 14% APR (1.17% interest per month).

Actually, it might be better to skip the balance transfer depending on your circumstances. Look at what would happen if you did a balance transfer and paid it back in a month - you would pay a 3% fee plus 0.417% for one month = 3.417% interest. If you charged it and paid it back in a month, you would only pay 1.17% interest.

It depends on how much you are going to transfer to your checking, and when you intend to pay it off.

You're wondering what the catch is - there probably is none. Make sure that the 5% special rate for balance transfers until October doesn't have any other strings attached (like you have to charge so much each month on the card). Discover card often does that.

Why would they make this offer? First, you aren't using the card so they want to give you an incentive to get in the habit of using it. Second, they hope that you transfer money to your checking account, then spend the money, and use the card to charge more stuff.

 

[Demon-Xanth]

I primarily use a credit card to buy stuff online. I like to keep the people that want my money seperated from the people that have my money.

 

[Gibson486]

Mine is 9% and that is my first CC.

 

[dullard]

You are looking at a CC in the exact opposite way that you should. Hopefully we can switch you around.

"i've always followed the rule that if i cant pay for it in cash, then i wont buy it... "

That is the exact time that a CC should be used - and as much as possible. When you have the cash in the bank and when you are going to buy the item anyways, then use a CC to buy it. Why? Using a CC when you have the cash in the bank will help build credit, give you free rewards, let you earn interest on the money instead of spending it right away, and it is 100% free.

"So to make a long story short, in the next month i am taking a short vacation in addition to making a large purchase - so the CC is coming out of retirement."

That is when a CC should be avoided. You will pay fees and charges up the wazoo. A CC should not be used as a loan unless in an emergency. That said, it looks like you are already committed to doing so. Lets choose the best option. Lets assume you want a $3000 loan for 5 or 6 months (May is free if you don't take the cash option but interest is charged if you do take the cash). Change the numbers to better suit your exact situation. I'll also assume you pay just the minimum until Oct.

$3000 at 14% yearly interest for 5 months will be ~$166 in interest.

The cash advance option is often a sucker's option. But you have a special going on, so lets do the math. 3% fee of $3000 is $90. Ok, you are over the limit and thus you are charged only $75. 5% interest for 6 months on $3075 is $75. Thus the total money is $150. In this rare case, the cash option is better.

However, for most cases, cash up-front is the worse option. And please use your CC for daily purchases when you do have the money and try not to use it as a loan. And one last thing. After you take advantage of a special (like the 5% cash special), don't use the CC for anything else until you get at least one monthly statement with a $0 balance due. Why? Since that is usually where CC contracts have hidden clauses to milk you out of tons of money.

 

[Rallispec]

dullard, thank you very much for your insight.

assuming i can pay off the 3k before october - (in reality i hope to have it paid off in June, most likely July though) - doing the math in my head it seems like cash advance may not be as effective and i should stick with just using the CC. correct?


After reading your post on using a Credit card i will definitely look at how i use it differently from now on. Currently i'm using a MasterCard issued through my bank (suntrust) with no rewards program. Can anyone recomend other credit cards to look into with cash back rewards? i'm also looking into a subaru rewards card through MasterCard, the APR is rather high though, but if i can pay it off each month that won't be a problem.


is thier a downside to having multiple cards as long as you don't use them all or keep them all paid off.

 

[MrDudeMan]

no, you should HAVE several cards. not too many, but establishing several lines of good credit greatly increases your credit history and score after a while. you also need to spend money on all of them every month. it doesnt have to be a lot, but you need to spend like 10-15 dollars and pay it off so you are still building credit. also, make any huge purchases that you would normally make with cash on the credit card and then just pay it off at the end of the month. it shows a higher number for max balance and also shows that you paid it off promptly.

remember...buying something with a CC is like taking out a very short term loan. if you can prove that you will pay back the small amounts, it will tell the bank you are good for your money when the time comes to take out a bigger loan. dont use it if you cant afford it, but that is called self-control and you either have it or you dont. good luck and spend wisely.

 

[dullard]

You are welcome, I like CC threads for some unexplained reason.

If you can pay in June or July, definately don't take the cash option. The $75 fee kills you. Do you know your statement date and grace period length? These are important. Suppose you made your purchases today. Suppose your statement date was May 25, and you had a typical 3 week grace period. That means your bill won't be due until June 15. You could potentially pay it all of on the 15th and not pay a penhy in fees or interest. Of course, it is probably best not to wait until the last day (it takes a couple days for a check to clear), but theoretically you will have until about mid-June in that example to pay it off.

Just about any CC with rewards is decent. There isn't a lot of difference. If you use it sparingly, look for a 5% cash back card (which is capped at maximum reward they give you). If you use it a lot, you'll hit that cap and a ~1-2% cash back card is better off. Just do a search and you'll find hundreds of links for both. And if you pay it off each month, interest rate is meaningless.

No downside at all in the long run to having multiple cards. I suggest that everyone have 2-3 (various different reasons for that number). Short term, applying and getting several cards at once could have a small hit to your credit score though.

 

[Rallispec]

according to my online account info, my statement closing date is the 3rd of each month.. standard 3 week grace period.

i'll have to see how that works with when i need to use it.


thanks again for all the advice... i'm going to start looking at some other CC's and see what is available for me.

 

[dullard]

Originally posted by: Rallispec
according to my online account info, my statement closing date is the 3rd of each month.. standard 3 week grace period.

Then if at all possible wait until shortly after the 3rd of each month for all big CC purchases. That buys you 1 month free (assuming you paid last months CC bill in-full and on-time).

If you buy today, you'll have to pay it off by about May 24 or interest will accumulate. If you buy it on the 4th, you'll have to pay it off by about June 24.

 

[Kelemvor]

Just pay your balance every month and dont worry about percentage rates or finance charges.

 

[VTHodge]

Many of the "cash back" credit cards have complicated rewards structures. They change your cash back percentage based on your balance and payments. I currently use my Amazon.com Visa. Every $2,500 you spend, you get a $25 GC. Money spent at Amazon counts triple.

I would also like to reiterate the advice of not getting used to cash advances. They will almost always cost you more (with rare exceptions as noted).

In addition to the rewards points, you also have a level of security when using a CC. For example, if you order something and never receive it, your CC company will help you work with the seller or will reverse the charges. Look on your CC's website for more details about their extra perks.

 

[kranky]

Kudos to dullard for providing the real-world numbers to show the point. I wanted to add that it's important to walk through the scenarios like dullard did to see what turns out best, and also to be aware of the fine print attached to any special offers.

 

[dullard]

Originally posted by: kranky
Kudos to dullard for providing the real-world numbers to show the point. I wanted to add that it's important to walk through the scenarios like dullard did to see what turns out best, and also to be aware of the fine print attached to any special offers.

Yes, the fine print can change things a lot. There very well may be something that I don't know about in your individual account fine print. So a general post won't apply to everyone.

 

[Dulanic]

Credit Cards can be cheap loans if used correctly. I needed to use a couple K, and I charged it. I have multiple Credit Cards (6) and use them all the time, Rewards are a great thing. The biggest thing I do to keep it as cheap loans is Balance Transfer. I moved $5k of my student loans to my credit cards, and it saves me a ton. Currently a majority of my credit card debt is on one card and I pay 1.99% for LIFE. Just when you BT something never use that card again until the BT is paid off, as they apply all payments to the lowest intrest debt first.

Some people say never use credit cards unless you can pay it off, if your smart about it, it can work out well. Just don't get caught in the Intrest Rate trap. But for example on my Providian card which I pay 1.9%, I saved 5.5% off my student loan intrest. I now pay maybe $7 in intrest a month vs the over $30 I was paying. Not to mention the $50 in rewards I got on top of that.

Using Credit Cards isn't bad. If you take advantage of the system, it can make or save you quite a bit. They count on people making late payments, getting their intrest rates jacked up, if you can avoid it, you can use them to your advantage. In a perfect world none of us would ever NEED to use a Credit Card, but cases come up where you need to, just be smart about it, and you can turn it into a very low rate loan basically, or even 0% many times.

 

[Mo0o]

Will this impact your credit rating in anyway?

 

[Dulanic]

Originally posted by: Mo0o
Will this impact your credit rating in anyway?

Everything will impact your credit score. Payments on time will permanently effect it, as will inquires (2 years) and getting new cards. Sometimes positive, sometimes negative (late payments).

Other things are temporary changes, like your balance. My credit score is down 30 points or so due to balance/limit ratio. However it is temporary, as soon it is paid off the score goes right back up.

 

[imthebadguy]

i use plastic for everything, ist just so much better/easier than cash, i pay it all at the end of the month though, never leave a balance