Thursday, May 25, 2006

0% balance transfer

After pondering for several days, I finally decided to take advantage of a 0% balance transfer offered by one of my credit cards, MBNA. Now, I pay off my credit cards every month and never carry a balance, but have come across the notion of making money off balance transfers from other bloggers. It works like this... my credit card sent me a mailer with checks and a 0% balance tranfser promotion. The offer gives me the option for them to either pay off a pending balance or to make a direct deposit into my checking account. I have 0% APR on the balance transfer until January 2007.

The cost: $75 fee for the transfer. And a ding on my credit score because it will increase the percentage of credit I have outstanding relative to my overall credit amount. According to FICO, this will affect 30% of my credit score... how that translates numerically is unclear to me.

Now, I am planning on purchasing a car in the next 6 mos; however, I will likely have my wife apply for any financing that we might do as I likely lowered my score by these antics.

The payoff: I will transfer $33000 to GMAC bank which is currently paying 4.75%. I opened up a new account just for this balance transfer to keep it separate from my other money. This will translate to approximately $130/month or ~$900 in FREE interest for the next 7 mos. It will be slightly less than this as I have to pay 1% of the balance per month to maintain the 0% APR.

The fine print: Pay 1% of the balance on-time every month. Purchases do not qualify for 0% APR. If purchases are made, any payments will be applied to the LOWEST APR first.

What I really debated was whether doing so was worth a ding in my credit score. What I might do is obtain my credit score now pre-balance transfer and then after my balance-transfer to see what happens to my score. If it drops it to < 700 I'm going to be pissed off.
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