I am trying to figure out how the credit card interest rate is calculated v a bank interest rate.?

Question

Basically, I am wondering the best way to pay off credit card debt. If I borrowed against some property that I have a clear title to would I be doing myself a favor by going to the bank for a loan or should I just pay the credit card companies more per month to bring down the debt? I am currently paying 4.99% on one card and 2.99% on another card.

Both of my credit cards interest rates are an "until paid off rate", even paying the minimum balance, which is a few hundred dollars, it still seems like I am getting nowhere. The land that I have is worth as much money as I owe in cc debt.

Answer 1

Credit cards, of course, typically charge 14-30 percent interest. The fact that you are getting these really low rates leads me to believe you are running under some special promotion that will probably run out soon. If you think you can pay off your credit cards at 3-5% interest then there is no need to get a loan. If you will soon be paying 20% interest, or so - then its probably a good idea to get a loan. The loan may be at 7% for a house (more for land) and will cost a fair amount to get in closing fees but in the long run you will still end up ahead if you have a large balance on the credit cards.

So, I'd figure out how quickly you can pay off the debt the current way and how much in interest it will cost (assuming your interest rate will go up soon). Then figure out the costs and interest if you got the loan - and just see which number is better.

If you repost this with the specifics on how much you need and what the interest rate will be on the cards and when (and other pertinent details) there are lots of guys here who can run the specifics for you.

Answer 2

if those percentages are annual rates ... you're golden. just pay 'em off.

if they are monthly rates, you're being {deleted for the sake of decency}. multiplying a monthly rate by 12 isn't high enough, since compounding effectively exists on the monthly interest accrued. [You'd have to use compounding ... 3% per month compounded monthly is about 50% per year and 5% per month is about 88% annually.]


GL