Question: All the talk about First USA and other cards has me thinking. Given an existing debt of say $10000 (to pick a nice round figure), is it better to put that balance on a low interest credit card (say the First USA at 5.9% or Citibank at a similar rate), or to take out a personal loan at a rate of about 12%? [the debt is currently split among 2 low rate cards]
The reason I ask it this – the bank rep I spoke to said that the loan from them is better than the credit card, because thought the rate is higher, with the credit card you are always paying ‘interest on interest’. This didn’t seem to make much sense to me, other than I agree with her other statement that ‘if you just pay the minimum balance on your credit card, you will never pay the loan off’.
In retrospect, I should have swung a deal with the bank to get some extra cash for remodeling “The Money Pit” we bought a year ago (as part of the mortage – some banks offer this type of program.) But I didn’t, and the Home Depot bills have been piling up. I am confident that I can pay either loan off in less than a year, but I’d rather minimize the amount of interest I am being charged in the meantime. It also makes it difficult to buy a new(ish) car with such a large credit card debt 
Thanks for any suggestions.
Answer: If the 5.9% is a real rate, lower is almost always better. I suspect the 5.9 is a teaser rate to get you to switch to their card, and it will bounce up significantly on the first anniversary. If it *is* a bona fide, permanent rate, then it almost certainly carries an annual fee, which you much calcualte in when comparing the amount of interest paid under either option. Wrong (assuming you keep it current). Finance charges acrue on the outstanding balance only. Credit cards do have a funky way of calculating the balance, but that primarily works to their advantage on a widely fluctuating balance (lots of purchases and big payments). It has the effect of smoothing out the balance for the calculation of maximum finance charges. If your balance is pretty stable to begin with, it won’t matter. It shouldn’t matter. If you pay the cards off with a sig loan, the loan balance will show up on your credit report. How much equity do you have in the “Money Pit”? What is the house’s current market value and how much is the amount of your mortgage loan? Even if you didn’t go for a, I suppose it was a home improvement loan (second mortgage) last year you still should be able to find a bank that will give you an equity line of credit that you could draw on to pay off the outstanding credit card balances and also if you meet the IRS criteria have the advantage of an additional tax deduction for all or some of the interest you pay on the equity line. If you do not require the full amount of the Equity line at this time you will have an open source of immediate credit – money that you can usually get by just writing a “check” for the amount you need up to the limit of the equity line.
As far as the loan officers comment about paying interest on the interest with the credit cards, ask him/her when the bank they work for stopped compounding the interest they charge on the loans they make – check the back of your credit card bill and read the different way the cost of credit for cash advances (the loans you are talking about) and purchases are calculated – that may be what is confusing the loan officer and if it is I would be careful about dealing with a bank that hired loan officers that didn’t know what they were doing – this one sounds like they got their basic training in sales when they were selling used cars.
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