Chapter 6 Financial Planning Exercise 9 Balance transfer credit cards

Chapter 6
Financial Planning Exercise 9
Balance transfer credit cards

Zoe Robinson has several credit cards, on which she is carrying a total current balance of $9,000. Her current cards charge her 12% per year. She is considering transferring this balance to a new card issued by a local bank. The bank advertises that, for a 2 percent fee, she can transfer her balance to a card that charges a 0 percent interest rate on transferred balances for the first 6 months. Calculate the fee that Zoe would pay to transfer the balance.

$   

$9,000 x .02 = 180

Describe the benefits and drawbacks of balance transfer cards.

Benefits

You can save money on interest.

Depending on the card you get approved for, you may be able to move your debt to a credit card that has a lower interest rate, higher limits and more favorable terms.

Drawbacks

Have to pay a balance transfer fee.

Low interest rate doesn’t last forever.