Monday, May 21, 2012

PenFed Credit Card Deal

Hopefully you don’t have any high-interest-rate credit card debt that you don’t pay off every month, but if you do, you might be interested in the balance transfer deal currently being offered by PenFed Credit Union on all of its credit cards. There is no transfer fee, and you pay 4.99% APR for the life of the balances transferred by June 30, 2012. This seems better to me than the typical balance transfer deal where you pay a fee of 3% to 5% on the balance transferred, and then pay 0% on the balance for a limited time (typically one year, but perhaps up to 18 months).

This deal seems especially good for those who don’t expect to be able to pay off their credit card balance in a year or less. I calculate that it’s even a better deal than paying a 3% transfer fee and then 0% APR  for a year if you can pay the balance off evenly in a year or less.

You may be able to find a better deal, so it’s worth looking. Unlike all of my other blog posts, this is an area of finance with which I have no experience, so I’m only writing based on the few deals I’ve seen advertised on the web. A quick web search on “balance transfer deals” turned up a web site on which I see advertised a no-fee balance transfer deal that charges 0% for 15 months—a Slate Chase Visa card—so this would be a better deal if you can pay the balance off within 15 months.

My understanding is that with some balance transfer deals you can write balance transfer checks. This would enable you to pay down high-interest loans besides credit card balances; e.g., student loans. In a Bogleheads post in which this possibility was raised, a forum member shared that you cannot write balance transfer checks with the PenFed deal; you can only transfer credit card balances. It may be worth investigating other balance transfer deals if you have high-interest non-credit-card debt.

This is more of a personal finance topic than an investing topic, but as I mentioned in my recent post Back to Basics, you cannot invest if you cannot save. If you have high-interest-rate debt, your best investment probably is paying down the debt as I discussed in this post. Transferring your high-interest-rate debt to a credit card on which you will pay 0% for a year or 5% for the life of the balance while paying it down also makes sense to me.

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