Using a tool easily accessible to consumers, the credit card balance transfer calculator on BankRate.com (see image 1), the American Debt Relief Challenge calculates the projected amortized savings to consumers by credit union participants transferring the balances of high-interest bank credit cards back to lower, traditional rates at their credit union. The ADR Challenge, like BankRate, compares what the consumer would pay during the life of the credit card using their old interest rate compared with the rate they will likely pay during the life of the card with their new, lower interest rate. The difference is the projected savings.
ADR Challenge Projected Amortized Savings Example
-
A consumer transfers an $8,000 credit card balance from a bank to a participating credit union after receiving notice that their interest rate increased to 23.00%.
-
The interest rate the credit union charges the consumer is 13.98%.
-
Using a standard credit card interest rate calculator, like Bankrate.com, the projected payments on the life of the $8,000 balance, amortized at 2.50% monthly payments on the balance and 23.00% interest=$25,338.05. It would take 589 months to pay off the card.
-
The same projected payment amortized at 2.50% monthly payments on the $8,000 balance and 13.98% (rounded to 14.00%) interest=$6,791.96. It would take 278 months to pay off the card.
-
The projected savings to the consumer based on the difference between paying off the card by keeping it at the bank compared to transferring it to the credit union is: $18,546.
- The term is reduced 311 months (26.75 years).
- Transferring to a lower credit union credit card rate helps this consumer reduce their debt in fewer years, resulting in a projected amortized savings of over $18,000.
Read the full explanation in our white paper.
.gif)
