Revolving Interest Rate vs. Line of Credit Rate

[Brandon1107]

Can someone please explain to me the difference between credit card interest and say a mortgage or loan on a piece of property interest rate. Possibly with formulas.

My effective CC interest rate is 5.5%

(int. rt. of all cc's with balances added together/number of cards=effective interest rate) ?correct?

I have a loan secured by cattle at 10.25%

I have more cattle that I could take a loan out on and pay off cc's

For ease of calculations lets assume both balances are $10,000

Where do mortgages and auto loans fall? I know you can deduct interest on home, cattle, and real estate.

Thanks,

Brandon

[jq26]

I wouldn't overcomplicate it. Interest is interest. If you have CC loans at 5.5% then that is after-tax 5.5% (no tax break). assuming a 5.5% mortgage interest rate, on the other hand, would net you a much lower net interest rate since it is tax-deductible ASSUMING YOU ITEMIZE.

In your case, it would not make sense to pay down a 5.5% credit card loan with a cattle loan of 10%. The VERY best the tax deduction will give you is a net 7.5% interest rate on the cattle loan (due to decreasing your AGI) and paying off loans with loans with higher rates is counterproductive.

BTW- that is the lowest CC rate I have ever seen. Most people that maintain balances on CCs pay % rates in the teens, sometimes even higher.

[Brandon1107]

Thanks jq26,

I have most of my CC debt on 0% credit cards through balance transfers, with the remaining on low rates (4.99 Amex) for life of the balance, and one large balance at 17.24% (Wells Fargo Visa) that I am working on.

My questioned stemmed for someone at Wells Fargo Financial telling me that installment loans were better than credit cards even though my interest rates are lower. I think he was referring to the fact that most people just pay minimums (only 2% of the balance), and it takes them forever to pay them down.

Thanks Again, Brandon

[jq26]

Thanks jq26,

I have most of my CC debt on 0% credit cards through balance transfers, with the remaining on low rates (4.99 Amex) for life of the balance, and one large balance at 17.24% (Wells Fargo Visa) that I am working on.

Well done! You probably know this, but make minimum payments on 0% and 4.99% balances while making large payments on Wells Fargo. Your blended interest rate will continue to get lower as the balances at 17% drops.

My questioned stemmed for someone at Wells Fargo Financial telling me that installment loans were better than credit cards even though my interest rates are lower. I think he was referring to the fact that most people just pay minimums (only 2% of the balance), and it takes them forever to pay them down.

Sounds like a sales pitch by WFF.