Many credit card companies offer balance transfers at a low interest
rate they advertise will remain constant until the entire balance is
paid off. Assume the following: I transfer $5000 from a higher
interest card to one advertising 3% APR until that amount has been
paid off, but during that period I make additional charges to the new
card, presumably at a higher rate, say 14%.

What formula would enable me to calculate the average interest rate I
would be paying on the original $5000 plus those additional charges,
and how does the credit card company keep track of how much of the
original $5000 has been paid off? The continuing coexistence of the
transferred balance and additional charges makes the arithmetic
daunting to say the least. I do understand that the way to eliminate
this confusion is simply to not make additional charges to the new
card, but what I want to know is how the credit card company handles
those new charges if they do occur.

---

Clarification of Question by nautico-ga on 18 Feb 2005 12:30 PST

Vpolhemus:

Thanks! That answers my question.

I'd just like to remind you to read the fine print - that initial
transfer has fees attached.

Most credit card companies have policies in their card agreement that
should your account be subject to two different interest rates (3% and
14% in your case), all payments are applied to the balance that has
the smallest interest rate.  So in essence, until your balance
transfer was paid off completely, not a single penny would be applied
to your new purchases at 14%.  This is the reason that the general
advice in this cases is not to use a credit card that has a tranfer
balance with low APR for any other purchases.  You should read your
the card agreement to see if this applies in your case, but I'm
willing to bet it does.

If all you want is the formula for the average APR of the transfer and
new purchases it would be:

((transfer balance)*.03+(purchase balance)*.14)/total account balance

This will tell you the real interest rate you are paying on the total balance.