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SaveFarscape,

You wrote, I had a large bank loan (well large to me, about 4k), which was secured by my car (my primary transportation), and had large monthly payments. I just transferred the amount owed to a credit card with the same interest rate, unsecured, and with lower monthly payments. The plan is to take that extra money, and use it to snowball the accounts I still have. So essentially, I'll still be making the same payment, only now I have my car title back.

No, it doesn't sound stupid. It even sounds a little Foolish.

Now for the tricky question, Is your credit card rate fixed in any way? For instance, is it a promo rate or a good-for-the-life-of-the-balance rate? If it is, then you're probably ahead of the game because you've managed to get rid of the risk of loosing your car if you have to miss a payment at some point down the line.

Even so, making this switch is a mixed blessing. If you miss a payment on a car loan, they will penalize you only for the late payment and perhaps a mark on your credit report; but they can't adjust your rate. With a credit card, the company can adjust your rate if you're late and more than likely they will adjust it to a penalty rate in the 20% range.

Still, if your job is fairly secure and/or you have plenty of savings to cover a short fall, the move is probably a small plus, given the same interest rates. Given my own situation, I think the value of a vehicle secured loan vs. an unsecured loan is worth at most 1-2% in the interest rate. In other words, a 5% car loan is comparable to a 6-7% credit card loan – if the rate is fixed in some manor. However, if there's only 1-2% spread between the rates, then there's not much incentive for me to move the obligation. Change a secured loan for an unsecured loan at the same rate, is mildly interesting if the unsecured loan is on a fixed-rate offer and not very interesting with no fixed rate offer. Changing for a lower rate is mildly to very interesting.

So, I'd say that if you've done a deal with the credit card to fix the rate for (most of) the life of the balance, you're probably well ahead in the transaction. But if you've just transferred the balance to a card at the current purchase rate, you probably need to shop around for a teaser rate just to make sure the credit card company doesn't shaft you.

BTW: I may have mentioned it before – I did the same thing early this year. I converted a 4.95%APR car loan with my credit union to a 3.9% fixed-for-life credit card loan at Citibank. And it sure felt good to pick up the title, even if it was just a used Civic I'd bought my son.

- Joel
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