What to do with low fixed for the life of the loan transfer balance?

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I have a 15k credit card that is offering a 3.99% (lets say 4%) balance transfer for till the balance is paid off. Fees are capped at $ 200. Assuming that:
— I will never default and will not jeopardize this interest rate,
— I can afford the required monthly payments (2%) on this loan
I can do two things with this offer:

1. Stick it into a high interest account ~5% and pay minimum + a little extra to pay it off in say 5 years. With this approach, I make an effective 1% a year on the 15k. If I did this, would I I pay taxes on the entire interest earned on 15k @ 5%? Can’t I deduct the 4% interest payments as investment expenses? If not that reduces my effective gain.

2. Put this towards my mortgage – currently 200k @ 5.125% for 30years, and make payments to the credit card. If I do this, how do I deduct the interest on the card as mortgage payments? Is this allowed? How would one represent that on a tax return?

Thanks in advance for the answers.
Sorry, to explain further, I have a zero balance on this credit card and have a credit limit of 15k on this card, all of which is available for this balance transfer offer.

2 Comments
  1. Reply
    BrianC
    April 29, 2011 at 11:57 pm

    Credit cards always F you in the end. Be very careful and read all the fine print. If you are late once, your interest rate will skyrocket. I dont quite understand what you are asking. Do you owe $ 15k in credit card debt? or do you have that to pay ur debt?

  2. Reply
    John Davis
    April 30, 2011 at 12:04 am

    Yes, you can earn 1% on the bank’s money, but that’s only $ 150 for the year. Don’t get hit with any fees, or that 1% will quickly disappear. If you show that you invested in something with the money from the credit card, and that the credit card was used to finance the transaction (keep good records), you can deduct the interest paid against the interest earned. But, don’t comingle the investment with any purchases or any other transactions on the card. Once it’s comingled, it can’t be separated easily.

    You can pay off your mortgage with the $ 15,000, but you cannot deduct the credit card interest. IRS rules. You can only deduct direct mortgage interest.

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