Thursday, June 22, 2006

More Credit Card Offers

New Card balance transfer offers
You may come across new credit card offers that also include balance transfers at an introductory very low interest rate or perhaps even a zero interest rate for a limited timeframe (one year is typical). The same caution as illustrated above applies here. Your payments will be applied to this transfer balances and not to your new purchases. Hence you may not be saving anything or possibly even be loosing money! Note, in these offers, the reduced interest is usually for only a limited duration and not “until paid off” as above. This makes the possible savings even more tenuous.

A variation of this type of offer is “0% APR for life”! That is, the life of the amount involved in the balance transfer transaction. This really seems too good to be true. A typical version of this type of offer requires you to make one or more purchases or cash transactions per month beginning at some point in the future. Well, doing this would put you in the same situation described earlier in having all payments applied to the amount initially transferred and your monthly purchases just building up compound interest charges! Hence this type of offer is indeed too good to be true and should be passed up.

Zero Percent APR on all purchases for one or more months
Here is a subtler “trap”. You may get information on one of your current credit cards indicating that all purchases made in a given month (or maybe several consecutive months) will receive zero percent (or a very low finance rate) for perhaps six months or so. In this type of “offer”, you are automatically “in” whether you want to be or not.

Example: For credit card “XYZ” you will have zero percent interest for six months on all purchases made in the up coming month. You then proceed to get that $3,000 big screen television you’ve been eyeballing for the last eight months! All seems well, but when you make subsequent purchases the following month on your “XYZ” card, you get hit with a big interest charge, even though you paid the entire amount for that months charges along with say $500 toward your big screen TV. Hmmm… it’s the same game as with balance transfers as described above. All of your payment will get applied to your big purchase made the month before with subsequence balances being subject to the normal interest rate.

As you can see in the above example, this is just a roundabout way at hitting you with a high interest charge on subsequent normal purchases. Although you are subject to this “offer” whether you want to be or not, it will only negatively impact you with unexpected finance charges if you choose to make some large purchase that you don’t plan to pay off until several months into the future. If you stick to your normal use of the associated credit card making only purchases that you plan to pay off in full on the next statement, you will not be subject to any finance charges and thus will receive no negative impact from the offer.

Payment holiday…
You may get an offer from a credit card company to skip a payment! This often comes around after the Christmas holidays. While this may appear to be a welcome respite, remember that finance charges will still accrue on the outstanding balance during your “free” month.

Some credit card companies are offering this “payment holiday” any time you pay more than the minimum due in a given month. For example: minimum due is $25.00, you pay $100.00. You may get a payment holiday offer the very next month. Your best bet is to ignore these “holidays” and continue to make normal payments. While your payment should always be at least the minimum due, you are hopefully paying considerably more on a month-in-month-out basis. You can defer your “holiday celebration” until after you’ve paid off the outstanding balance in full.

No Late Fees
Some credit card companies are starting to offer cards that don’t have any late fees! Hmmm, let’s embark on a search into the fine print jungle and see what we can discover. The first discovery will probably be a requirement that you make at least one additional purchase on the card during the billing period. A caution will typically also be included warning you that your interest rate may go up and a negative mark entered on your credit report is also possible. Hence we have the same problems from the Payment Holiday topic above at even higher interest rates! Our credit report may take a hit also. Hence I recommend passing these offers by. If one of your existing cards extends this offer, just pretend it isn’t there and continue to make timely payments month after month after month.

More Credit Card related stuff to come…


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