Tuesday, August 30, 2011

0% Credit Card Transfer Bait and Switch Trap

Your credit card finance charges are overwhelming, especially the department store cards. You find yourself paying $30 for t-shirts you bought on sale for $12 with your department store charge over a year ago after interest has been compounded. The simple solution is to take advantage of a recent mailing you received about transferring all your high interest accounts to a 0% credit card. Sounds good, but have you read the fine print. The fine print is usually small and incredibly boring. Here are a few items you should beware of:

1. Transfer fees-every account balance you transfer will be charged a transfer fee, which is usually between $60-$75 dollars per account. This usually doesn’t show up until you think you’ve paid off the balance. This can be pricey if you transfer several accounts.
2. Time limitations-in the exceedingly small print, your 0% interest may be applicable for six months, or as little as 30 days. As soon as the time limit expires, your interest jumps usually to 30%.
3. Penalties-one late payment usually cancels your great 0% great rate, which automatically jumps your interest rate up to the 30% rate plus the late payment charge.
4. Usage of the card-the whole reason you signed up for the card was to lower your debt, but the card issuer is counting on you using it for future charges. Your future charges WILL NOT BE AT 0%, they will be at the higher rate.
5. Hidden Charges-your intentions are good, you transfer your high interest account to a 0% rate charge and pay-off your debt within a year. Suddenly you’re hit with all sorts of odd charges, such as processing charges. I was even charged by Citibank for overpaying by 9 cents. They issued me a check for .09, which I didn’t cashed and charged me twenty dollars for issuing the check.

So, how do you get out of paying high finance charges to credit card companies? We’ve all heard about if we paid only the minimum payment on a $5000 credit card balance with standard interest rate, that we will be paying for the next forty years. The first step is to cut up your credit cards. If you don’t have them, you won’t use them. One card may be saved for emergencies or for car rental, but it is best not to carry that card on your person.

Your local bank will work up a consolidation loan with a fixed rate and fee. You know exactly how much you are paying in fees, which will be lower than the combined fees of the 0% credit card if you have more than one account to transfer. The monthly payment will be higher than if you went with the 0% transfer. Keep in mind, the credit card never wants you to pay off your balance. Usually within two years, you’ll be out of debt with a consolidation loan—unless you make the mistake of thinking you have all this extra money to spend.

So are 0% transfers to new credit cards ever a good idea?

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