July 9, 2003
CREDIT-CARD PINBALL REDUX
I still say it's a hassle. But now the offers are just too good to pass up.
This week I received an awfully compelling letter from Chase Manhattan Bank — and amazingly enough, it came with convenience checks attached. Imagine that.
"Simply deposit the checks made out in your name into your checking account," read the document. As one of their "most valued customers," I could do this, and whatever balance originated from the checks would be awash in the following delicious credit rates, good through the final billing cycle of April, 2004:
|Transferred balance less than $2,499:||2.9%
|Transferred balance between $2,500 and $4,999:||1.9%
|Transferred balance of $5,000 or more:||0%
Two days later, the "What's in your wallet?" crowd at Capital One showed that they were not to be outdone. In the spirit of capitalist generosity, they offered to up my credit limit significantly. ("Big deal," says I. It's not like I ever carry a balance on this card, anyway). Further, because the suits at Capital One are nothing if not "givers," they included a few checks that I could use to transfer those pesky "high-rate balances" to my Capital One card. The offered terms? Lifetime, at a 2.9% APR.
2.9% for the life of the balance? 0% for nine months?
Those are pretty nice rates, particularly when your only outstanding balance has been accumulating interest at an APR of 5.5%. Plus, we're dealing with credit-card companies here. That means that in addition to the low advertised credit rates, you'll also get to laugh at the nonsensical and sensational ad lines always found in their promo letters . . . standby lines like these:
"If your transfer amount is more than your available credit, we'll increase your credit line by up to $10,000 to cover those balances. When you pay those balances off, the credit line increase is yours to keep!"
"And remember: The more you use these checks, the more you save!"
"Why wait? Act now, and you'll begin to save that much sooner!"
Okay. This time, instead of just laughing at the ads, I might just have to take these folks up on their offers. But something tells me I ought to read the fine print. As columnist Meg Green writes, "The small print taketh what the large print giveth."
Heaven forbid the credit card companies find a bigger sucker in me than they already have.
Kurt Conniver's "Transfer Transaction Fee"
Oh, the guys at Chase are slick. Second page of their insert, bottom of the page, in real small print:
You will be charged a Balance Transfer Transaction Fee FINANCE CHARGE of 2% ($35 maximum) of the amount of each Balance Transfer Transaction from this offer.
Nice how they sneak that in there, isn't it? Still, if you're financing $5,000 right now at 5.5%, your interest charges are around $22 each month. But finance that money for nine months at 0%, and keep making payments of $100 per month, then counting the Balance Transfer Transaction fee of $35, you still save yourself around $182 for the nine-month time period. Not a bad deal.
So always be on the lookout for one-time "transfer charges." And get ready to do some math to see how much (if any) money you'll save over the low-rate term.
Marv Moneybleeder's "Balance Transfer Minimum"
Oh, it seems like there's always a minimum for these balance-transfer things. The typical amount, I think, is $500. Transfer an amount less than the minimum, and I bet that Unsuspecting Joe gets get socked with a gooey, chewy, full-blown, non-promotional APR rate in the mid-teens somewhere.
The Disappearing Grace Period
Everybody knows about the no-interest grace period (usually 20 or 30 days) you get for new purchases. That doesn't exist for balance transfers, though. You'll be paying interest on them from the moment they hit your card. Check your card's terms, and usually you'll see something like this:
"We reserve the right to limit the frequency of balances transferred, and balance transfers are not subject to a grace period."
Del "Fingers" Markowsky's "Payment Applied Technique"
Here's the most common catch I see. I bet every balance-transfer promo I've ever seen does it this way:
"We will apply your payments to promotional rate balances (such as balance transfers) before regular rate balances."
Of course they will. Think about it — why the heck would the accounting managers at Any Self-Respecting Credit Card Organization want to do even the slightest thing to maybe possibly in any way shape or form decrease the outstanding principal amounts of their customers' high-rate loans when they could instead decrease the principal amounts of their customers' outstanding low-rate loans?
This is why savvy folks keep their low-rate transferred balances on one or two cards only, and place new purchases on a separate card. So think before you slap down new purchases on any card with a low-rate transfer already on it. You'll be accumulating the higher-rate interest on your purchases until the day you pay-in-full any transferred amount already on the card.
The Late-Payment Lynching
Ready to hop on one of these balance transfer offers? Then your mission, should you decide to accept it, is to always make your card payments on time, and never go over your credit limit. Fail to do these things just one time, and you'll find yourself socked with a stiff late fee . . . and oh yeah — your ultra-low APR will go bye-bye. Depending on your card company, your rate will probably get ratcheted up to an APR in the range of a zillion percent or so.
But It's Free Money ... Or Is It?
Okay, so I probably don't have the guts to do it. But a guy could conceivably cash one of these zero-percent checks himself and simply deposit the money into a savings account for nine months. In fact, I've read a handful of message-board posts from people who do this practically as a way of life. The problem with this — and it could be a big problem — is that depositing checks in this way could be treated as a cash advance by your card company, as opposed to a balance transfer. In which case you'll be paying interest in the aforementioned range of a zillion percent or so. So make sure you read the fine print before you do this!
Let's say you read all the terms and conditions on your card's offer, and found no good reason not to do this with, say, $5,000. (Incumbent in the "no good reason" clause would need to be the fact that you aren't going to need a great credit score anytime soon, because the act of taking on this chunk o' new debt would likely throw your debt ratio out of whack, and thereby deflate your credit score.)
Further, say that your credit union savings account pays you an APR of 2.02% (which is what mine current doles out; right now, the best 6-month CDs as listed by Bankrate.com are paying in a range of 1.76% to 1.98%). That'd earn you interest of around $76 or so in nine months. Take away the aforementioned $35 transfer fee, and you're left with a profit of $41. Not much, but then it didn't require much work, either. And that forty bucks would pay for a few lunches, at least.
Of course, you'll have to consider that (1) you'll still need to be making your minimum payments on the credit balance, and (2) your credit union, bank, or other financial institution can always siphon down their rates if they feel like it.
Truly adventurous types (as well as utter morons) could hang themselves way out there and use the low-rate funds to invest (trade) in the stock market or other financial vehicles. Surely you can get a better return than 0% (or even 2.9%) in a span of nine months, right?
Well, unless you know what you're doing (meaning you're an adept stock trader), this is a quick way to get yourself in a world of money hurt. Catch the right stock or two at the wrong times, and you'll still owe the suits at Visa $5,000 ... but you might have only, say, $3,500 with which to pay them back when the low-rate offer nears its end.
Fifteen hundred dollars of new debt. And you wouldn't even have the seven new DVD players to show for it.
July 9, 2003
Play Great Defense