Citibank raised the interest rates for customers with high credit scores who had never missed a payment.  Virtually every credit card company opposed the very tame reforms recently passed into law by Congress.  The sad truth is that is isn’t a matter of if your credit card issuer will try something sneaky, it’s a matter of when, and how bad will it be.

While there is always tension between a company that must turn a profit and consumers who want to get as much as possible for the lowest price, with most relationships between a business and consumer there is at least some degree of fairness.  Unfortunately, this is seldom the case for the relationship between credit card company and credit card user.  Instead, in this relationship, the credit card company works hard to hook a customer and then slowly tries to squeeze the maximum profit out of them.  Between absurd fees, sudden contract term changes, and just plain old subterfuge, your credit card company is out to get you if you stop paying attention.

Top Credit Card Company Tricks – 0% APR Credit Card Offers

While there are many areas the banks that issue credit cards are less than forthright, one area that the tricks come fast and furious is with 0% credit card offers.  Whether it is a zero percent interest balance transfer offer, or an offer for 0% interest for an introductory period, you have to stay on your toes to stay ahead of all the little tricks credit card issuers play.

Here, are the most common credit card company tricks on 0% interest credit cards.

1. Transaction Fees – Buried in the middle of the text of a full-page letter or even on the back of the page in lighter gray text is the notification that this particular 0% offer is not a free offer.  Instead, you’ll be charged a transaction fee of 3% typically.  That means when you write a credit card check or fill out the balance transfer form, you’ll be charged 3% (or more sometimes) immediately.  No grace period, no chance to pay it off before there are interest charges.  If you take $5,000 with this 0% interest credit card offer, you’ll be charged $150 the second you get the money no matter how fast you pay it back.  In other words, you don’t have to pay off $5,000 before the offer expires, you have to pay off $5,150 before the offer expires. 
2. Payments Credited to Lowest Interest Balance – Here is the one that even financially savvy consumers miss.  Buried in the fine print of your zero percent interest balance transfer offer is the fact that every payment you make will be used to pay off the part of your balance that is being charged 0% interest.  Any other charges you make are going to get hit with full interest charges.  Oh, and by the way, those interest charges?  You’ll be charged interest on it too until you pay off the whole zero percent balance!  In other words, if you take $5,000 at 0% and then next month you charge $300 thinking that you will make a payment of $300 to cover it without being charged interest, you’ve fallen into the trap.  Instead, when you send in your $300 payment, the credit card company will reduce the amount you are paying 0% on by $300 and nothing will be credited to the $300 which you are going to be charged interest on.  So, after the first month you have $4,700 at 0% and $300 at the full rate.  After next month it will be $4,700 plus the $305 or whatever your interest rate makes it.  In other words, you cannot use your credit card in anyway until after you have paid off the free offer, whether that is 6 months, 12 months, or 24 months.
3. Minimum Payment Still Required – Some zero percent offers require you to still make the minimum monthly payment.  If you are late by just one day at any time, the whole 0% interest rate promotion can be revoked immediately and you start paying the full interest rate. Call and complain, and you might get this one reversed, but don’t count on it.
4. Zero Percent As Long As Balance Is Paid By End of Offer – This one is most common with department store credit cards.  The way it works is that the credit card company keeps track of how much interest you would owe if you didn’t get 0% interest rate.  Then, if you don’t finish paying off the whole zero percent balance by a certain time, then you have to pay ALL the interest, not just the interest going forward.  So, if you buy a $6,000 bedroom set with a 24 month same as cash offer and you haven’t paid off the full $6,000 then you will pay all of the interest for each and every one of those 24 months.  And how will you pay it?  It will be added to your balance so they can charge you interest on that too.

Using a zero percent interest rate credit card offer can make good financial sense, but you have to be careful to follow the rules exactly to avoid coming out worse than you thought.

Smart Rules for Using 0% Interest Offers

How do you keep from becoming another cash cow sucker for the credit card companies?  Follow these simple rules and you’ll be ahead of most of their tricks.

1. Watch Out For Transaction Fees – Use no transaction fee offers whenever possible.  These are less common from credit card accounts you already have, so you might have to look at offers for getting a new credit card.
2. Stop Using the Card – Take the card out of your wallet or purse and do the same for your spouse.  If any kids have a card on that account, get theirs too.  Put them in a safe or other place where they can’t be accidentally used until the whole zero percent balance has been paid off.
3. Setup an Automatic Payment – Many cards will allow you to setup an automatic payment.  This is a must if you have an offer that still requires an on-time monthly payment.  If you have a card that must be paid off by a certain date to avoid being charged all accrued interest, make your automatic payment enough to pay off the balance over the free time period. At minimum write down the date your account must be paid by in big colorful letters on every calendar you have.  Don’t cut it close, pay it off a month or more in advance to avoid any mishaps like lost checks or a family emergency that keeps you from remembering.
4. Don’t Zero Percent Hop – Some people try and get too cute and keep swapping one zero percent interest rate offer for another 0% offer.  While this sounds smart in theory, your odds increase of making a mistake that could cost you enough to wipe out any savings you’ve gotten up until then.  If you have no other options, then by all means, another zero percent offer is better than nothing, but focus on paying that one off right away.  Otherwise, if you want to take advantage of multiple 0% offers, close out the first one and then move on to the next one.  That way, you’ll make sure you are starting fresh each time.

Want to get benefits and make money back from using your credit cards?  Get the right rewards card and use it wisely.  Then, the benef
its you earn will out weigh the hoops you have to jump through.

Related posts:

1. How To Fight Credit Card Company Interest Rate Increases
2. New Credit Card Law Starting To Affect Credit Card Companies

Credit Card Company Tricks and How To Beat Them originally published at Personal Finance Blog - FinanceGourmet.com

Yet another client came in bamboozled by their credit situation.  Recently, they used a handful of checks they got from various credit card companies to transfer their balances to cards where they will have 0% interest for a full year, 18 months, or whatever.

In fact, by parlaying around a few different cards they got their entire amount of credit card debt onto 0% payment plans.  Smart?

Well, maybe.  You see, 99.9% of those 0% balance transfer checks come with a transaction fee.  It isn’t anywhere prominent, so you have to look for it.  Down there in the fine print you’ll see the line, “Checks are subject to a 3% transaction fee or $25 whichever is higher.”

That means that if you took a $6,000 balance, an $8,000 balance, and a $5,000 balance and switched them around to get 0% on all of them, you paid $570 in transaction fees.   Now, if you are having some issues and you intend to take advantage of the year of 0% interest to make some smart moves in your finances, this just might work out in the long run.  A lot of that math depends on your interest rate.  If you got good cards in the first place, your rate of 9.9% or 12.1% won’t make this add up in your favor as fast.

However, the biggest catch is the other fine print down at the bottom.  It says that all of your payments will go to the lowest rate balance first.  In other words, if you put $5,000 on the card at 0% interest, and then you charge $300 you will owe interest on the $300.  If you send in $300, it won’t help because, the $300 payment will be credited to your lowest interest balance which is the 0% part.  So, after your payment you have $4,700 at 0% and $300 at 13% (or whatever).  Now, the worst part is that you will pay 13% on that $300 until you have paid off every penny of the 0% balance.  That is NOT a good deal.

How to Use 0% Interest Offers

If you are going to use a 0% interest offer, you must NOT USE that credit card again until your balance transfer is paid off.  In other words, you need another card that will be your regular card that you make charges on and pay off each month.  Otherwise, you will just get killed in the end.  Why do you think credit card companies are always making these offers?  Do you actually think that they would do something that loses them money like giving you money interest free for 12 months or longer?

You can still win, but you must be smart.  Use your 0% offer and then put that card away in your lock box until it is completely paid off.  Otherwise, you are just throwing money down the toilet and feeling good while you do it.

No related posts.

Zero Percent Credit Card Transfer Checks originally published at Personal Finance Blog - FinanceGourmet.com