February 10,2009
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Fighting Credit Card Changes, Pt.2
-- ‘Balance Transfer' caveats.Balance Transfers: These can be a God-send. Of course there are snares but, with a few simple precautions, they are often the perfect solution. High interest credit accounts and unreasonable demands keep a person in bondage with few escape routes. Scout out available options and choose the one that best helps you. Low interest credit card offers abound but, many have snares attached. The biggest ones are Transfer Fees and Selective Pay-downs. In the past, credit card Transfer Fees were kept reasonable with ‘caps' (maximum amounts). Currently, that is being abused by some credit card lenders and consumers can fall prey to seductive deceptions. Caps are good because they protect a consumer from being blindsided by oversights. Transfer fees today are nominally 3% of the amount transferred. So, if there is no cap (they're hard to find anymore), calculate the amount of transfer where this fee will still work to your advantage.
‘Selective Pay-downs', are pretty-much standard today and become a problem when ‘Purchase APR's are much higher than the ‘Transfer APR'. If you affect a transfer to a 2.9% APR credit card account but, the ‘Purchases APR' is set at 14.9%, you must not place any purchases on this account. If you do then, any credit card payments you make in the future (no matter how large) will never be applied toward the high-interest portion of the total debt. You will only be paying toward the 2.9% portion and every month you will pay a 14.9% APR finance charge for any purchases ever made until the entire ‘Transferred Amount' is completely paid off. In cases like this, never make any purchases against this card.
There are basically two types of ‘good deals' being offered right now for credit card ‘Balance Transfers'. One type is a 0% APR promo with an expiration date. This one I prefer because I generally keep on top of things. When the time draws near for ‘the jump', I transfer to another account which also offers 0% interest for another 9 or 12 months.
The other type is a low-interest credit card account, supposedly guaranteed to stay low interest for the life of the account. Be aware of the latest public outrage, however, where some lenders are side-stepping the benefit of this offer by exacting a monthly fee of %10 to maintain this savings (there goes the savings). Class action suits were quick to follow, concerning this and soon, we expect a verdict. Stay tuned.