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The myth of 0% credit card balance transfers


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10 replies to this topic

#1 of 11 OFFLINE   Brian Perry

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Posted July 21 2003 - 07:09 AM

Most of you have probably received multiple offers in the mail from your credit card provider(s) to transfer a balance from other another account. Usually, the offer will be for 0% for 6 months, sometimes even with no transaction fee. Before jumping at these "deals," you should know there's a catch. (Isn't there always?)

To preface, I always pay my balance in full each month, so I normally throw these invitations away. However, when I received the latest offer for 0% interest until Feb/04, I decided to transfer a $6,000 carpeting bill I had just received. I figured, what the heck, it's free money--I'll invest the $6,000 and pay it all off at once in Feb/04.

When it came time to pay my credit card bill, I was curious how the bank would keep my new charges ($4,000 this month) separate from the $6,000 balance transfer. In other words, I wanted to pay all $4,000 of current purchases and leave the $6,000 balance alone. I was surprised to learn that it is impossible to do so. The bank applies any payments to the lowest APR balance first. Thus, my payment of $4,000 would go toward the $6,000 balance transfer, and I would immediately begin incurring finance charges on the remaining balance (0% for the $2,000 left on the balance transfer but 13% on the $4,000 in new charges).

After speaking to two customer service reps, I learned that this practice is the norm amongst credit card companies. They basically admitted that the only way you can achieve the 0% deal for 6 months is if you transfer the balance and then not use your card at all for the next six months, which kind of goes contrary to the point of having a credit card. If you continue to make substantial charges on the card, which I did, you are essentially negating the deal in the first month or two.

So, if you want to take advantage of one of these offers, my advice is to use the balance transfer by itself and use a different credit card for new purchases. Otherwise, the bank will force you to pay the entire balance off immediately (including the balance transfer that was hyped as a 6-month freebie) to avoid finance charges. While I'm sure this is all listed in the fine print, I think it's a deceptive practice.

#2 of 11 ONLINE   Malcolm R

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Posted July 21 2003 - 07:29 AM

After speaking to two customer service reps, I learned that this practice is the norm amongst credit card companies. They basically admitted that the only way you can achieve the 0% deal for 6 months is if you transfer the balance and then not use your card at all for the next six months, which kind of goes contrary to the point of having a credit card. If you continue to make substantial charges on the card, which I did, you are essentially negating the deal in the first month or two.

Yep, that's why you need to read ALL the fine print enclosed with such offers. I have a very similar offer that I want to use, but I have to wait until I get the current balance on the card paid off at the higher rate so I can then transfer a balance and successfully use the lower rate. Otherwise your payments get applied to the lower rate balance first and that higher rate balance (in my case $600) keeps ringing up finance charges at the higher rate until the lower rate balance is completely gone.

This does seem to be standard procedure, as I've seen it in many offers. If you're going to successfully take advantage of it, you really need to have another CC you can use for purchases while the lower rate balance is being paid off.
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#3 of 11 OFFLINE   Jeff Ulmer

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Posted July 21 2003 - 07:37 AM

Yes, that is standard. These cards are a great way to finance single transfers, but nothing else.

#4 of 11 OFFLINE   Steve>Smoker

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Posted July 21 2003 - 07:51 AM

Finance companies RELY on people not being financially wise to make their money.

Perfect example :

The 'Buy Now Pay Later' scheme.

Anyone who is clever, buys the product and puts the money away each month to enable them to pay off the debt on time gains out of the deal.
They get to use the product while they save up to pay for it!
Great .. unless your not disciplined enough to do that.

Try going past the 'payment due' date and see what happens!

This is how they make their money - you already have the product, been using it for months and when you signed up the small print says if you dont pay it off on XX day then you incure nasty charges PLUS a hideous interest rate.

Although it isnt 'fair' its business.
Its legal and it obviously makes someone rich preying on folks who are careless with their money management.

All I can say is read the small print, use the good parts of the financing deals and avoid the bad.

Most of all,

IF YOU CANT AFFORD IT DONT BUY IT!!!!!!!!

#5 of 11 OFFLINE   Don Black

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Posted July 21 2003 - 09:44 AM

I agree that this is standard practice. I literally paid off just yesterday a $10K balance I had riding for 8 months on Discover Card's 0% APR offer. For those 8 months, I locked my Discover Card in my safe and triple checked that I had a $0 balance before I made the transfer. Shady tricks but worth it for the free loan.

#6 of 11 OFFLINE   Francois Caron

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Posted July 21 2003 - 10:02 AM

Quote:
This is how they make their money - you already have the product, been using it for months and when you signed up the small print says if you dont pay it off on XX day then you incure nasty charges PLUS a hideous interest rate.


Many places in my area have stopped this practice because of the number of complaints and potential lawsuits they were getting. At the end of a "No Payments, No Interest" period, you are charged interest on the REMAINING balance STARTING on that date (usually about 29.75%) and not on the ENTIRE purchase the date you actually MADE your purchase.

Still, it's the consumer's responsibility to make sure they're getting the good deal. There's still plenty of "sucker bait" out there.

#7 of 11 OFFLINE   Keith Mickunas

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Posted July 21 2003 - 10:39 AM

Quote:
STARTING on that date (usually about 29.75%) and not on the ENTIRE purchase the date you actually MADE your purchase.

Every one of those I've used in the past have stated on the bill each month the accrued finance charge so that you'd know what you were going to get hit with when the expiration date comes up. Now granted, its not always easy to figure out exactly what is going on, but you should know what you are getting into. It bugs me that someone could sue over something like that.

On a related note, I once bought a Mits TV on a 12 month 0% deal where the interest didn't accrue during that 12 months. I've never seen one like that before or since. Talk about free money with limited risk.

#8 of 11 OFFLINE   Reginald Trent

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Posted July 21 2003 - 12:02 PM

That's why you get a 0% card from a different financial institution, that way you can pay them the minimum and use the rest as you please.

#9 of 11 OFFLINE   Jason_H

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Posted July 21 2003 - 02:49 PM

Quote:
So, if you want to take advantage of one of these offers, my advice is to use the balance transfer by itself and use a different credit card for new purchases. Otherwise, the bank will force you to pay the entire balance off immediately (including the balance transfer that was hyped as a 6-month freebie) to avoid finance charges. While I'm sure this is all listed in the fine print, I think it's a deceptive practice.


Yeah, there are basically two types of deals: the ones where ONLY the balance transfers are 0%, and the ones where the balance transfer AND any new purchases are 0%.

For the former, everyone is correct, make the transfer and then just put the card aside. Don't use it. The latter is much more convenient since you can continue to use it as your daily card.

ALSO, on some cards, you must be very careful since if you don't make the minimum monthly payment, the APR goes back to normal. Others you can just ignore until the 0% period is up.

I have been moving some debt through 0% cards for the past couple of years very successfully, it is a great help. It frees up all kinds of cash for when opportunities arise and gives you great financial leverage. You just need to make sure you read the fine print and follow the rules. I have never paid any kind of finance charges/interest.

#10 of 11 OFFLINE   David Preston

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Posted July 21 2003 - 09:44 PM

When ever I get a balance transfer thing in the mail it goes straight to the shreder. You can't even call the CC company to ask them a question without them asking if they can transfer any balances for you.

#11 of 11 OFFLINE   Reginald Trent

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Posted July 27 2003 - 05:39 AM

0% transfers can be a great resource if you know what you're doing. Ignorance with this like most anything can hurt you.

Bottom line know what you're getting into.





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