If your credit is halfway decent (and sometimes even when its not), you’ve gotten one of these offers at one point:
We’re your friendly neighborhood credit card company! We love you so much, we want to lend you money at incredibly low rates for 6 months, or a year, or maybe the life of the loan if we like your smile! Sometimes we offer this money at 0% even! Just use these great checks we’re sending you, and don’t look back!
*followed by 2 pages of legal jargon*
Let’s decipher what this really means. First off, although I poke fun at their sales techniques, sometimes taking advantage of these offers can be the right move. But you need to know what you’re getting yourself in for.
First off, 0% is almost always a lie. Why do I say this? Because when you read the fine print, almost all of these offers come with a 3% transaction fee that is assessed immediately. That 3% is not calculated when they’re telling you your interest rate, because its a fee. But in reality, even if its a 0% loan for a year, you just paid 3% on the money you borrowed up front…even if you pay off this loan in less than a year’s time.
Second, if you continue to use your card or have another balance on there at a higher rate, the money you send in will go first towards paying off those higher balances. This may have changed with recent legislation Obama is pushing through, but I’ll believe it when I see it. Usually, the best way to use these loans is to make sure you have no other balance on the card already, and once you’ve taken them, don’t use the card for other purchases.
Third, if you’re late or miss a payment even once, you’re done. Credit card companies are under scrutiny right now and this may change, but currently if you miss a payment or are even just late on a payment once you’ve taken one of these promotional offers, they will not only raise your interest rate to post-bankruptcy levels (25-30%), they will also backdate that interest from the beginning of the loan. The easiest way to avoid this catastrophe is use an automatic billing service through your bank or similar to have your payments withdrawn from your checking account each month on the proper date.
So why would I say sometimes these are good? The good is, if you owe money at an interest rate higher than 5% and can transfer to 0% (even with the 3% fee), if you plan on not using that card again until the loan is paid off, and if you make your regular payments through an automated service so there’s no chance of being late or missing one. That’s a few ifs…otherwise it gets bad, then ugly. Be careful, and always use debt wisely.
P.S. I have personally used these offers in the past…just like credit cards in general, if you’re smart they can be a benefit rather than a burden.
