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Black Belt Shopper
Before You Spring for It by Larry Wiener Ultra low rate cards
are tempting, but can be a trap. Consider all the caveats before you jump into
them. More...
You have a $5000 credit card balance at 15%. You're making only the minimum payment. You get yet another one of those 1.9% teaser rate cards in the mail. You're tempted to transfer the balance. Should you? If you're like most people with balances, the answer is probably not. If all goes extremely well, you may pull off paying off the balance without any disasters. But, if disaster hits, look out. At the very least, consider the following: How long does the promotional fee last? Some of these cards only allow you to keep the promotional fee for three to six months. After that, the interest rate goes up considerably. You may think that if you're really organized, you'll find another low rate card before this one expires. You may or may not be able to do that. You may or may not remember to get the new card before you have to pay the "standard" rate which is much higher. Then if you have a month or two of the standard rate along with a balance transfer fee because you can't find a card that doesn't have one, look out. There goes your savings. What about the grace period? Many of these promotional cards have very short grace periods and large penalties if you are late. Additionally, with most of these cards if you are late only once, you lose the promotional rate and then have to pay a standard rate. Consider the effect on your credit record If you become a rate hopper, this will show up on your credit report because there will be a large number of inquiries and other evidence. If you want another type of loan down the road, many of the best institutions will balk at lending to you if you are a rate hopper. They are afraid you will jump ship before you have an opportunity to be profitable with them. Will having one of these cards tempt you to overspend? Sometimes the reason a person is seeking out an ultra low fee card is because (s)he got into credit card debt by being a big spender. If this is the case with you, will having the low-fee card tempt you to get into the overspending habit? Shopaholics and debtaholics may be tempted to spend more if they have a low fee card rather than taking the steps necessary to curb their spending. Are you ready for all the marketing that comes with low rate cards? You may think of your banker as a stuffy little man in a three-piece suit and glasses who likes to figure out ways to say no. Beneath that facade, however, is a marketer. If you take the low rate card, be prepared for hordes of marketing, both from the banks and from outfits who buy customer lists from the bank. How good is your sales resistance? Are you willing to be bothered by phone calls at dinnertime in order to take the low rate. Let's face it. These credit card companies don't offer the low fees because they love you and want to do you a service. They offer them as a come on, hoping that you will become more profitable to them either by slipping into a higher rate category or by buying something else from them. Going with one of these low rate cards may be in your best interest, but quite possibly won't be when you consider all the caveats. So what are the alternatives to the mass marketed low rate card? There are some banks that will allow you to transfer balances at a rate not quite so low, but for the life of the loan. Let's say you find a 6.9% card for that $5000 balance that allows you to transfer for the life of the loan. In that case, paying the same $100 a month, you will pay the loan off in a little less than five yours and pay $912 in interest. If somehow you can find a way to pay another $25 a month, you will pay $698 in interest and be done in four years. While paying $100 a month will a 2.9% loan will only cost you $335 in interest, the possibility of transfer fees, late fees, and the like may make the 6.9% card not that much more expensive and a lot less hassle and risk. If you have a high interest card, sometimes you can even talk your own bank into cutting the rate. There are articles on epinions about that process. Sometimes a credit consolidator debt counseling service can help you find the most appropriate card for you. Some of these charge high fees and are not worth the effort, but many are free or low cost outfits that can help you know who to contact to get your debts reduced. Some can even get your creditors to stop charging you interest. Consumer Credit Counselors is the most reputable of these agencies. Low cost cards are everywhere and there may be circumstances under which you might benefit from them. Before you sign with them, however, consider all the caveats. When you do, there is a likelihood that they might not be for you.
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