Danger!

They sat in the window sill above my kitchen sink and stared at me every day – for weeks and months.  They whispered like the wind: “frodo baggins” – actually, more like “cash me, I love you!”.

If you think that credit card companies might be just a little sneaky or looking out only for themselves, you might be more than just a little bit right.

After being unemployed for almost a year, my savings built up during my prosperous time of work last year was consumed.  Unemployment ran out and I had to apply for emergency benefits.  Unemployment barely covers the mortgage and water payments.  And it takes considerably more to run a household full of kids and a stay-at-home/homeschooling mom.  What to do?

Ultimately you can go only so long without employment income if you are still in your working years like me.  We are in good company.  Being a consultant, I am accustomed to being disemployed.  As such, my first profession is to be a professional jobseeker.

Anyway, when the money runs out, your mortgage company, service providers, credit card holders, gas stations, and grocery stores still want theirs.  What you gonna do after selling all you can on eBay?

In my case, I finally landed a job at the last possible minute – the minute before I cashed those cash advance checks from one of the credit card companies I am trying to pay off.  But that is not to say that I was not tempted to take one or more of those checks and add some cushion to my reserves.

The marketing text about the offer says something enticing like “0% Interest for 9 months, or 1.99% for a year”.  Sounds nice at first, right?  But you must keep in mind that facts and truth are not necessarily in alignment – especially when dealing with financial institutions [as well as with politicians, and the mainstream media.]

Be sure to notice the little thing called a transaction fee.  It is 3% of the amount borrowed.  It used to be capped at $50 or $99.  So, in the past I did not mind taking advantage of an offer to move $20,000 from 10% to 5.99%.  But now there is no limit on the balance transfer fee.  So if you transfer/advance $10k to 5.99 for a year, and then do it again after 12 months, and again and again on these 1-year deals, your rate is really [at least] 8.99%.  Just know it is not really the 5.99% advertised.

In the same way, the 1.99% for 6 months is really 4.99% after you count the transfer fee.  Do it twice in a year, and your being charged almost 10% at a per-annum rate. 

The players include but are not limited to Citi, ATT Universal, Chase, Wells Fargo, Discover, American Express, and many more.

Read the Terms of Agreement Before You Do It!

But, what if you cannot pay off your debt at the end of the term and you cannot find another special offer?  Then your agreement might jack you up to 15% or 19% or even 28%.  Better think about that before you take the candy like Peter did from the White Witch in Narnia.  Remember, credit card companies don’t make money directly by offering great deals.  Instead, they make the money on the balance transfer fees and when the deal is over and the borrowers’ rates jump way up.  If that were not the case, they would have no reason to offer the enticements.

Not Always All Bad

My point is to never take credit card balance transfer and cash advance offers at face value, and to read the terms and know what it is you want to accomplish in both the long term and the short term and to understand the associated risks and rewards.  Personally, I believe the right thing for me is to pay off credit card debt once and for all and to never carry a balance again.  This is taking me years to do, and you can’t go forward if you are moving backwards; that is why I resisted so hard in taking them up on those balance transfer offers even during my emergency.

But that is not to say that there is never a reason.  There are several times that I had to do it in the past in order to pay the mortgage and make ends meet.  However, there are good ways to go about it, and bad ways.  As mentioned earlier, the bad ways include simply taking the checks and going for it without thinking about all the options and implications.

Be sure to ask these questions:

1. What is the interest rate? (is it better than my current rate?)
2. What is the term length? (what will happen when it is over?)
3. How much is the balance transfer fee? (what will my effective rate be including the fee?)
4. What is the balance transfer limit? (is it enough to make a significant difference? can I move enough of my debt to it to be worthwhile, or will it mainly add more burden to my busy life with another payment to have to try to keep up with and thereby be counter productive?).
5. Do I have to apply for another credit card to get the offer?  If so, do I want that type activity on my credit report?

In regards to question #4 above, I received a seemingly attractive offer from American Express.  So after reading their terms and submitting my application, I later received approval for up to $7,000.  But I wanted to “re-fi” $20k+.  Calling their customer service was unfruitful in obtaining the approval I wanted.  In the end I decided they were just another credit card company jerking my chain, hoping to divide and conquer and get me to miss a payment and be converted to their high profit-making rates.  So, I declined to transfer any debt to their card, and cancelled the account (actually they cancelled it after 6 months or so of inactivity, which suited me just fine so as to have one less vulnerability for identity theft).

And fact is that pretty much all of my $30,000 credit card debt is below 6% and has been for years.  It is because of taking advantage of low interest offers back in the days when the transfer fees were capped.  I am always open to moving the debt in order to achieve a lower lifetime interest rate until it is paid off.  But it must be a better deal in truth and not just manipulated facts stated in the marketing literature.

Always question the facts to get the truth