I have been getting junk mail that offers to consolidate all my credit cards accounts by paying off all the existing debts and transferring everything to one account. This offer sounds very attractive because the interest rate is usually dramatically low - like around 2%. Is this a good idea? Has anyone had any experience with this or know the details of someone who has done this? Like the saying goes, “If it looks too good to be true, it probably is.”
Those deals usually tout a low introductory rate that kicks up to normal credit card rates after 6 months or so. Still, if you move stuff that’s been percolatin’ at 19.8% to 3.9% for a few months, you come out ahead. You just need to keep watching it and be prepared to move it again when the intro rate wears off.
Read the fine print, as well.
I have a friend who says he does this regularly. These low interest offers are introductory, they apply for a few months, and then WHAM! they hit you with the 18% or 20% or whatever. Anyway, this guy says he runs up a balance on Card A. Then he gets a low-interest credit card, call it Card B, and uses it to pay off his the balance on card A. The trick is that he needs to watch VERY carefully for how long Card B’s low-interest rate is applicable, and then he has Card C ready (with its low-interest introductory rate) to take over the balance from Card B.
If he ever misses, he’ll get socked with the outrageous interest those guys charge. He says he’s never missed, and he just runs from card to card to card that way, effectively carrying a loan at 2% or 4% interest (the low-interest rates vary.)
Seems risky to me, I prefer to pay my cards off each month and not run the risk of incurring those blood-sucking rates.
Obviously its best not to run any debt - even low interest is worse than no interest. However, you generally get six months on these introductory rates (defintely read the fine print). Banking de-regulation has created a situation where hundreds of banks are competing for the business of each consumer - you can easily switch from card to card for the rest of your life. Even if you ‘missed’ and paid a single month at the higher rate, it wouldn’t kill you. The 18% is an annual percentage rate, the amount of interest generated in a month would be 1/12th (roughly) of that.
That said, I really have to warn you that credit card debt is about the stupidest thing you can do with money. If you are carrying a balance on a credit card, that is an indication that you have a negative cash flow. Unless you are temporarily out of work, or had to pay unexpected expenses (and no, car repairs are not an unexpected expense if you have an old clunker) then you are almost certainly doing something fundamentally wrong with your personal finances if you are in this situation. Take a look at it before it gets out of hand.
This situation is called “revolving debt” and may reflect negatively on your personal credit. If you make a habit of this, the reporting agencies will notify potential credit providers of your tendency to handle debt this way. You could go your whole life without a problem, but mortgage providers in particular pay special attention to cases of revolving debt.
If you can’t afford to pay, consider a non-profit credit repair program like Genus Credit Management. They negotiate with your creditors to obtain a lower rate and then make payments via auto-withdrawl from your checking account until the debt is paid. Often your APR is reduced to almost nothing. You cannot have an unsecured credit card while the program is under way, but secured credit is fine. And at the end, you’re clear.
Stoly is right. Everytime someone accesses your credit record (all they need is your SS number) this will pop up. It will weigh on whether you’re approved for financing on just about anything.
Radar!
I transferred all my CC debts to one visa card at 2.9% until the debt was paid off!!!
No tricks no strings…
Sound toooooo good to be true???..ooohh yeah welll thats cause it is…
I made the mistake of sending two payments in one, (because of the way I get my paychecks) and that defaulted me on ONE (1) payment which wasn’t really a default at all…AND when I applied for the transfer in the first place, visa told me over the phone that a person would have to default on at least 3 payments for the interest to go up!
I looked at the next bill I got…guess what
I was now paying 17% friggin percent. That is, for every 100.00 I send $50.00 of it is for interest. I know I am a complete dumbass for gettin $4000 in CC debt in the first place…but I ain’t completely stupid cause I went to my bank and borrowed the money at a fixed 8.5% and paid the bastards off.
It’s the fleecing of America I tell you.
“I’m the best there is Fats. Even if you beat me, I’m still the best.”
(Paul Newman in The Hustler)
Be careful. Sometimes the low intro rate is NOT for balance transfers/cash advances, those then are charged a higher rate. Also, often there will be a “cash advance fee” for balance transfers, often 5% with $5 or $10 minimum. A new trick popping up recently is changing the terms (including even that low intro rate) well before your “honeymoon” was supposed to end. Your only remedy then is to transfer again…Much better off getting a home equity loan (if you can), but only if you cut up the cards…
Always destroy & throw away unsolicited “convenience checks” They are pretty much always a bad deal.
“You’ve met me at a very strange time in my life” -Fightclub.
I’ve successfully done this several times, and I’ve had no credit problems. In fact, every time I apply for a loan the lenders tell me that I have incredible credit. Of course, I do tend to pay off all the balance on my credit cards at least every 6 months or so.
It’s not particularly hard to get the low credit rates. Just watch in the mail and do the balance transfer. Check out www.aria.com. They currently offer 0% interest for the first three months.
There seems to be some confusion here. The term “revolving credit” refers to any credit account which can be accessed and paid off repeatedly - like a credit line or credit card. It has nothing to do with transferring balances between accounts.
So long as you make your payments on time there are only two ways this will reflect negatively on your credit report:
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If you leave the accounts open. Open revolving credit accounts, even with a zero balance, are often factored in when reviewing a loan. The lender arrives at your debt potential by adding together all of your revolving credit limits. Too much debt potential can scare away lenders, or impact your interest rate. It is important to make sure all unused credit accounts are closed!
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Every time you apply for credit (even pre-approved) an “inquiry” is added to your credit report. The inquiry stays regardless of whether or not you are granted the credit. Too many inquiries in a short period is usually seen as a red flag by lenders.
That being said, transferring balances between credit cards is a dangerous game. I certainly wouldn’t recommend it.
The overwhelming majority of people have more than the average (mean) number of legs. – E. Grebenik
Some inside insights…
It is true that a large number of inquiries in a short amount of time is a red flag. Revolving debt per se is not necessarily a red flag, at least for a credit card issuer. Collecting interest on revolving balances is how most issuers make their money, so everything else being equal, they prefer a “revolver” to one who pays off every month. What they do worry about is if you’re maxed out on your credit limits.
Everyone is right about reading the fine print and understanding when your introductory rate will change and what the consequences are of making a late payment. These low rates are “too good to be true” in the sense that they are in themselves a loss for the issuer. So the issuer hopes to recoup their money by raising your rate at some point, either at the end of your introductory period or by slapping you with a penalty rate when you don’t make the payment on time. (Some issuers are extremely inflexible on this and will raise your rate if you’re even a day late, so always mail in your payment a week ahead or more.)
And people are also correct that you need to check whether balance transfers are covered by the advertised low rate. I’ve seen some outrageous deals on that – like for new purchases the rate is 2.9% but for balance transfers the rate is 19.9%! The company is counting on you not reading the details carefully. (I actually saw a rate like that for Aria, so watch that…I think that 0% for 3 months is for new purchases.)
Finally, I would definitely recommend a debt management program like Genus…but ONLY if you are truly in need of it. Your use of one of these programs can be noted on your credit record and might reflect poorly on your ability to manage debt on your own. If you are really over your head, it is of course better to get help in getting your debts under control. But don’t enter into these agreements lightly if you can foresee a time when your cash flow will be better.
Yeesh! Sorry for the terrible formatting.
I agree, the devil is in the details. I read every credit agreement carefully.
Aria is a good deal, though. It’s 0% for three months on balance transfers - not sure about new purchases since I don’t expect to have any new purchases. The caveats are:
1 - you have to send in proof of current rates on your other cards, and they’ll match the rate on balance transfers after the first 3 months. If you don’t send in proof, it goes sky high. (17 or 18%, I’m not sure which - my balance will be paid off before it takes effect, so I didn’t pay too much attention).
2 - they don’t want you transfering the balance transfers off after the initial 0% thingy, so they will hit you with a transaction fee if it’s transferred off within a year. Paying it off, however, is fine.
3 - For standard purchases, the rate is 7.99%. I think that’s pretty good.
I think what it comes down to is that you have to read the fine print, and evaluate whether or not it’s a good deal for you. The Aria card was a good deal for me, since I have a fairly large balance (about 12K) that will be paid off within 3 months. In fact, the 0% allows me to keep that 12K in investments for a couple extra months, gaining money. I’ll pay off the Aria a week before the 0% is up, and I come out ahead. However, if I were looking to keep a large balance for a long time, I doubt that the Aria card would be a very good deal as the interest rate jumps after the 3 months.