Using those credit card company checks.

In My Humble Opinion
1

Anyone ever used these checks that the credit card company sends you.

So, I get a letter yesterday that says, “we notice you haven’t used our card. we’d like to send you these checks to pay off whatever you want at 5% fixed rate.”

Translation: we’d like to you owe us money instead of whomever you owe now.

You can even pay off another credit card – from a different company – with them.

Up to our limit, we can write one of those checks out and pay 5% on it.

So, for instance, we have a student loan and a loan to pay off the kitchen that are at like 6%. So, the plan would be to pay one of these off in full with the CC check and pay the CC company back at a lower rate (fixed, to boot).

Is there any downside? Is there a “catch”? Is there a hidden trap that I’m overlooking?

I read the fine print, and it all seems kosher, but I’ve never really done such a thing before.

The CC likes it because they’re getting my interest. I like it becuase its a lower rate. It’s win-win, no?

The only downside I see is that the current payments on the loans are structured, and you have the feeling that you “need” to pay them. However, we’re very disciplined about cash, so we would not fall victim to debt with this CC company or let the principal sit there and accrue interest. We’d make payments at the very least equal to what we’re paying now.

Any opinions? Experience? ’

Is their line on this to reel in people who are less disciplined with money and take their payments?

I think we’re going to call today and try to finagle a lower rate with them, too. You know, “yeah, we’ll do it, but give me 4.5%”.

2

Many times, the checks are a “cash advance” which means that the interest on them starts accruing on the day it clears rather than after the first billing cycle (like a normal credit card).

I think CC debt and other debts might show up differently on your credit report. I hope someone can clarify that.

The rate might only be valid if you make regular payments, which means being late by one day might kick you into a different rate–often a very high one.

Make sure there isn’t a transaction fee for using the checks.

If you have a balance on this card already, be aware that payments you make will (I think for all CC companies) be applied to the balance with the lowest interest rate first.

Um, and that’s all I can think of.

3

not a huge problem, but that’s shady.

Interesting. . . worth looking into it. The rating is good right now.

They indicated something about “as long as you remain in good standing (or somethign), the rates stay the same.” If you can lose “good standing” with a payment one day late, that’s a pretty big catch.

They said that it was all fee-free.

I don’t have a balance. Are you saying this: let’s say I pay off a $10K loan and I’m sending them $200 per month. Then, let’s say I run a CC bill up of $1000. That $1000 is at 15% (or whatever). If I send them a check for $1200, they’ll apply it fully to the principal of the the loan, and let the $1000 accrue at 15%.

That’s smarmy.

Thanks. That’s a couple good things to look into.

4

The credit card company that I deal with wants to charge me a $50 administrative fee any time I do a balance transfer at a lower rate. It doesn’t sound like this is what they’re trying to do here, but I am leery of credit card companies for their underhanded tactics. If I were you and had a student loan at 6% interest, I probably wouldn’t take a chance on a credit card company for 1 point of interest.

5

Yes, that’s what I’m saying. There should be something in the fine print that says something about how payments are applied to balances with the lowest interest first. Or, if that’s not true for this offer, there should be something else stating how payments are applied. I can’t remember how that wording would probably read.

6

Is that fixed rate for an indefinite period? I’d bet it’s not more than 12 months even if that long.

7

I agree with the posters suggesting that you read and understand all of the terms, and call to ask questions and check your understanding of the terms with a rep whose name you will write down along with the notes you take during the discussion.

I’ve used these checks several times to get substantially lower rates, either by paying off a higher-interest card or the end of a more-expensive loan. Do calculate the complete cost of leaving things as they stand vs. making the transfer. For a check with a good rate over a long period, even adding a transaction fee may still yield a cheaper payoff.

8

They say fixed rate forever. I read that part carefully.

Well, except for something about being in “good standing”. So, that’s pretty open-ended.

See, I NEVER use this card. And, I won’t start using it even if we use these checks.

It’s just that if there are no fees, and no huge catches, why not do it even if its only a point?

9

Yep - read the agreement very carefully to see how they’d apply future payments if you’ve got both a balance transfer, and use the card yourself. If you charge 100 bucks, and send them a check for 200 bucks (your transfer amount’s minimum payment, plus the 100 bucks you spent) they might well apply the entire 200 bucks to the transfer amount. If you’re doing this with a card you can otherwise do without (and that has a zero balance), obviously this isn’t a problem.

We recently did a balance transfer to something that offered a zero percent intro rate on all transfers, and all purchases, for the first year. Very punitive if we are late / miss a single payment (market rate interest rate after one late payment, a punitive rate of something like 20% if we miss 2 payments). It’s a great deal, as long as we don’t miss anything (and we’ve being very careful not to do that!!!). Anyway - what happens to that nice 5% intro rate at the end of the first year, or whatever the intro period might happen to be? What’s your fallback position if you do get nailed with a punitive rate (ours is to pay it off using the home equity line of credit - as these bills were for home improvements, I don’t have heartburn with doing that).

We had to pay a balance transfer fee for each of the two transfers we made. However, in our case, that fee wound up being far lower than a month or two at the old rates (and the new rate was zero percent), so was well worth it. Factor that into the costs of whatever you consider doing.

10

Check to make sure that the rate applies to interest you accure also.

For example if you transfer 10000 with the interest rate on that being 5%. Lets say that they calculate the interest at the end of the year to keep it simple. So the end of the year rolls around and you have 5000 left on the loan. The CC company calculates the interest and adds 250 dollars to your debt. Now the CC company might have a different rate of interest on that 250 dollars becuase it isn’t part of your transfer payment. As others have mentioned they will make you pay down the original debt with its low interest rate first. That means you have a growing amount of interest accured at the higher rate which could cost you money in the long term.

I have no idea if CC companies do that but I would certainly check the fine print and thourgholy investigate that before signing.

Hope that made sense

11

In broad generalities, having secured debt is better for your credit rating than unsecured debt. So, if you have a home equity loan that’s securing your kitchen improvements, moving it to a credit card with a lower rate might benefit you financially, but not necessarily from a credit rating standpoint. Also something to consider…the interest you pay on a home equity loan is tax deductible (assuming itemize), and CC interest is not. So, moving a home equity loan balance to a CC, even at a lower rate, might not be to your financial benefit if you lose your tax deduction.

School loans are unsecured debt, so as long as you’re sure you won’t get dinged with an increased rate as a result of late payments, I don’t see any reason not to go for a better rate there by moving it a CC.