The Credit Card Check Trap – One You Should Avoid

The other day I received a “special offer” from my credit card company, along with a set of blank checks. The offer stated that I could use these checks to pay for anything I wanted, for any amount (up to my credit limit) at a promotional 3.99% fixed APR until the balance is paid. They suggested I use it to make a down payment on a new car, take a vacation, or make some home improvements. Sounds wonderful, doesn’t it? Yes…until you read the fine print!

These checks once again reminded me of the trap that I talked about in an earlier blog, but is well worth reiterating this week after Christmas when most will start receiving their credit card statements for all those financed Christmas purchases. Many will be shocked by the total owed and looking for some way to ease the burden. These low-interest checks certainly appear on the surface to be an answer to a prayer, but buyer beware! There are three major gotchas with these checks that will have you crying the blues if you don’t take the time to read and understand the fine print!

1. Transaction Fee: In the fine print it states that there will be a transaction fee of 3% applied to the amount of the check. So, let’s say you write a check for $5,000 to pay for your family’s Christmas vacation. That means you will be charged $150 to write that check. Well, you say, maybe it is worth it in order to get that low interest rate until the balance is paid off.
2. Payment Allocation: That brings us to the next gotcha. In the “Important Information” on the back of the offer, the credit card company states that it MAY allocate payments to the balances with the lowest APRs before applying payments to higher APR balances. The operative word “may” really means “it has the right to” and trust me, it WILL allocate your payments to the lowest rate first. Since you probably made other purchases with your credit card and those purchases naturally accrue interest at your standard higher interest rate of say, 21%, those purchases will now be the last in line to be paid off. By writing one of those low-interest checks, your next credit card payment will be applied to that lower-rate check balance instead of toward your new, higher-rate purchases. This means your new purchases will sit there, building up interest at the higher rate, and you can't stop it without paying off the low-interest balance in full, the very balance you had hoped to pay off over time. So, unless you make no other purchases, of what possible benefit are these low-interest checks?
3. Grace Period: The final gotcha is that there is no grace period on these checks. Interest starts accruing from the transaction date.

Instead of falling prey to one of these offers that can actually compound your credit card debt problem, use this time to make a resolution and begin a plan to put yourself on the path to financial freedom in 2008.

Get Out of Debt While Cutting Your Monthly Payment

If you’re one of the thousands of people with high credit card debt (over $10,000), have minimal savings and are the one in six who pays only the minimum due every month, then you need a realistic plan to get yourself out of debt and start working towards improving your credit rating. By enrolling in a debt settlement program, you could realistically be out of debt in months instead of years and often for less money per month than what you are currently paying, including interest and penalties. For more information about what debt settlement is, how it can help you, and who you should contact, Click Here.

Don’t let embarrassment, stigma, or the sense that negotiating your way out is not the moral way to get out of debt. The Credit Card Industry is one of the most profitable industries in the United States. Citibank alone earns more profit than both Wal-Mart and Microsoft. Yet this industry has more complaints filed against it than any other industry in the U.S. Getting debt free and starting a financial plan to build wealth instead of debt is one of the best things you can do for yourself and your family.

Consumers with Low Credit Scores Are Being Targeted

Christmas is just around the corner and the lending institutions are peddling credit cards like there’s no tomorrow. This week alone, I received 6 credit card offers in three days -three of which were from the same bank. Is it just the anticipation of so many consumers using credit to fund their must-have holiday gifts and vacations that’s driving all these offers? Partly…but there’s a lot more going on here than the hope of cashing in on holiday mega-spending. There is a major shift in lending that is coming to the forefront.

Banks and other lending institutions are shifting away from mortgage and home equity lending. The shift is a direct response to the fallout from the sub-prime mortgage crisis and the drop in home values. Home foreclosures have reached the 1 million mark and are rising. Home values in some areas have dropped by as much as 40%. Many homeowners needing to sell, in order to get out from under rising mortgage payments they can no longer afford, can’t. Home equity values across the board are at record lows, due to lower home values and tapped-out equity borrowing, and with nearly 5 million adjustable rate mortgages due to hit within the next year, those in the financial industry are skittish about the next bubble to burst. Even the government is getting involved, trying to come up with a plan to help out sub-prime mortgage holders (it's really the impact on the banks they are worried about) in an effort to keep the economy stable.

Where once there was plenty of money to be made in mortgage refinancing and home-equity lines of credit, the growing crisis has led many to tighten their lending belts - that is, all except for one area. Credit cards have become the new cash cow! In fact, in 2007 the sub-prime market (households with low credit scores of around 600) has become a major target. Some creditors have as much as doubled their direct mail credit card offers to sub-prime customers as compared to 2006. But this isn’t particularly good news for those with less than stellar credit.

The Pitfalls of Sub-Prime Credit Card Offers
These sub-prime targeted credit card offers have some major pitfalls. These offers come with higher interest rates - 25% to even 35%, lower credit limits, usually have annual fees and some even impose an account setup fee, and typically they come with higher fees and penalties. If you accept one of these offers, you can also be assured that the issuer is going to monitor your entire credit activity and general bill paying carefully and if you are late on any other bills you have, they will most likely use it as a reason to raise your interest rate even higher. The sad truth is they can do all of this legally and it’s all in the fine print – if you took the time to read it and were actually able to understand it. They want your business, but if you default on your card, they are going to make sure they have made as much as they could on you in the form of interest, late fees, overdraft charges, and annual fees. After all, that’s where the money is anyway. In 2006 alone, the credit card industry made some $90 billion in interest and $55 billion in late fees.

Instead of falling prey to compounding credit card debt, use this time to make a resolution and begin a plan to put yourself on the path to financial freedom in 2008.

Get Out of Debt While Cutting Your Monthly Payment
If you’re one of the thousands of people with high credit card debt (over $10,000), have minimal savings and are the one in six who pays only the minimum due every month, then you need a realistic plan to get yourself out of debt and start working towards improving your credit rating. By enrolling in a debt settlement program, you could realistically be out of debt in months instead of years and often for less money per month than what you are currently paying, including interest and penalties. For more information about what debt settlement is, how it can help you, and who you should contact, read my blog dated September 29, 2006.

Don’t let embarrassment, stigma, or the sense that negotiating your way out is not the moral way to get out of debt. The Credit Card Industry is one of the most profitable industries in the United States. Citibank alone earns more profit than both Wal-Mart and Microsoft. Yet this industry has more complaints filed against it than any other industry in the U.S. Getting debt free and starting a financial plan to build wealth instead of debt is one of the best things you can do for yourself and your family.