Credit cards can help or hurt, but a low interest transfer comes with fine print

The average American household has nineteen credit and debit cards, and an outstanding debt of nearly five figures from their use. They are convenient, but they are also expensive, with interest rates that can run as high as 30% per year for those who don’t pay their bills on time. Still, Americans keep using them, often encouraged by “limits” that are astronomical. It is not uncommon for someone to have a credit limit that equals or exceeds their annual income.

For those who have problems with credit card debt, it can be quite difficult to repay when the interest rates are so high. Until the major credit card companies raised their minimum payments in 2005, many people who paid only the minimum payment each month actually saw their balances rise after making a payment.

And yet, some people with such problems may find an offer in the mail one day from a company offering another credit card with a special promotional offer. These offers vary, but they usually promise a low introductory rate for the first six or twelve months if you transfer a balance from an existing account. Sometimes, these rates can run as low as 0%. That sounds great to most borrowers and they often move quickly to transfer their four or five figure balances to the new card so they can pay 0% interest for a while.

So, what’s the catch? Are these offers legitimate?

Yes, they are, to a point. That point, and others, are spelled out in the fine print on the application for the account. Usually on the back, and written in what seems like micro-print, are the terms. And here the things you do not really want to know are spelled out:

• The introductory rate will apply only for a specifically stated period of time.
• The interest rate applies only to the transferred balance, and not to new purchases. New purchases will accrue interest at a much higher rate, often as much as 20%.
• Payments will be applied to the charges accruing the lowest interest rate first, so any new purchases not paid in full will continue to accrue interest at the high rate.
• You may lose the promotional rate if you make a payment late on the account.
• You may lose the promotional rate if you make a late payment on any other account you have! Yes, they will check your credit report from time to time to see if you are paying your electric bill on time. This is known as the “universal default clause.”
• They may raise your interest rate at any time, for any reason.

That is it in a nutshell. If you are extraordinarily disciplined, you may be able to make use of a short term, low interest loan. For most people, this only represents an opportunity to create yet another high interest debt. By all means, if you can transfer a balance, pay it off in time, and avoid using the account for anything else, it may be worth your while. Otherwise, be careful, as it could be an expensive mistake.

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