Credit card companies need to make money just like everyone else. If they couldn’t make money by extending credit, they wouldn’t be in business, and that would force us to pay cash for everything from coffee to vacations. There is obviously a place for credit cards in our society. However, some tricks that credit card companies use to make money can only by classified as sneaky.
This is the fourth in a four-part series on the hidden cost of credit cards.
Balance transfer and “no interest” card offers
“Sign up now and pay no interest for 90 days!” Sounds great, right? Well, it is great if you plan on paying the balance on your new “0% interest” card off before your 90 days are up. If you don’t or can’t, though, that 0% will go up, and fast. Companies offer these offers, both on new cards and on balance transfers from other cards, in part to encourage you to carry a balance. If you’re not paying interest, it’s hard to argue that you should pay the card off every month. The problem is, most people can’t, won’t, or don’t pay that balance when the rate goes from 0% to, say, 22%. If you’re disciplined enough to pay off the balance before the end of the introductory rate term, then hey, this might be a good time to buy that new refrigerator. But if you don’t plan on paying the balance, don’t say I didn’t warn you.
There’s a reason these kinds of card offers are popular just after the holidays. Pay no interest on all my holiday purchases? Sign me up! In reality, though, the credit card company wants you to do exactly what you’re thinking about doing: transfer your existing balances to their card. Then when you don’t pay the card off before the introductory 0% rate is over, they make their money off your interest payments. I have a friend, currently unemployed, who bought a big screen HDTV on Black Friday with his new 0% interest card. Don’t worry, he said. I’ll pay it off before the rate goes up. Guess what? 90 days later, he still doesn’t have a job, but he does have a nice big new 20% interest rate on his nice big new TV. Trust me, it’s easy to forget that rate won’t be around forever, and that circumstances can get in the way of even the most sincere plans.