Thanks Cortni!

I had an unexpected auto repair come up, so, I thought I’d use the 1.9% offer instead of taking money out of savings for it. My savings account pays 4.4%, so, I’d actually be better off leaving the money there at 4.4% and paying only 1.9% on the credit card. Great idea, right?

Not necessarily.

When I called the credit card company and asked a few questions, I found there was a 4% transaction fee, up to a maximum of 90.00, so, unless the balance transfer is 2250.00 or more, you’re actually paying somewhere around 5.9% (4% transaction fee plus 1.9% APR), depending on how long you take to pay the balance off.

But wait, there’s another catch. On most credit cards, 100% of your payments are applied to the debt with the lowest interest rate, so, if you take that 1.9% balance transfer or cash advance, all of your payments are applied to that 1.9% debt, while other debt, or new charges at the card’s normal rate go untouched.

One more thing. If you’re late or go over your credit limit one time, the 1.9% offer is rescinded, and you are charged the normal rate. Be late or go over limit twice within a 12 month period and your rate goes variable, and can go as high as 32%!

That’s not to say taking advantage of these offers is an automatic “no”. You just have to keep a couple of things in mind:

1) Only use them for larger amounts. This makes the transaction fee drop dramatically, in relation to the amount you’re putting on the card. For example, if you did 1000.00, your 4% transaction fee would be 40.00. I’m thinking about buying a motorcycle and using one of those cash advance checks to do so. The amount will be 5500.00, so the 90.00 transaction fee will be only 1.6%.

2) Have a 0 balance on the card when you do the cash advance or balance transfer, and charge nothing else on the card until the cash advance or balance transfer is paid in full. Otherwise, you’re paying a much higher true interest rate. I ran a couple of simulations. If I took a cash advance of 1000.00, and had a 1,000.00 balance already on the card, my actual interest rate would be about 6%. Coupled with the 4% transaction fee, my true cost would be about 10%, and would actually go up as I paid the 1.9% balance off, while the 8.9% balance remained unchanged.

3) Always pay on time, and never go over limit. The credit card companies are sitting there licking their chops, just waiting for you to do that. I work in a cash business, so I make a small payment on my credit card each week. Over time, this saves me a bit on interest, and, more importantly, insures I’m never late on a payment. Now, everyone’s not in a cash business like I am, but, if you get paid twice a month, for example, you can pay the minimum payment out of your first check, and the rest of your normal monthly payment out of the second.

3A) Bank online, and use online bill pay. Most banks now offer these services for free. If yours doesn’t, shop around, there a tons of banks that do. Paying your bills online is much easier on you, so it’s easier to be timely on your payments, it saves you on postage, and, most importantly, it gives you the ability to easily track your payments, so, if the credit card company pulls the old, “cash the chek on the 20th, but don’t post it till the 30th” scam they frequently do, you can dispute it with a simple email to the bank. They’ll handle the rest.

I’m sure you are also experiencing other consequences of great money handling–increased love and friendship with each other, as you have no reason to argue about money and you have accomplished a large project together. It will stand you in good stead when bad things may try to wiggle their way into your lives.

Very inspirational. I always love to read about people gaining their freedom from the debt beast.

It’s sad that it takes such events in our lives to learn the lessons of personal finance we weren’t taught in school.