Monday, March 13, 2017

Balance Transfer Offer

I have a credit card that I don’t use much any more because I get more cash back on another card. I recently got an offer related to my little-used card by paper mail:

“Save on interest - pay only 0.99% on balance transfers” “for up to 12 months”

I normally just throw away junk like this, but I decided to scan the page. Toward the bottom, my eye caught the following line:

“A fee of 3% of the balance amount you are transferring applies.”

Just how dumb are they hoping I am? This looks like at least 3.99% interest annually to me. More likely, they’re hoping to reach the inattentive and desperate.

I decided to read the 25 lines of fine print on the back. In addition to the usual stuff about how they’d jack up my interest rate if miss my payments, I saw the following:

“Please refer to sections 10, 11, 12, 13 and 14 in your Cardholder Agreement for details on calculation of interest and the application of payments.”

There just has to be a story behind something this cagey. After reading more than just the sections referenced, I think I have the story. After I make a balance transfer from another credit card, suppose I make a normal purchase on this credit card. It turns out that the balance transfer is treated like a cash advance. If I make a payment, the payment goes against interest first, then the balance transfer, and new purchases last. So, until I pay off the entire balance transfer, interest at a high rate accumulates on any new purchases.

So, if you choose to make a balance transfer, be sure to put your credit card in a cool, dry place and don’t use it until the balance transfer is completely paid off.

No matter how bad your financial situation gets, there’s always someone there to profit from dragging you down further.


  1. party pooper, you :)
    Seriously though, your last point is golden.

    1. @AnatoliN: Thanks. I know that I have more readers profiting from credit cards (indirectly through big-bank dividends) than suffering from credit card interest. But I'd be happy to forgo some dividends and have people do a better job of living within their means.

  2. Yes, that's exactly how it works. I've tested it out before but only with a 0% rate and a balance transfer fee of 1%. Do not ever use that card again until it's all paid off! Haha

    1. @Ray: The high interest on new purchases without being able to pay them off is a nice little trap. Hopefully, you didn't learn about this the hard way.