May 3, 2006

Chasing Zero Percent

Photo courtesy of The credit card companies are locked in a high stakes game of chicken with us. By "us" of course I mean you, because I'm not playing. They offer low, low rates on the bet that they can stick it to us in the end (that sounds bad). We take those rates on the bet that we are smarter than them. They make their bet on the basis of a bunch of reliable real-life data. We rely on our good intentions. We usually lose. I was reading one of my regular blogs this morning, a site that chronicles the efforts of a couple to get out of debt. A part of their get-out-of-debt plan is to surf their card balances among the various 0% percent offers that are out there. The writer reports that after transferring a couple of credit card balances to a new 0% percent offer, he discovered that the representative of the card company had either lied to him or was mistaken about the terms of the offer. The writer expected to get 0% interest for 12 months, but will actually will only get it for 3 months. After 3 months the interest rate becomes 16% or something. He is ticked off because one of the balances that he transferred was already at 0% percent for 5 more months and the other was at 3.99% for the life its balance. He intended to save money by consolidating and by getting a 0% interest rate. Surprise! The old lose-lose. First of all, as I have posted before, if you are carrying a balance on a credit card, you bought some stuff you could not afford. The blogger who wrote the post knows that carrying a balance is a bad idea, but he is there now and is trying to get out of debt so, good for him. I'm bothered by the idea sold by the credit card compaines that the problem is not having debt, but in how you manage the balances. By following some links I found that there is a network of people who believe they can beat the credit sharks their own game by surfing their debt around from low rate to low rate. Reading their posts and forums is almost laughable. This is a fool's errand because...

You can't borrow your way out of debt!

Stop playing games with the terms and start attcking the problem. Have you ever read a credit card agreement? Most people who sign up don't read them. Well, I went to the Chase Bank card site and printed one out and I will share the details of a 12 months 0% offer with you. The full details can be found at the Chase web site. These are the highlights; 1. The 0% offer is for 12 billing cycles. After that the rate becomes 13.24% to 22.24% depending on Chase's review of your credit history. Better pay it off in 12 months or be prepared to move it again. 2. The default rate is 31.24%. What constitutes default? You may default if (a) they don't receive payment on time, (b) you exceed you credit limit or (c) your bank does not honor your check for payment. What if the post offices delays the check or loses it? 3. They reserve the right to change your ARP at any time, for any reason. They can change it if they want to. 4. They reserve the right to change the terms based upon a review of your credit report. If you have a problem with the light bill and it gets on your credit report, they can and do jack up the rates. 5. They reserve the right to change a fixed rate to a variable rate at any time. 6. If you are late on any payment to any card in the Chase constellation of companies, they can change the terms of all your Chase accounts. Beware, Chase cards are places in you don't expect them to be. For instance, Circuit City accounts are Chase cards, old BancOne cards are Chase, there are a bunch of them. 7. There is a $15 late fee if your balance is less than $250 and $39 if it is over $250. There is also a very fine $39 over-the-limit fee. They wrote these rules for a reason. They know that 80% of people will not pay off the balance in 12 months and they are certain you will rack up more charges. The rules are written for your failure. Get serious about paying off your debt: You fool with these schemes at your own peril.

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