Should we use a 0% intro rate to pay off some old credit card debt?

December 9, 2004 10:25 PM

We have about $4k of credit card debt (the shame), primarily from financing some appliances and car repairs when we moved. So we are considering getting one of those 0% intro credit cards to save on interest while we pay it down.
1. Are there any serious drawbacks to this?
2. Is there an objective review site of credit card companies, something like Amazon user rankings, perhaps?
posted by anonymous to work & money (20 comments total)

There may be a catch or two. Get the details by asking specific questions:

1. How long's the low interest stay on the balance transfer?
2. What happens if you miss a payment? (Sometimes if you miss two payments in X # months the interest goes up to a diff amount).
3. What's the interest rate after the offer ends?
4. Is there a finance fee or any other fee involved in the transfer? (Some cards will charge a X% fee on the amount transfered.)
5. Outside of any ways you've already mentioned, are there any other ways that the interest can rise above the 0%?

Also, you should understand that if you charge anything else on the account, it will be at a different rate AND that any payments you make to the card will pay off the 0% balance FIRST, meaning that they can charge you %18 (or whatever their reg rate is) on that amount until you've paid off the $4k.
posted by dobbs at 10:44 PM on December 9, 2004

I have sterling credit, no debt, etc, and tried to get one of those cards just to see if I could make a large purchase on it and pay no interest for a while. The best deal I found at the time was Amex Blue, so I jumped through the hoops and got the card. The 0% for 18 months offer (or whatever it was) was just a come-on. The card they sent was 0% for about 6 weeks, and had an absurdly low limit. I didn't even bother activating it. (I figured since they changed the terms of the offer, we didn't have a contract unless I accepted their counter-offer. I'm just waiting for them to ding my credit somehow, without a contract. They'll wish they'd given me more than 18 months of free credit then!)

So...uh...what's my point? Read the fine print, don't sign if the offer is not what you agreed to, and expect to get jerked around.
posted by spacewrench at 10:49 PM on December 9, 2004

I did this six years ago. I read all the fine print, etc., Transferred balances and have never used the card for anything else. It worked out OK for me.
posted by ursus_comiter at 10:59 PM on December 9, 2004

I've done this a couple of times and had no problems. Keep everyone else's caveats in mind: read the fine print, use the card only for this, etc. I'm pretty confident doing this hasn't damaged my credit, as I recently took out a car loan and had no problem getting what extensive internet research told me was the lowest possible rate.
posted by mr_roboto at 11:15 PM on December 9, 2004

Oh, and if you transfer over the phone it's sometimes a different deal. For instance, my CC company offers the deal for 3 months if you take their by-mail offer but 9 months on the phone. I have no idea why this is.
posted by dobbs at 11:20 PM on December 9, 2004

Even if you do read the fine print, beware. Part of the standard boiler-plate agreement with any credit card you get is a clause that allows them to change the terms at any time without any advance notification. Seriously - one month, no interest, the next, you're paying off those appliances at 18%.

There was a Frontline piece recently about the secret history of the credit card that laid out how nasty these guys are. Something I didn't know - because all the banks share information, you can be penalized on one credit card for trouble you have with a completely different, unrelated account. Late on a car payment or missed a different credit card bill? You can see your interest rate jump up on an unrelated card because of it.

Make sure you keep an eye on your statement every month if you decide to go for it, and don't hesitate to call them on any bullshit, not that it'll do you a whole lot of good without an army of lawyers on your back...
posted by jimray at 11:21 PM on December 9, 2004

Just got an offer in the mail for a Discover card with 0% interest for life on balance transfers as long as you make two purchases each month. Of course, they do ding you with a 3% cash advance fee on the transfer (though the maximum is $29, so it would only be like three quarters of a percent on a $4000 balance), and the 0% introductory rate on purchases expires July 1, so you'd want to pay it off by the end of July to avoid paying interest on purchases under the catch that dobbs mentions. Not a terrible deal, though there may be better ones.
posted by kindall at 12:13 AM on December 10, 2004

0% interest for life ... as long as you make two purchases each month

Oooh, that's evil! IIRC, most of those 0% deals are set up so that any new charges you put on are at whatever the bank's usurious rate is. And, of course, any money you send in goes to retire low-rate debt first. So if you're required to make two purchases a month, then those amounts probably accrue interest at 18% for life, or at least until you pay off the original balance transfer. And I'd bet dollars to donuts that the balance transfer would be limited to some trivial amount, calculated to give you just enough time so that your two purchases per month would turn into an undentable 18% APR balance.

Credit card companies belong in hell, right next to TV executives and Dick Cheney.
posted by spacewrench at 1:02 AM on December 10, 2004

I have a related question: does it "look bad" (lower FICO score, or some other negative ding) on my credit report if I do a balance transfer of the entire balance of one high interest rate card to one of these 0% cards?
posted by rio at 1:26 AM on December 10, 2004

rio: I just got my FICO score after completing a balance consolidation to one credit card with 0% rate. None of the credit reports reflected any negative effects due to the balance transfer. In fact, my debt grew because I paid off most of my wife's debt. I still have above average scores.
posted by RobbyB at 6:19 AM on December 10, 2004

*The* resource for credit card rates is Bankrate.com. Their site has gotten very busy and harder to navigate since I last visited, but their info is still solid -- they have weekly reports about rates on cards of all types (0%, no fee, gold, platinum, etc.).
posted by zpousman at 6:51 AM on December 10, 2004

1. Are there any serious drawbacks to this?
There can be. SO and I routinely open and close 0% credit card accounts to avoid paying interest on our (thankfully ever-shrinking) debt. You MUST MUST MUST read every little bit of the fine print available to you. Credit card companies can be sneaky. Some tell you if you have any late pays EVER on anything (even in the past) that they'll jack the rate up to the "default" rate, which is usually above 20%. Most of them have a "if you're late even once, you lose the 0% and get the default rate" clause. In the case of some cards, you are accruing interest during the 0% period and will have all of that interest added to your balance if it's not paid in full by the time the 0% expires. If you read (and understand) the fine print, you'll know what you're signing up for.

2. Is there an objective review site of credit card companies, something like Amazon user rankings, perhaps?
I have never heard of anything like this, but BankRate is a good place for finding offers. We currently have two 0% cards, both of them from BankOne; no funny business there that I have been able to find (if you are late with a payment to them, they will take away the 0% and give you the normal rate, which is 7.99% for us). Have found their customer service to be stellar. As far as the BankOne cards go, one is the Disney card and the other is the Platinum. Our 0% on each is valid for nearly a year after the opening date of the card...amazing.
posted by suchatreat at 6:56 AM on December 10, 2004

rio: Nope, see previous post. SO and I each have FICOs in the 650-700 range.
posted by suchatreat at 6:57 AM on December 10, 2004

All good advice here, I've recently done this as well. I didn't get zero percent but I got about three percent, which was fine and far less than the previously astronomical rate. The key (IMHO) is to know how long you have, what that is contingent on, and to have a plan to pay it off, which you shall stick to, absolutely no matter what.
posted by Medieval Maven at 9:13 AM on December 10, 2004

FatWallet might be able to help, especially the finance forum.

Of course, since it's fatwallet, you'll probably get the best suggestion and an insane suggestion, like filling up your CC every month with bonds bought at gas stations or something.
posted by easyasy3k at 10:06 AM on December 10, 2004

(I figured since they changed the terms of the offer, we didn't have a contract unless I accepted their counter-offer. I'm just waiting for them to ding my credit somehow, without a contract. They'll wish they'd given me more than 18 months of free credit then!)

You may want to re-read the "offer." Once you've applied or accepted, you are contractually obligated to the terms, whatever they maybe. "Activation" of the card is irrelevant. I would venture to guess that the offer that you received said something like "you are pre-approved," blah, blah, blah. But in the small print the creditors based the terms on approval, which means that the final terms maybe different than the original offer. When you applied for the card, you accepted that the terms may vary. Thus, you are most likely contractually obligated. However, if you don't use the card, there's no reason for a "ding." Although you probably should ensure that there isn't an annual fee.

Many people think that they have "sterling" credit because they've never had much debt. Actually, this is not that great because you've never proven that you can maintain large balances. Creditors will then offer you credit lines with lower limits until you prove yourself credit worthy.

Btw, I used to write credit card disclosures (terms & conditions) and I currently represent creditors. I also have an AmEx Blue card at 0%.
posted by Juicylicious at 10:14 AM on December 10, 2004

Something I didn't know - because all the banks share information, you can be penalized on one credit card for trouble you have with a completely different, unrelated account.

Yes, this happened to me with the Amex Blue. I tried for the 0% balance transfer, and was preapproved, but when the card arrived, it came with a note that said, "no balance transfer for you, due to your late payments on other account(s)". I don't have any other Amex accounts. Like spacewrench, I didn't even bother to activate the card.
posted by vorfeed at 10:24 AM on December 10, 2004

We've played two companies against each other for almost two years as a way of creatively financing the last year of graduate school. It has worked well but is not something that you can continue forever. We had a plan to pay off the debt within that period of time and have stuck with it. Next month the balance hits $0 and we cancel one of the cards depending on which gives us a better long-term deal.

Like others said, read the fine print, don't be late with payments, and don't charge anything else to the card. You should be okay.
posted by Fezboy! at 11:28 AM on December 10, 2004

IIRC, most of those 0% deals are set up so that any new charges you put on are at whatever the bank's usurious rate is.

Exactly, which is why I said in the case of my that you definitely want to pay it off before the introductory 0% purchase rate expires in July to avoid paying any interest at all.

Of course, the rate on this particular Discover Card offer is only like 9% (it's variable at prime+4.5%) so it's not terribly usurious compared to other cards. And the required purchases can be small ones, and you get a 1% rebate on them, so even if you take a few months extra to pay off the transfer, it's not going to be too heinous. Certainly beats the kinds of offers I've been getting.
posted by kindall at 11:36 AM on December 10, 2004

Does it "look bad" ... on my credit report if I do a balance transfer of the entire balance of one high interest rate card to one of these 0% cards?

Credit reporting by banks, and credit scoring, isn't that sophisticated. Banks DON'T tell credit reporting agencies what interest rate they are charging (that's competitive information), nor whether a consumer's debt increase is due to purchases, balance transfers, or whatever (same reason). Nor do credit histories provided to interested parties show amounts owed, month by month, by card. Instead, what is shown (for a given card) is just credit granted (maximum amount), high amount (historically), and current amount owed. (What often is shown, month by month, is delinquency information, since the duration of problems is of intense concern.)
posted by WestCoaster at 3:22 PM on December 10, 2004