Should I Accept Zero Percent Credit Card Offers?

I know, it seems like a great idea, especially when the rates are so high and you’re paying hefty interest on a stubborn balance, but if you are tempted to transfer or use those “Convenience Checks” that show up in the mail, be sure to read the fine print. I know, life is short, but so is “money.”

When I wasn’t making enough money to support myself and a pack of children, I used to play balance hopscotch, too. It’s easy to fall for it, and maybe the deals were better back then, but also maybe not. See, zero percent is a lie.

Sure, they may not charge you any interest for the first year of the loan, but they are hitting you with a fee up front. You will pay 3% or 4% immediately and while they are not calling it interest, it is a percentage of the total, which smells a lot like interest.

If you are prone to hives at the mention of things like APR and Annual Percentage Rate (same thing!) let me give you an easy math example.

Let’s say you have $100 borrowed at 12% interest. That means you agree to pay back, at most, $112 dollars over the course of one year.  There will be $1 interest each month, because there are still 12 months in a year, and you’ll be required to pay $2 at a minimum. The thing is, if you only pay the $2, at the end of the year, you will still owe nearly $100. As the balance creeps downward, the interest calculation does also and the minimum lowers. Most people will begin to pay less on the account and it could follow them around like a money dog until they die.

So, for our next example, lets say you get an offer for a zero percent balance transfer as soon as you open the first account. Zero percent is less than twelve percent. You’re so smart!! The thing you need to notice is the fees associated with the new account.

Will they charge you crazy high interest after the initial 0% interest? Will there be an annual fee to keep their piece of plastic in your wallet or in tiny pieces in the back of the drawer? Of course!!

So let’s say they have 0% for one year and then 24% afterward with a $24 annual fee for being their customer.

Please stay with me.

You had your $100 you borrowed originally on the first card and after a car repair and an emergency trip to the beach it’s $1000. You deduce that you’ll pay $10 in interest every month now and that seems bad. The new offer is 0% interest and that’s great, right? You can just let that balance chill for a year and pay the $10 per month or whatever the minimum is going to be.

Well.

This means your $1000 instantly becomes $1030. Big deal. Maybe the minimum is more or less what you expected, but you’re not ever paying this thing off with the minimum. When you pay the minimum for another year, you will end up with something like $900 at your new interest rate of 24%.

But wait, it’s actually $924 now because the annual fee has entered the story from stage right of the ripoff theater.

This is not great. Sure, you could transfer to another new account offer, and then immediately add $27 dollars back to your balance.

During this second year, you have paid $120 to reduce your debt $76 dollars, which means their free offer cost you $44.

If some banker walked up to you and asked you to give them $44 so they could have all your information and the right to hassle you if you didn’t pay them more money, what would you say?

People with money have the leisure to figure out endless ways to make more money. You don’t have to play their game. Ask questions and don’t let the jargon intimidate you. Amortization Table means More Money for Me — in fact, you can assume any term that is weird and hard to explain is essentially More Money for Me. In this example ME is THEM.

I have talked to many people about money over the years and there are few topics that surface insecurity more quickly. Everyone worries about it and nearly everyone feels intimidated by the rules they don’t understand. It’s okay. You are smart. You know how to say no. Don’t accept offers you don’t understand, and if you try very hard to understand it and still find it confusing, you can say no twice.

Love,
yermom

My book isn’t on Kindle and I’m not sure why. It’s nice to know the lack of sales isn’t necessarily a lack of interest. The paperback is still an option, and it’s great for holding up wobbly tables later. Skip the first few chapters if you want to. I would!!