Friday, 10 December, 2004

Credit card low interest transfer offer

I have a love/hate relationship with my credit card company. I've mentioned before that they regularly (about once a year) increase my credit line, usually between ten and twenty percent. I'm still not sure why they do that, as I don't carry a balance on the card. It's nice to know that I could live on credit for a few months if I had to, but I'm not likely to take advantage of it.

Until recently. I just received an intriguing offer in the mail. The company sent me four checks: three to pay off "high rate balances," and one that I can use any way that I choose. I can write checks up to my available credit balance. The attractive part of the offer is the interest rate: 1.99%. I checked the fine print, and that really is the fixed rate. No "six month introductory rate" or anything like that. Two percent money. Provided, of course, that I don't default under any of the terms of my card agreement.

It's too bad I can't come up with a good reason to borrow the money. If my credit line was a little higher, I'd be tempted to pay off my house with it. If I was planning a large purchase, I'd absolutely take advantage of this offer. I'd be money ahead if I stashed the equivalent cash away in a bank certificate of deposit and paid for the purchase with one of these credit card checks.

There's always a catch, of course. The credit card company isn't really doing me a favor by lending me money at this low rate. The fine print reveals where they're getting paid: lower rate balances are paid off before higher rate balances. The low rate applies only to the purchases or balance transfers you make with the supplied checks. Any normal purchases or existing card balances continue to accrue interest at your standard card rate. So if you use the card at any time while you're still paying off the transfer balances, those new purchases stay on the card at the higher rate until the low rate balance is paid off.

Offers like this are calculated to take advantage of the unwary credit card user. I find it terribly irresponsible of the credit card companies to make offers like this to people who don't understand the ramifications of accepting the offer, and who are not in a position to borrow responsibly. Those of us who can take advantage of the offer usually won't because we have a healthy aversion to debt, even when can borrow at a rate that's less than a guaranteed rate of return.

I won't say that I'm not tempted. I think it's human nature always to want more, and given this opportunity I found myself looking for a reason to take advantage of the offer. If there's a better example of money burning a hole in my pocket, I don't know what it is. I'm fortunate (or unfortunate, depending on your point of view) enough, though, to have learned that lesson the hard way. The cash will stay in my bank account and my credit card balance will remain at 0.