wanted to relate a story to you all: a friend of mine, who is pretty financially responsible, has been getting more serious with his g/f, and maybe as a symbol of his devotion, recently offered to take her credit card debt. She is not very responsible, and racked up ~$5000 on her high interest card. The stated deal is that the balance transfered will be charged no interest (0% APR as they say) until December.
However, I recently got one of these deals in the mail, and after looking through it carefully out of curiosity, I have discovered the catch. After you transfer the balance and then continue to make your own purchases on the card as before, even if you always paid your balance in full, you are now screwed. Why? Because "payments are applied to the portion of the balance with the lowest interest rate".
Ie. although you thought that you wouldn't be paying any interest on that $5000 you transfered, you're now paying top interest on your new purchases. It's a false savings.
For example, if you usually pay your balance in full, say $500 per month, you might assume that doing the same would cost you no interest after you had transfered that $5000 balance over. Wrong. Your monthly payment (which previously had been in full) is applied to the $5000 transferred balance, and you now have $4500 to pay at 0% and $500 to pay at 10%. Continue this for several months, up to when you thought it would be time to pay off the balance, and you'll have $0 owed at 0%, and $5000 owed at %10. Back where you started, thank you very much. And now they're asking for their money. NOW.
So, don't believe it when they say 0% balance transfer (at least not for most people who keep on using that account). Be careful with your finances, and remember, debt is debt. You don't get out of it for free!
Just wanted to pass this along!
However, I recently got one of these deals in the mail, and after looking through it carefully out of curiosity, I have discovered the catch. After you transfer the balance and then continue to make your own purchases on the card as before, even if you always paid your balance in full, you are now screwed. Why? Because "payments are applied to the portion of the balance with the lowest interest rate".
Ie. although you thought that you wouldn't be paying any interest on that $5000 you transfered, you're now paying top interest on your new purchases. It's a false savings.
For example, if you usually pay your balance in full, say $500 per month, you might assume that doing the same would cost you no interest after you had transfered that $5000 balance over. Wrong. Your monthly payment (which previously had been in full) is applied to the $5000 transferred balance, and you now have $4500 to pay at 0% and $500 to pay at 10%. Continue this for several months, up to when you thought it would be time to pay off the balance, and you'll have $0 owed at 0%, and $5000 owed at %10. Back where you started, thank you very much. And now they're asking for their money. NOW.
So, don't believe it when they say 0% balance transfer (at least not for most people who keep on using that account). Be careful with your finances, and remember, debt is debt. You don't get out of it for free!
Just wanted to pass this along!
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