Using 0% Checks for ROTH

cube1067February 3, 2005

I have some 0% MBNA credit checks that I'm thinking of depositing into a ROTH. The 0% is good 'til September, and I will pay them off by August. Is this legal? Would you do it?

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sailfish

I'm in a similar situation. Due to some minor success day trading I have to pay tax on the earnings.The money is there and I can just pay the tax and wash my hands of it. But I intend to use a similar loan to pay the taxes and leave the money right where it is. I am hopeing that the "Obligation" will force me to sock away some dough that would be forgotten and otherwise fly to the wind. I'm certainly no expert. But I feel good about it somehow.

    Bookmark   February 3, 2005 at 1:40PM
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cube1067

It seems logical to me.... There's no fee with the checks.... I'm prepared to pay it off sooner if I must...I just wonder...if it's such a good idea, why isn't everyone doing it? What's the pitfall I'm missing?

    Bookmark   February 3, 2005 at 8:01PM
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sailfish

No fee means just that I think. Those type of loans will charge you a 2 or 3 percent fee to allow you the loan. Perhaps they waive that. Then they make money by charging you interest. Look closely at the check.. September of what year? I have seen the 0% checks till like the next month. Then they go to 2 percent. Well anyway.. Read the fine print. Sounds too good to be true.

    Bookmark   February 3, 2005 at 8:50PM
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cowboyind

The zero percent deals are good, and they're legitimate. But they do have a trick:

When you borrow that money at the zero percent rate, if you read the fine print, they will say they can apply your payments to the "promotional rate balance" first. (The "promotional rate balance" is the balance at zero percent.)

So, if you have any other balance on this credit card, or if you go out and charge any other items with this card after you take the zero percent loan, they will credit any payments you make to the zero percent balance first. This allows them to "move" your entire zero balance over to the regular rate in just a few months if you're not careful.

Example: on 2/1/05 you borrow $2,000 at zero percent. On 2/15/05 you go out and buy a new refrigerator for $700 with the same credit card. Your statement comes on 2/25/05, and now the balance is $2,700. You think, "Cool, I'll pay the $700 for the refrigerator, plus $200 toward the $2,000 I borrowed at zero percent."

Nope, can't do it. The entire $900, and any other money you send them will be applied to the $2,000 at zero percent first. So after you mail them $900, you now owe $1,100 at zero percent, and that $700 for the refrigerator is still sitting on there, and the interest is mounting up on it, but you can't even pay a single dollar toward that $700 until you pay off the ENTIRE zero rate balance.

This is how they get you with the zero percent deals. If you use the card at all to make more purchases after taking out the zero percent loan, you will in essence move the entire balance over to the card issuer's normal rate in just a few months. But as long as you're careful to NEVER use the card even once until you have the whole zero percent balance paid off, you can take advantage of the deal and pay no interest at all.

The only other thing that catches some people is the fine print that says that the promotional rate can be immediately revoked if you "violate the terms of your cardmember agreement." Having a payment reach them even one day late is probably a violation of your cardmember agreement, so they could use this as an excuse to end the zero percent rate and jack it up to some absurd "penalty rate" of over 20 percent. So, you also need to make sure that all payments reach them well before the due date.

    Bookmark   February 4, 2005 at 4:59AM
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