How best to use interest-free CC?

pdg777April 27, 2007

I have my first long-term interest free credit card (through January 2009). Now that I've paid off all my debts (except mortgage), I'm trying to use somebody else's money for free. My questions:

1. First of all, is this a good idea? I would probably use the credit card to pay bills like cell phone, landline phone, gas, groceries.

2. I would, in-turn, increase the amount of money withheld from my pay that goes into my credit union savings, so that when the zero interest expires, I will have the money to pay off the credit card.

3. I would also periodically (maybe every 3-months?) withdraw money from the savings and maybe get some cd's or something in order to try to get the maximum amount of interest, and to make it hard for me to "spend" the savings (I've had discipline problems in the past).

4. What would be a good term for the cd's? 3-month?, 6-month, 1-year?

5. What do you all think about this plan overall for someone who has only been reformed from deficit spending for about 2 years?

6. I have tried to check all the small print on this credit card. Here's what I know so far.

- There are no balance transfer fees. (I had to transfer a balance to qualify for 0%, so I transferred the balance of CC I use and pay-off every month). Do you think I would be required to hold that balance on the credit card, or can I pay it off as soon as I get the bill? I couldn't get straight answer from credit card company.

- The zero percent interest is for purchases only. Would cell phone, utilities payments be classified as purchase?

- The interest rate, if not paid off, I believe will be 11.9 percent. Of course, I plan to pay it off, but do you think this is too dangerous?

any other red flags you foresee with this offer?

thanks for any help!

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You are probably right to be weary. Especially if you can't get a straight answer from the credit card company.

Without seeing all of the smallprint, it's hard to say what the catch is, but here's my guess:

There are no balance transfer fees.
But you are probably paying interest on that transfer as soon as you transfer it.

Do you think I would be required to hold that balance on the credit card, or can I pay it off as soon as I get the bill?
If you pay it off, then the 0% rate probably doesn't apply anymore. So essentially, they may give you 0% for your new purchases, but you are continuously paying interest on the initial transfer amount.

The zero percent interest is for purchases only. Would cell phone, utilities payments be classified as purchase?
I think 'purchases' means anything other than a cash advance or a balance transfer. But I'm not positive.

    Bookmark   April 27, 2007 at 4:32PM
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You point out a couple of times that you have been debt challenged in the past. I don't mean to be cruel but all the manipulations you describe tell me that you are a credit accident waiting to happen again. Why do you need to use a credit card at all?

What's wrong with paying utilities etc with a debit card or check. What's wrong with having the payroll deductions to build a savings account/401k all by itself? If this was me, I hope someone would give me a swift kick, pointing out that I didn't need to set myself up to have debt challenges again.

As I read your post, I thought that you kind of sound like a reformed alcoholic who decides to start hanging out in bars, positively convinced that he won't drink again. Why risk the temptation?

Again, I don't mean to be cruel. Just be careful with what you are considering.

    Bookmark   April 27, 2007 at 9:33PM
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Want to second the above opinions to be careful. I would be wary of a card that touts 0 interest for that long a period of time. CC issuers have been less giving recently and 12 months is usually the max I've found for true no interest periods. You are likely paying interest already on your balance transfer. If you put more charges on the card before the transfer is paid for then guess what, any payments you make may go towards the new "interest free" purchases and not the balance that is being charged interest. Read your fine print on howe payments will be credited and what your options are.

That being said, I don't recommend using one of these cards for daily purchases, it's too easy to fall into the old debt trap again and when it comes due then you'll find not enough to dig your way out. I personally have found that using such offers is most beneficial for some unexpected major expense such as a household improvement or car repairs. Having a card with at least 12 months no interest gives you a chance to pay for an immediate unexpected expense which can then be paid off over time. We plan to put our new heat pump on just such a card which will give us until next March to pay for it. I can handle several hundred dollars a month for a year better than several thousand dollars. This is most effective if you actually have a cushion of money available that could be used to pay off that debt at any time. You keep your safety net, maybe earn a little interest in the mean time, and take advantage of someone loaning you money for free for a period of time. Nothing in life can be better as long as you use a little self-control.

    Bookmark   April 27, 2007 at 10:02PM
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Hi pdg 777, (triple 7 being lucky, is it?)

Usually the interest-free offer relates to balances transferred.


Plus - that debt must be paid in full before any payment goes toward paying off whatever other items have been bought using the card in the meantime.

So - new purchases have no payments made against the amount owing, plus ...

... they are accruing interest at the regular rates that the card people charge ...

... until the whole of the 0% interest debt is paid in full.

So - counsellors/advisors recommend that people signing up for them make absolutely no new purchases using that card until the whole of the transferred debt is paid.

Otherwise, they've been racking up a new debt ... plus the total amount of the accrued interest ... that'll be charging interest at the high rate until it's all paid off.

In your case, if there is 0% interest charged on new purchases ... almost for sure they'll have to be paid in full, and only then can deposited money be used to pay down the transferred debt ... which has almost surely been accruing interest (and probably at their regular rate) until paid in full.

You have to get up early in the morning in order to get ahead of those birds.

Be careful that you (not being a bird) don't get stuck with a worm!

Borrow, rent or steal (and, as a last resort, buy) a magnifying glass and read that contract very carefully.

And with regard to the questions that they don't want to answer, keep running at that question in different ways in subsequent calls until you get an answer with which you can feel comfortable.

Knowing how money works - an interesting hobby ...

... *that pays well*!

How would you like to get a raise ...

... that you don't have to get those sweaty palms just before you ask the boss for??

May 1 is coming up.

Beginning then, get a notebook, with a narrow column on the left ("Date"), then a wide one ("Description"), and (make) three/four columns on the right, each wide enough to write down any amount of cash that you'll be using.

Of the four on the right, "Individual expense", "Expense group", "Income" and "Balance on Hand".

When you withdraw money from bank account, etc., date it, describe, if necessary (maybe which account it came from), then write amount under "Income" and "Balance".

When you buy something, write "Date", "Descr." and amount of purchase under "Indiv. exp" (or "Group exp.), then deduct from prev. bal. in order to find new bal.

Then check that "Balance .." against the amount in the wallet.

After you've been at it for a time, you'll just write each purchase when made, under "Indiv. exp" and add half a dozen or so together, to make "Group exp ..", then deduct that from "Bal ..", to find new "Bal.".

But don't delay, in the beginning - or the amount in the book and that in the wallet won't match, and you'll have a hard time figuring which purchase(s) you'd missed.

Be sure to write down every purchase, no matter how small.

After a month or so, check all of those items, and see whether you're pleased with them.

My bet is that you'll not be entirely so.

Which will result in some changes in your spending patterns.

As you police your spending more, there'll be reduction in spending, I'll bet.

Which will mean that you have more money in pocket than you had before.

Equivalent to an increase in pay ... without the need to say a word to the boss. Right?

Either you boss your money - or it'll boss you! And in most cases, you won't like that much!

After while, get a much wider sheet of paper, make a bunch of columns over on the right (gluing them to the edges of the notebook sheets, if that suits), titles according to the types of spending that you do, "Auto", with "Gas", "Oil, maint", "Repairs", "Lic/ins.", "Park/fines", being as varied as suits you. "Groc", "Restrnt", "House suppl", "Entertainmt", "Hobbies", "Sports", "Persnl Servcs", "Educatn", "Gifts", "Charities", etc. detailing the various types of spending that you do.

At the end of the month (usually one page/mo.) add up the expense column on the left, and total all of the individual expense columns, then total them ... and the amount should equal the amount of the expense column on the left.

After you get into it, that won't be enough.

You're writing cheques, so as you go, write on the stubs which category that expense belongs to, and after you've calculated your cash business for the month, write in under that the various items that you've written cheques for, that month.

For the stuff that you put on credit cards, when you get monthly report, break those figures out and add them under the various itemized expense columns, as well.

Then add each column.

After a few months, you'll be able to check exactly where your money is going.

Are you covering all of the issues that you want to?

Are you spending more than suits you, on some types of buying?

How would you like to knock about a year off of paying mortgage costs, down the road? In the early years, as the debt is large, a large proportion of the regular payments goes to pay the interest on that large loan during that period. If you can scratch together enough money to make one extra payment at the end of the year (well, not then, that's Christmas), putting it all on principal repayment (if your contract allows for it) you'll likely pay off as much of the principal as you did through all of the rest of the year!

Many peole find that hard to believe.

But lowering the amount of the debt principal then means that the amount of interest charged each month on the smaller loan is less, so the loan gets paid off much more quickly.

Down the road, when the kid's ready to take post-secondary education and needs help ... you'll be really glad that that mortgage was paid off early!

When you retire ...

... every day is holiday!!

How would you like to retire early?

No reason why you can't ... the cost is ... to watch the pennies, now ... and start saving and investing, taking some out of your paycheque upfront each month for sure in order to do so.

Pay yourself first ... get used to living on what's left.

Good wishes for effective money management - with a long horizon.

ole joyful

    Bookmark   April 28, 2007 at 12:27AM
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Thanks for all your replies! Greg I think you have hit the nail on the head without realizing it. I heard in a finance forum that some cc's charge interest on bal transfers even after they are paid off and the only wat to stop it is close the card! I had forgotten aboit that!

I think you missed my whole point as as far as paying bills with the cc but nevertheless I didn't think your comments were cruel at all and even if I find out everything works in my favor your comment about me sounding like a reformed alcoholic is making me re-think this whole thing. I appreciate the "tough love" LOL!

Jules - I figured that they would apply all payments to whatever is accruing interest so I plan to payoff the balance transfer as soon as I set up the acct for bill pay. I had the money to pay off the card because I don't charge more than what I can pay when the bill comes. so the only balance I would carry would be the interest free balance because the transferred balance will be paid off before I even charge anything. and the 0 percent is on purchases and not bal transfers

joyful - 777: seven is symbolic of completion in the Bible. I used 3 7's for "Father, Son, Holy Spirit."

    Bookmark   April 29, 2007 at 7:41AM
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You say:

"I figured that they would apply all payments to whatever is accruing interest so I plan to payoff the balance transfer as soon as I set up the acct for bill pay."

Read the fine print. All of the credit-card contracts I've seen say that if you have money that is accruing interest at two different rates, any payment you send them goes into paying off the balance with the lower rate.

So if you have a zero-interest balance transfer, and you buy something with the card at the regular interest rate, that purchase will keep racking up interest charges until your balance transfer is completely paied off.

So the strategy of "don't charge more than what you can pay when the bill comes" may not help. It may be that as long as you have the balance transfer on your account, you cannot pay off anything else.

Read the contract carefully!

    Bookmark   April 29, 2007 at 10:04AM
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This sounds like a bad idea. Penny wise and pound foolish. The only way this could work is if you had a card with no fee and no interest for 7 months, NADA, nothing and it let you withdraw cash with no fees. You then take that money, put it in a money market account or CD paying over 5%. DO NOT USE THE CARD for anything else. You withdraw the money from the bank a month before the payment is due. Pay it that day and cancel the card.

Guaranteed there is some type of balance transfer fee or other fee that you have not noticed. Also, if you forget to pay it, in some cases all the interest you would have owed suddenly becomes due. There is also a provision in these cards that if you are even a minute late on any other bill to anyone, they can make you pay the default rate even during the interest free period

You are trying to outscam the scammers. Perhaps if you had perfect credit and a background in finance, law or accounting, you might get away with it. With a prior poor credit history, I would not even think about it. I loved the alcoholic bar analogy

    Bookmark   April 29, 2007 at 2:17PM
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Did not mean to be disrespectful, just trying to talk you out of what may be a bad idea

    Bookmark   April 29, 2007 at 2:40PM
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alpha cat:

I guess I'm really not communicating this well. The zero percent interest is for PURCHASES not BALANCE TRANSFERS. I did make a balance transfer, but I plan to PAY OFF THAT BALANCE TRANSFER AS SOON AS IT APPEARS ON MY ACCOUNT. Thus, the part of the CC immediately accruing interest will be PAID OF IMMEDIATELY. Purchases have zero percent interest, up January 2009.

I guess my real question here is, if I make the balance transfer and pay it off immediately, will I still qualify for zero percent interest on new purchases. I don't know how else to say it.

Sapphire, I don't perceive what you said is being disrspectful at all. I don't understand why you say it would only work the way you said, though. I also don't see why you think it would be a scam.

Lastly, after re-reading my original post, I don't see where I said I had a prior poor credit history, so I guess you just read that into it. I said I was guilty of "deficit spending", which to me is anytime you have a credit card balance and you don't paid it off every month, that's deficit spending. But that does not mean you have poor credit history. In fact, I think the credit card companies rather like it when you don't pay off your whole balance, but you pay on time and never late. Then they can make some money off you and know they're going to get paid. However, I do appreciate your tough love as well. I'm sort of thinking I'm not going to do it. I already transferred the balance from another credit card, but I'll just pay that off when it posts to my account and be done with it.


    Bookmark   April 29, 2007 at 6:37PM
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Wise decision.

I think the catch may be that since only purchases are at 0, but you need to transfer a balance, that may be at 11%. My hunch is they assume you will go out and spend immediately so you will have the balance at 11% and the new purchases at 0. Based on what you said you are right that it is unclear whether once you pay off the balance transfer that you still qualify for the 0%. You may or may not and it is in the small print and the terms notice. I would be leery

The reason I thought you had credit problems is

to make it hard for me to "spend" the savings (I've had discipline problems in the past).

5. What do you all think about this plan overall for someone who has only been reformed from deficit spending for about 2 years

You are talking to someone who has never intentionally floated a balance on a credit card or line of credit ever (once a year the check is two days late, I call and they waive the fees). So while credit problems is the wrong way to say it, maybe debt management issues is the better way. I think it would be a dangerous trap and friends of mine have fallen into similar ones in the past, they now have to take out a home equity loan

    Bookmark   April 29, 2007 at 11:21PM
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I guess my real question here is, if I make the balance transfer and pay it off immediately, will I still qualify for zero percent interest on new purchases.

I would say no, you won't qualify for the zero percent interest if you pay off the balance transfer. That's their trick. That's how they will make money off of this 'deal'.

    Bookmark   May 1, 2007 at 8:33AM
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It is entirely possible that Pdg777 does know how to read and decipher his credit card offer. We have a Discover card that gave us 9 months interest-free with a balance transfer. After that period was over, they required that we make two purchases a month to keep the interest-free status. We put $13,000 of debt that we made in fixing up our new house and getting the old house ready to sell. We paid toward that balance until the 9 months were up, then made it our "main" card for day-to-day expenses. We then paid off any new charges each month, as well as as much as we could toward the balance transfer. There is no interest on any part of the balance. We don't know how long this will last, but it has saved us several hundred dollars and made us Discover fans!

    Bookmark   May 1, 2007 at 9:08PM
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However, nancy_in_mich, there is a big difference between the 9 months that you were offered, and the 21 months that pdg777 is being offered.
Short term 'no interest' deals might be a good idea for the company in order to get new customers. Long term 'no interest' deals are probably not worth it for them.

I don't understand this part of your post:
We don't know how long this will last...
Didn't you say it was a 9 month deal?

    Bookmark   May 2, 2007 at 9:44AM
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After the 9 months were over, we simply had to use the card twice a month on new purchases to continue interest-free. There is no end date for this feature. It has been about a year since we got the card, and we have not paid or been charged any interest.

    Bookmark   May 3, 2007 at 10:37PM
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My understanding of a zero card is to transfer a balance from an interest bearing card and to NEVER use it for purchases, but as a means to pay off your debt without incurring interest. It is when you also use the card for purchases that you get into trouble.

    Bookmark   May 7, 2007 at 4:37AM
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The one thing that I am most wary of, in deals like this, is the fact that if your payment arrives late,(and this can happen through no fault of your own) then you revert to the interest rate (and often get charged for interest on the last two months purchases, even if the first month was paid off). Just the late fee itself would probably wipe out the amount you've earned. Also, as Saphire said, many cards will cancel the zero interest deal if you are late on any other payment in your life, not just the card in question.

I think it would be just too hard to get a short-term investment rate that pays enough after taxes to justify the trouble and risk. That said, I do use the cash-back feature of my card and pay almost everything with it to maximize that--and pay off the balance each month.

good luck, Raee

    Bookmark   May 8, 2007 at 3:48PM
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I also rec'd an offer like this quite some time ago. Looked really "good"! ZERO % FOR LIFE!!!??? I continued to receive those offers at least once a month for many months. But, I'm always leary of the "too good to be true".
I finally sat down and picked it apart (reading ALL the fine print), and decided it WAS too good!
The "catch" was - you MUST make at least 2 purchases per month -(and I think at one time they even had a minimum of $15.00 or something per purchase) - and if you did NOT make thoses "charges" twice a month, the whole deal goes to heck! (I think there was some other "catch" also - I don't remember)

PLUS - like someone else careful. If you default on ANYTHING (a different c.c. - or even late on a utility bill, etc., COULD hurt you really bad.)

In "my" case, I KNEW I would get into trouble with this offer. I knew it would be hard to remember to charge something twice a month ("their" billing cycle month) - as I just don't go out and charge stuff daily!

Plus - I don't need another pain in the buttocks...I don't need a card who in recent past has caused so many headaches for so many people - (Yup! Big deal about a "discovery" type card a few years back!)- and I certainly don't need my credit score to take a dump for applying for this card which I would have to mark calendar to be SURE I make purchases every month!

(Not to mention the additional "junk mail" I would have to deal with!)

The offer looked SO GOOD...on the outside. Like a wolf in lamb's clothing. WHO?!!! would offer to LOAN $$$ for nothing - forever??? There HAD to be a catch!

I'm sure someone could maybe benefit from something like this...but not for me.

    Bookmark   May 11, 2007 at 4:07AM
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cathie54, for us the two purchases a month are easy. DH has always used his credit card for all purchases, then pays it off each month. These days, we pay off everything we charged that month, then add whatever we can to decrease the balance we transferred. It works well for us. DH says he has not had difficulty with the card getting paid on time, "so far"!

    Bookmark   May 13, 2007 at 5:01PM
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I also have some of my bills auto-debited to my credit card. That would be an easy 2 purchases a month.

Many years ago, I had almost $50,000 borrowed on three 0% cards for over a year. One of them sent me a check directly, which I deposited in an interest bearing account. For the other two, I requested balance transfers to my regular credit account, then requested a check from that account for my "overpayment". So I had a very large sum of money on deposit, and monthly payments to these cards were set up on autopay from my bank.

The $1500 interest I earned? Great. The opportunity to earn money at the expense of credit card companies? Priceless!

    Bookmark   May 13, 2007 at 6:24PM
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