Joseph Heller’s famous novel Catch-22 is a much easier read than the fine print of a credit card statement, though both the novel and the fine print share unfortunate similarities. In this, the first of a series of articles aimed at helping consumers understand fine print, we’ll tackle an unpleasant surprise buried so deeply in the fine print, all but the most avid reader of credit card terms probably overlooks it.
Today’s Catch-22 revolves around minimum monthly credit card payments. By law, all credit card companies are required to collect a minimum payment every month from cardholders. In most cases, this amounts to about 2% of one’s total balance, or about $20 for every $1000 in debt. However, credit card companies ultimately set these numbers and, when they’re lending you interest free money, they can increase these minimums.
Just how much your monthly minimum payment will be varies from lender to lender. However, most credit card companies impose higher monthly payments when the total amount of a 0% APR balance transfer exceeds more than 90% of your available credit. Discover, for example, requires a 4% monthly payment when 0% balance transfers comprise more than 90% of your credit limit. Thus, for a person with $10,000 in credit card debt, the monthly minimum will rise from $200 to $400 if that balance exceeds 90% of total available credit.
Discover is one of the few credit card companies that clearly discloses the details of what triggers an increase in minimum monthly payments. However most, if not all, major credit card companies have similar policies. The key for consumers, especially those barely scraping together current payments, is to take preventive steps when applying for a balance transfer credit card.
Here are a few helpful tips to avoid getting caught in this balance transfer Catch-22:
1.) Apply online and wait: It may be tempting to get the balance transfer started as soon as possible. However, if you wait until your credit card arrives in the mail, you can inspect the fine print and make sure you do not get an increase in your monthly minimum payment by transferring less than the amount that triggers a higher monthly payment.
2.) Apply for multiple credit cards that offer 0% balance transfers: Individuals with large amounts of credit card debt may not get the credit limit they need to transfer all of their high rate balances with just one card, especially in today’s shaky economic environment. Applying for multiple cards can increase the amount of available credit you have with a 0% APR.
3.) Don’t turn your back on 0% balance transfers: This article is about a fine print Catch-22 that is easy to get around. Of course, the absolute easiest way around it is to keep paying absurd interest rates and not do a balance transfer at all. Financially, this is not the right decision. Over the course of a year, 0% balance transfers can save the average consumer well over $100 for every $1000 transferred. If you are serious about paying down credit card debt, balance transfers are the place to start.
Final Thoughts: Patience is a virtue. Applying online for a credit card that offers 0% APR balance transfers will expedite the process of getting that card into your mailbox. However, when that card, and its hefty disclosure booklet arrives, pour yourself a glass of wine, slip into a comfortable chair, and enjoy a modern literary classic-credit card fine print. While it may not be as enjoyable a read as your favorite Hemingway novel, it could teach you a thing or two about the world even Papa Hemingway didn’t know about.
For information on current balance transfer offers, please consult the credit card comparison section of this website where you can learn more and apply online for a 0% balance transfer.
Sources:
Office of the Comptroller of Currency
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