Low rate balance transfer checks and their evil twins – cash advance checks – are often wolves cloaked in sheep’s clothing. Despite the credit crunch, these checks are still showing up in mailboxes frequently, offering consumers low or 0% rates for three months to a year. However, balance transfer checks and cash advance checks pose a number of issues for consumers that can prove quite costly. This, of course, is the reason banks send them to us.
What brought these nasty credit card tools to my attention today was a horror story posted by a recent visitor. She used a 0% cash advance check to pay down some high interest bills. Unfortunately, the bank that mailed her the cash advance check decided to lower her credit limit before the check cleared. This, in turn, caused her to bounce checks to two credit card companies and two utility companies, which will cause her interest rates to increase, cost her hundreds in bank fees, and may potentially damage her credit score.
Now, the situation I read may have been an extreme incident. However, this story is a stark reminder that credit card companies simply cannot be relied on (or trusted) until the banking sector irons out its problems. To make matters worse, the person whose financial life was thrown into disarray by a cash advance check complication had used the money in her bank to pay down her high interest balance at the company that issued the check. She then decided to use the “low interest” check to pay down other bills. She was relying on her credit limit and the good faith of her credit card company. Today, we must all spend and act as if our credit limits might disappear tomorrow.
Now, the cash advance check nightmare I just described has surely occurred in lesser degrees to hundreds of thousands of people, as balance transfer checks and cash advance checks that arrive in the mail have more strings attached to them than a spiderweb. Here are just a few of the nasty fine print tricks that accompany “low interest” credit card checks:
1.) Very high interest rates: Banks encourage you to use cash advance checks just like cash. However, after a generally brief introductory period, cash advances generally have interest rates of 29% regardless of a person’s credit. And, until the new credit card laws take effect, any payments you make will not reduce the credit card balance being charged 29% until your lower rate balances are repaid.
2.) Fees: Most balance transfer and cash advance checks come with 3% fees, although some companies do charge 4% or more. When you add this onto a 29% interest rate, the costs skyrocket very quickly.
3.) Cash advance checks (and balance transfer checks) can bounce: I’ve heard multiple stories where cash advance or balance transfer checks bounced, leading to overdraft fees, late payment fees, and just about every other penalty a bank can impose. As credit card companies continue to cut credit limits, the possibility of a cash advance check bouncing before it clears increases the chances of this occurring.
Ultimately, cash advance checks and balance transfer checks should go directly to a shredder. If they were useful for consumers, they would have been pulled from the market by profit hungry banks. The fact that these are the only offers still entering consumer mailboxes is proof enough that these checks are a tool that makes money for banks or, in other words, an effective way of taking advantage of consumers.
November 12th, 2009 at 9:50 am
The above story sounds familiar. The same thing happened to my wife and I, same story only the names have changed. I was able to stop the over drafts by liquidating some things on a quik weekend Craigs List sale, fifty cents on the dollor. This really hurt. Is there anything that we can do.
November 12th, 2009 at 10:03 am
Greg,
Basically, the fine print on balance transfer checks and cash advance checks usually states that the credit card company can reject them at will. A year or so ago, this was rarely an issue. Today, however, many banks send out balance transfer checks and then decide they don’t want to take on the debt.
One recourse would be to fight any rate increase you incurred as a result of this. Another would be to apply for a balance transfer credit card and move your business to another company.