I received an email today that sickened me. A visitor interested in purchasing a timeshare was being told to use a 9 month 2.9% introductory rate credit card to pay for the $17,000 bill and then utilize 0% balance transfers for five years to pay off the bill and escape interest. I was very please to have an opportunity to help this visitor avoid what could easily have turned into a financial nightmare.
During the past five years, it was entirely possible to use 0% balance transfers year after year to defer interest (and hopefully pay down debt). However, this is not the case today. Not only is it getting tougher to get approved for a 0% balance transfer credit card, it is also getting increasingly difficult to get a 0% APR for more than 6 months. To make matters worse, just about every company has raised the maximum balance transfer fee and many have increase the fee to 4 or 5% of the transaction.
Yes, I still believe 0% balance transfers offer consumers an extremely effective way to reduce interest expenses, especially those who have been slapped with rate increases. However, the era of endless balance transfers is over and everyone utilizing balance transfer transactions needs to approach their credit card debt as if 0% transfers won’t be there tomorrow.
Given the environment for balance transfers, its easy to see why putting a $17,000 timeshare on a credit card is a terrible idea-the timeshare salesmen should truly be ashamed of themselves for suggesting it. Hopefully, others who are being told to pay for timeshares with credit cards will stumble upon this article, as relying on massive five figure balance transfers to pay off a purchase such as this is ridiculously dangerous.
Here is the email from Gary that triggered this rant:
“My wife and I purchased timeshare points on Wednesday of this week with Wyndham Vacation Resorts. We opted for their offer of a $17,000 loan using their low-interest credit card. Essentially they suggested to start off with one of their \”in-house\” (RCI) low-interest card with an interest rate of 2.9 for 9 months, then switch over to another \”in-house\” Wyndham Rewards card with 0% interest for about 12 months. After 12 months, switch over again to the other low interest RCI card. We would continue that back and forth process between RCI and Wyndham until our debt was paid off – probably in 5+ years.
The sales representative assured us that this was a common practice and that we had nothing to worry about as long as we made our payments on time.
Other relevant info:
1. We have decent annual income – appx $88,000
2. We do not carry a debt on any other credit cards. We always pay off the balance in time.
3. We have two other debts – a 15 year mortgage and a 2 year car loan.We have never done a transfer loan like this before so my question is whether this type of loan is a good idea? We don\’t won\’t to get stuck down the road with a very high credit debt and high interest rate. We have 10 days from Wednesday (July 8th) to back out of the whole deal. I know that you can\’t guarantee what will happen, but do you think we have made a wise decision or would it probably be better for us to back out of this situation?”
And here is my educated opinion:
“To be frank, this sounds like a terrible strategy and one that has a high likelihood of failure. In the past, it was possible for consumers with very good credit to bounce between 0% and other low rate credit cards. However, between the credit crunch and new regulations, this has become quite difficult. Most banks have cut 0% periods from 1 year to 6 months, and more and more are refusing balance transfers completely.
In my opinion, the salespeople are trying to close a deal and show no concern or knowledge of the potential problems their scenario entails. As I see it, they stand to make money on the sale and on interest from the credit cards. And it seems like an absurd conflict of interest that they want you to use the RCI card with a 2.9% rate for 9 months before the Wyndham card with a 0% for 12 months.
Plus, at the end of the nine months, even if you could be approved for the Wyndham card, there would be a 4% balance transfer fee, so if you paid the balance down to $12,000, that fee alone would cost you $480.
I strongly recommend you pull out of any deal that involves credit card financing. You are truly taking on significant interest risk and it is clear the people you are dealing with do not have your best interests in mind.
Please feel free to contact me should you have any further questions. I’m glad I had this chance to assist.”
I truly hope Gary is able to back out of his contract. And I also help anyone else being offered this type of ludicrous timeshare financing plan sees this and walks away from the deal.
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July 10th, 2009 at 9:26 am
Just got another email from Gary. Looks like he won’t be financing his timeshare with a credit card.
“Thank you very much for your prompt and helpful response. I have forwarded your information to my wife and we will make a decision today about this matter. I had some reservations about the deal but now I have even more concerns. I think we will probably go with your advice and pull out of the purchase. Again, much appreciation.”