I recently posted about a credit card trick where a company offers you a low rate balance transfer offer, but buries the fact that all your payments are credited to the balance on your credit card with the lowest interest rate. Essentially, this would mean that if you had $1,000 in purchases being charged 15%, then transferred $1000 to a low fixed rate, a payment of $1000 would pay off the low fixed rate balance, but leave you with $1000 at the higher interest rate.

I recently received an offer in the mail enticing me to use attached checks or visit balancetransfer.citicards.com to take advantage of a 0% APR on balance transfers until May 1st of 2008, about 6 months, or a 6.99% APR on balance transfers until February of 2009, slightly over a year.

On the surface, the offer seems good. But was I tempted to visit balancetransfer.citicards.com or start writing checks? Of course not. First off, the 0% offer for 6 months is about half the duration of most current 0% APR balance transfer offers. Secondly, when you add in the 3% balance transfer fee, the 6.99% rate essentially becomes a 10% interest rate. Why transfer a balance to a high rate like this when there are plenty of credit cards that offer fixed APR balance transfers for life at 4.99%? There quite simply is no reason.

And as to the credit card checks. Well, there’s always a rub. Such as the asterisk which states there is a 3% cash advance fee for using the check with a minimum fee of $5. Or the fact that the APR for cash advances is 23.24%. Needless to say, those checks went straight to the shredder.

If you get a similar offer, you might want to consider doing the same. Unless, of course, you don’t have a shredder. In that case, I suggest burning them and applying for a good old fashioned 0% APR balance transfer credit card, such as those listed on Smart Balance Transfers.

For my first post, I figured I’d exposed one of the more atrocious tricks credit card companies play: offering a fixed APR or 0% APR balance transfer to a customer who has a balance on their card.

Here’s how the trick works. We’ll assume we’ve got a $2000 balance on credit card one getting charged 15% interest and another $2000 on credit card two at the same rate. A mail offer from credit card company one offers you a fixed 4.99% APR for life on balance transfers. On the surface, it looks like a good deal: we can reduce our interest rate by 2/3. However, there’s some nasty trickery just below the surface.

First, we’ll start with the fees. 99% of credit cards charge a 3% balance transfer fee. So, to transfer $2000 from card two, it’ll cost $60 upfront. Now, that’s not a terrible deal, since the higher interest rate would have cost us $200 more in interest over the course of the year ($140 when you factor in the fee). However, once the balance is transferred, the real trickery begins.

If you look at the fine print of the 30 page disclosures pamphlet credit card companies are required to send you every time they make a change to their terms and conditions, you’ll discover that any time you make a payment, the payment will be credited towards the balance on your credit card with the LOWEST INTEREST RATE. When we transferred our balance to the low fixed rate, we agreed that all our payments will reduce the balance being charged 4.99% interest.

What does this mean? Well, let’s say we decide to pay off $2000 of our debt. We’ve just eliminated the entire low APR balance and now have $2000 of debt being charged 15% interest. Not only are we right back where we started, we’ve wasted $60 in balance transfer fees.

Is this practice atrocious? Yes. Detestable? Clearly. Legal? 100%. Avoidable? Now it is.