Personal Finance

7 Ways to Avoid Being Deceived by Interest Rate Offers

Written by Beth Trach

Credit card debt is one of the biggest drains on your financial wellbeing. If you’re not careful, you could end up spending thousands of dollars over your lifetime —and you won’t get it back. That’s money you could have saved for a house or invested in your retirement fund, so making sure your interest rates are reasonable is a big deal.

That’s why smart cookies who want to avoid credit card debt are always looking for good deals on credit card offers, and that includes specials on interest rates during a particular time period or promotions for balance transfers at low or no interest. While using balance transfer cards with low rates to pay down your debt faster seems like a good idea on the surface, you need to be careful. Credit card companies are in the business of making money, of course, so there’s likely to be some less attractive numbers behind the introductory interest rates that are advertised.

Here’s what you need to know to protect yourself from a deal that might just be too good to be true.

  1. Read the Fine Print

This feels like some eye roll-worthy, “duh” advice, but it’s really important. Banks and credit card companies put the good bits on the banner and leave the details in 4-point font on the back page. Unfortunately, that’s where you’ll find out how long your grace period is and how high the interest rate will get after the promotional period is done.

If legalese isn’t your thing, you can also work to avoid the most common pitfalls when it comes to interest rate offers by knowing the biggest tricks. Keep reading.

  1. Know Your Promotional Period’s Exact End Date

Low introductory interest rates never last forever, so you need to have a plan. Make sure you understand the deadline for paying off your card before a much higher rate kicks in — down to the minute of the day. You don’t want to miss that final payment and be on the hook for big interest charges, so set a reminder on your phone to make your final payment at least a week in advance. You can never be too careful.

  1. Understand the Rules About Deferred Interest

Sometimes that introductory rate of 0 percent requires you to get the balance down to zero before the promotional period expires. If you have any remaining balance on the car, you’ll be charged regular interest on it — they call this deferred interest — and perhaps on the whole amount of your original purchase or balance transfer. If you’re not sure you understand the terms, your best bet is to have a solid payoff plan. Take the amount you plan to charge and divide it by the number of payments you’ll have before you lose your good rate. That’s your monthly payoff goal. If it doesn’t look reasonable to you, then skip that offer. You can’t afford to miscalculate here.

  1. Don’t Keep a Balance Transfer Card in Your Wallet

Be careful not to mix up a balance transfer credit card and your regular credit card. When credit card companies offer you a great deal with no interest on a balance transfer, that offer doesn’t extend to additional purchases. You should continue to use a low-interest or rewards cards for regular shopping trips. If you accidentally use the new card, you’ll be paying the full interest rate on the new purchases, and it will continue to carry over month after month until you pay off the whole card. Not worth it.

  1. Check the Regular Rate of the Card

You introductory rate might be low — hooray! — but what happens in six or 12 months? If you can’t answer that question, you’re not ready to open the account. This is the amount you’ll end up paying if you can’t pay it off in time or if you decide to use the card regularly, so take a look. If it’s much higher than your regular credit card, you may want to walk away. This isn’t a good deal if you need to carry a balance. Even if you plan to pay it off, consider that life sometimes gets in the way and you may need the card for an emergency. Don’t choose one that will saddle you with 18 percent interest.

  1. Do the Math on Balance Transfer Fees

Before you do a happy dance over an offer of a 0 percent interest rate on balance transfers, check to see if there’s a balance transfer fee. These are often 3 percent of the total amount you transfer, and that amount gets rolled into your total transfer. This means that you’ll pay interest on it if you have a low-interest card, and you could be on the hook for paying interest on a 0 percent card if you overshoot the grace period. At the very least, you’ll more to payoff before your deadline turns your new credit card into a (rotten) pumpkin at the stroke of midnight, so proceed with caution.

  1. Be on the Lookout for Other Hidden Fees

There are plenty of ways that credit card companies make money, so if it’s not from your interest rate, then it’s likely to be from other fees. Check the rules of your new card to see about late fees, an annual fee, a charge for paying by phone, and all manner of nickel-and-diming. All of these will cut into your bottom line and add to the total you spend on dispatching that debt, so add them up before you sign your life away. Not all cards will have all these issues, but you never know until you (say it with me now) read the fine print.

Even though there’s a lot of landmines on the road to a successful balance transfer, that doesn’t mean you should give up on getting a better deal on your debt as you work to pay it down. With careful research and the wisdom to keep your eyes open for the important details, you can make sure you’re getting a good on any credit offer you accept.

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About the author

Beth Trach

Elizabeth Trach is a writer and editor living in Newburyport, MA. She also sings in a band, grows almost all her own food, and occasionally even cooks it. You can catch up on all her adventures in frugal living and extreme gardening at Port Potager.

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