I always dreaded my credit card statement showing up in the mail with the bad news about my current balance and the minimum payment I had to make by the due date.
Take that dread and times it by two or three credit cards.
I’m not a spender. I wasn’t out buying stuff or taking a vacation on my credit card. I needed to use my credit card to pay for dental work, car repair bills, and to cover the mortgage.
I’ve never cracked a high paying job and I live in an expensive part of Canada. Too many times I’ve needed my credit cards to cover basic needs.
I’m not alone in this dilemma.
Just about every month one or two of my credit card companies sent me blank checks.
Canadian translation: cheques.
These are convenience checks tied to the credit card account and they were pre-printed with my name and account number. I filled in the blanks like on a regular check and made it payable to myself or someone else, and signed it. When it was cashed, my credit card was charged.
This is also known as a cash advance and it usually comes with a higher interest rate than regular credit card purchases.
Except most of the times I received these credit card checks in the mail, they came with a special offer, a lower interest rate.
Usually these credit card checks were used to pay off the balance on another credit card.
For example if one credit card has a balance of around $7,000, I used a credit card check from another company to pay it off. That meant credit card one now is paid off with a zero balance, but credit card two has a new $7,000 charge plus whatever balance was previously outstanding. Credit card two could be now sitting at well over $10,000.
But at least I’m only dealing with 1% interest on the cash portion and I try to pay down as much as possible before the 1% special offer runs out. And it will run out because it was only good for a few months.
Usually around that ending date, another credit card sent out checks with a special low interest rate.
Whew! What a juggling act!
Paying the minimum
During the times no special offer was going on, I’d use the credit card checks to pay the minimum or a bit more on credit card two. Maybe credit card three as well.
Then I’d use the credit card checks from one of the other credit cards to pay off the minimum on credit card one.
At least it ensured the minimum payment was made by the due date.
I wrote out a credit card check to myself and deposited it into my bank account. From there I paid off the credit cards.
Like I said, this is quite the juggling act.
Robbing Peter to pay Paul
This whole system of using credit card checks to pay off other credit cards is robbing Peter to pay Paul. All I’m doing is juggling money around from one credit card to another and probably not getting anywhere at paying down the balances on any of the credit cards.
There’s nothing illegal about doing this. Credit card companies send out these special offers all the time with the advice to use the checks to pay off other credit cards.
In some cases it’s pretty smart to pay off a credit card and essentially transfer the balance to another credit card that has a special low interest rate. The challenge is throwing as much money as you can to pay down the balance on that credit card before the time limit runs out on that low or no interest rate.
With unemployment and cut hours due to the coronavirus pandemic, many people are relying on using one credit card to pay off another credit card.
Juggling many credit cards.
Robbing Peter to pay Paul.
Eventually you have to repay the money no matter which credit card(s) the balance is sitting on.
The big problem with using the “robbing Peter to pay Paul” method with low interest credit cards is that if you can’t pay off the amount by the time the special offer runs out – and who can? – then the interest rate on the remaining balance reverts to whatever your credit card issuer charges.
My credit card charges 22.9% on cash advances.
Meanwhile, the car breaks down or you need a root canal or there’s a big vet bill that must be charged on to the credit card.
Once your credit card balance is in the thousands of dollars and you’re unemployed or hours cut back, it’s almost impossible to get a handle on this growing debt.
Probably not debt caused by out of control spending. Debt caused by not enough income to cover the rent or mortgage, so help was needed with a cash advance from the credit card.
No more checks (cheques)
I haven’t seen a check show up from a credit card company in years.
Amazing, when I could count on at last one of my credit cards sending me checks nearly every month.
A couple of years ago I was on the phone with one of my credit cards and the clerk gave me the sales pitch about transferring the balance owing from any other card onto their credit card.
I didn’t bite, but I did ask what happened to the checks I used to regularly receive in the mail. They’re not used anymore by most of the larger credit card companies.
Instead, phone your credit card company to arrange a balance transfer from another credit card.
0% interest credit cards
Many financial gurus recommend finding a 0% credit card for transferring other credit card balances. When I did a Google search for 0% interest credit cards, this link came up: https://wallethub.com/credit-cards/0-apr/
In Canada check this link: https://creditcardgenius.ca/blog/best-balance-transfer-credit-cards/
You will find lots of choices by Googling “0 interest credit cards”. Just check the terms. 0% ends after a few months, which means you need to have another low interest credit card ready to transfer the balance to.
It’s just anther way to rob Peter to pay Paul.
It can also mean the difference between paying hundreds, if not thousands, of dollars that year on credit card interest. You have to grab any life line that helps you save money.
But you really want to be intense at paying it down as fast as you can while the interest rate is still zero. Once the high interest rates kick back in again, you’ll be back where you started.
My credit card has a hot deal for me!
I have a credit card that I use for traveling in the states or if I’m buying anything online in US dollars. The cash back is 3% on US dollar purchases. The foreign transaction fee is 2.5% so I’m still coming out a little ahead.
I got this Mastercard through Fido, my cell phone provider. There’s only a $4,000 limit on this card. Fortunately I’m frugal in my travels too! It’s the lowest credit card limit I have, so it would be useless for a balance transfer of $10,000 or more on another credit card.
I recently received an email from Rogers Bank with this hot transfer balance deal for me. Ha ha!
To sum it up, if I take this hot balance transfer deal, I’ll get 0% interest for a year.
Bottom line that oh-so-generous $4,000 limit from Rogers Bank isn’t going to help me out if I owe a lot of money on my other credit cards and want to transfer the balance. Keeping in mind that my other credit cards have credit limits of $20,000 or more.
One of them currently has $80 from a purchase on Amazon last week. The other credit cards all sit at zero balances. Including this card with the stinking hot deal for me.
So let’s crunch the numbers supposing that I owed exactly $4,000 on another credit card and did a transfer balance to Rogers Bank.
My savings are $1,060 calculated on $4,000 at 28.8% interest which is what a lot of retailers charge. If your card’s interest rate is 19.99%, which is what most banks charge, the savings on interest for one year is $791.
You can use those numbers to do a rough calculation on any credit card balances you have to repay, and make a decision if a balance transfer is the right decision.
Watch out for transfer fees. If you’re lucky, it’ll be 1% of the money you’re moving around. If you’re even luckier there’ll be no transfer fee. I’m not so lucky because Rogers Bank will charge me 2%, so tack on $80.
Just because you’ve transferred a credit card balance to a zero interest credit card doesn’t mean there won’t be payments until the term is up. You still have to pay a minimum monthly payment, which is probably around 5% of the total balance owing.
Late payments might be subject to late fees and damage to your credit score.
If you fail to make these payments, the term for the 0% interest will be forfeited and the regular interest rate is added to your balance.
Why choose a 0% interest credit card?
0% interest is all about helping you get out of credit card debt faster. Make sure you have a good plan on how you will do this. You have a year (more or less) to pay off the balance.
You need to be committed to paying as much money as you can towards this credit card debt before the time expires and it returns to the normal interest rate.
If you normally pay your credit card balance in full each month, there’s not much point in applying for a low or zero interest rate credit card. Especially since you probably don’t have an outstanding balance on another credit card to transfer over.
You don’t want to be using one of these zero or low interest credit cards to buy a big ticket item or you’ll be in for a nasty shock when the regular interest rates resume at the end of the term. Don’t use this 0% interest credit card to go shopping!
If you’ve already fallen into the trap of robbing Peter to pay Paul, a zero interest credit card will be another trap if you can’t control your spending.
Dump the credit cards!
Once the time has run out on the zero interest credit card – dump it!
The safety net has run out. You don’t need it any more.
The idea is to pay off all your credit cards and not take on any more debt.
Stop the juggling
These days interest rates are very low. If you have a good relationship with your financial institution, see a loans officer about getting a consolidated loan to pay off your credit card debt. That way you’re paying off only one loan and you can stop the juggling act.
It was too stressful anyway keeping track of all those credit cards, the minimum balances, and when the zero interest rates were running out.
As a show of faith, chop up your credit cards in front the loans officer.
Let’s get this debt under control for once and for all! Yay!