They look so enticing when they arrive. They seem like the perfect solution for your credit card debt issues. However, like so many things in life, when it looks too good to be true, it usually is. And, if you aren’t careful to read the details, you could find yourself in a worsened situation.
With that said, here’s how to avoid credit card introductory rate traps.
Let’s say you got an offer promising 100,000 rewards points. In most cases, you’ll have to spend a certain amount of money within a certain time period to “earn” the reward. If you can pay that amount off before the grace period ends, you’ll be in great shape. But if you have to carry it over, the interest charges could well outweigh the “bonus” you’ll get for incurring the debt.
What’s more, the dollar value of those bonus points is usually considerably less than the value of the dollars you spent to get them. Let’s say a card offers 50,000 points for spending $4,000 in 90 days. Those points typically pencil out to be worth 1.5¢ each. This means that $4,000 debt you just incurred garnered you $750 in points.
But wait, what if the card also has a $450 annual fee? You could be paying out the nose for points you don’t really need.
On the other hand, let’s say you were about to spend $5,000 in cash on something when the offer arrives in your mailbox. Go ahead and take it. Use the card to make the purchase. Snag the points. Pay off the balance within the grace period. Cash in the points and close the card before the annual fee kicks in.
You win! But to do so, you have to play the game carefully and intentionally after reading and understanding the rules.
Like the rewards offer above, you have to be careful to use it to your benefit, or you’ll find yourself taking on more debt. These offers usually involve transferring a balance from an existing card to a new one. If you can do so and pay it off before the introductory period ends, you’ll win.
This can be a great deal. If you’re coming into a windfall.
However, if you could pay it off anyway, why bother transferring it?
Beyond that, these offers sometimes impose transfer fees in addition to annual fees and membership fees. Even worse, most of them subject you to a huge interest rate bump (as much as 25 percent) if you don’t pay it off before the introductory period ends.
Let’s say you take one of these offers, transfer $10,000 and don’t clear it before the expiration date. When that 25 percent interest rate kicks in, your debt will jump by $2,500.
OK, so you took the introductory offer, transferred the debt and paid it off before the grace period ended. You then put the card in a drawer and forgot about it. You’re feeling pretty smug a year later because you were careful to make sure the card has no annual fee—until you open your statement and see you’re being hit with an inactivity fee.
Yes, if your spending doesn’t reach a certain amount throughout a year, they’ll hit you with a fee for not charging enough.
Then – of course – there are late payment fees, missed payment fees and interest rate hikes that can accrue if you run into financial trouble and can’t service the debt according to the agreement.
A Better Solution
If you’re looking at $7,500 or more in credit card debt and you’re having trouble making the minimum payments, get in touch with a firm like Freedom Debt Relief to inquire about other types of debt solutions.
A consolidation loan might be a better answer, or maybe you just need credit counseling. If things are really tough, maybe debt settlement is a better way to go.
Reach out to a debt relief firm for advice before you open yourself up to one of these credit card introductory rate traps. To find a good one, look for information like these Freedom Debt Relief reviews to ensure you’re consulting a capable organization.
In the end, it’s up to you to pay attention and weigh the value of rewards, sneaky fees, and credit card offers. Don’t get taken advantage of – do your homework before jumping into a financial trap.