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Take care with your zero-percent credit card

Several major credit card issuers, including Citibank, Fleet, American Express, Discover and First USA, are pushing credit cards with zero-percent interest rates.

"If you have good credit this is definitely a good chance," says Jordan Goodman, the author of Everyone's Money Book and spokesman for the Cambridge Consumer Credit Index.

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"If you follow the rules, you can't get any better than zero percent."

Paying a zero-percent introductory rate on a credit card can be a super deal but you'll need to be careful -- very careful. One misstep and you can kiss that interest-free period goodbye.

"If you slip up, you won't be paying zero percent; you'll be paying a much higher rate, and it's hard to get out of it," Goodman says.

Two things seem to happen when people see the words "zero-percent interest."

First, they get giddy at the prospect of landing an interest-free deal. Second, they gloss over the more mundane and potentially costly details.

Last fall, tons of car shoppers were so busy congratulating themselves on their zero-percent financing deals that they forgot to negotiate the price of the cars. Some paid thousands too much.

You stumble, you fall
With interest-free credit card offers, what appears to be a great deal could turn into a so-so deal or even a bad deal if you're not careful.

First off, not everyone is going to qualify for a zero-percent offer. It doesn't matter how many pre-approved offers turn up in your mailbox. Goodman's 12-year-old son receives offers for platinum credit card deals all the time.

"They're not exactly discriminating on who they send them to," Goodman says. "But they're very discriminating in the underwriting process."

So you may apply for a zero-percent deal and get a card with a higher teaser rate or no teaser rate at all, depending on your credit. As with any rock-bottom interest rate offer, you'll need good if not excellent credit to qualify.

No issuer is going to offer an interest-free deal to someone who's maxed out on his or her cards or who's been late on several card payments.

The chronic credit card hoppers of the world need to be wary as well.

Sure, your credit may have been good or very good, but all that hopping around has hurt it. Those occasional late payments when balance transfers went wrong haven't helped.

Issuers aren't fools. They're going to take one look at your credit report and know what you've been up to.

"If you've hopped around a lot, they know you're not going to stay," says Crystal Gomoke, a counselor at Consumer Credit Counseling Service of Greater Fort Worth.

And they're not going to waste an interest-free introductory rate on a customer who's going to bolt.

Study the details
Let's say you manage to land a zero-percent credit card deal. Congratulations. But before you go out and celebrate -- grab a magnifying glass.

Is that interest-free introductory period for purchases or balance transfers or both? When does the introductory period end? What kind of interest rate will you pay then?

If the zero-percent teaser rate is on balance transfers only, avoid making any new purchases with the card. Issuers have a policy of applying payments to balances with the lowest interest rates first. You'd have to pay off the entire balance transfer before a single penny gets directed to any new purchases you've made with the card.

This is not the credit card to take with you on your next trip to the mall. If you do, you could end up paying a truckload of interest on a $50 sweater.

Be on the lookout for fees. Some cards charge you a fee for every balance you transfer to the card. Both First USA and Citibank charge a fee equal to 3 percent of the balance being transferred. First USA caps its fee at $35. Citibank's fee is capped at $50. It's best to avoid offers with hefty transfer fees.

You'll also want to be quick with your card payments. Pay late even once and that zero-percent interest rate will disappear for good.

With the Discover platinum card you pay zero-percent interest on purchases and balance transfers through November 2002. That's a pretty nifty deal, but all that changes if you're tardy with a payment.

Pay late once and a 12.99 interest rate snaps into effect. Pay late twice and you'll be stuck paying 19.99 percent on all balances. Let's not forget about late fees. At Discover, you pay $15 to $35 late fees depending on your card balance.

With Fleet's Titanium Smart Visa you pay zero-percent interest on new purchases for eight months. But if you pay late you'll be slapped with a $35 late fee and charged a penalty interest rate of as much as 21.99. Ouch.

A super-duper interest-free card deal can stop being free pretty darn quick. Don't let this happen to you. Pay that card bill on time every month. These tips from will show you how.

Watch your other cards
Be just as diligent with your other card accounts as well. Some issuers, including Citibank, may increase your interest rate if you fall behind with any creditor.

You'll need to be just as careful when transferring balances between cards. It's important to continue making minimum payments on your old card while waiting for a balance transfer to take effect, which could take four weeks. If you don't, your old issuer could slap you with a late fee. This worksheet will guide you through the balance-transfer process.

Your minimum payment amount will really nosedive once you transfer a balance from a high-rate credit card to one with a zero-percent interest rate. As tempting as it may be to slack off on your payment amounts -- don't. It's best to pay a whole lot more than a card company is asking for.

You want your balance as close to zero as possible when the introductory period ends. This is your chance to really knock down your card debt. Don't blow it.

"Never even consider just paying the minimum amount," Gomoke says. "Pay as much as you possibly can. Live as frugally as you can.

"You have the opportunity to just pay the principal on the card. It's a great opportunity."



-- Posted: April 30, 2002




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