credit cards

Life-of-the-balance transfer deals

If you have excellent credit, you may see an enticing offer from Capital One in your mailbox -- a 4.99 percent "life-of-the-balance" credit card deal.

And Providian is peddling 3.99 percent. Others offer even lower rates. Sometimes, the card offer will even say 0 percent for the life of the balance.

These offers usually come with a sales letter screaming: "Transfer a balance for the last time!"

Well, low interest for life may sound terrific, but is it for real?

"If you're a good, responsible consumer, it can be a great opportunity," says Mark Oleson, director of Iowa State University's Financial Counseling Clinic.

But you have to be very careful. The first step is figuring out what you need to do to keep that rate.

Clarify the deal

Sometimes you need to buy more stuff to lock in that rate. "Often, a company will require something else" in order to get that permanent low rate, Oleson explains. "I've seen an offer from Discover which provides 0 percent for the life of the transfer, but you have to make two purchases per billing cycle.

"So when I make a purchase, it's 9.9 percent, or whatever the purchase rate may be," Oleson explains. "But my payment goes to the transfer rate first."

There is a way around this problem.

"I talked to Discover, and asked if there's a minimum requirement for the purchase each month, and there isn't," Oleson says. "So theoretically, I could go to the grocery store and charge 50 cents twice a month on my credit card.

"Basically, if I can get a good long-term transfer rate, I want to make sure I'm not making purchases with this card -- unless I'm required to," Oleson says. "And if I am, I want to make them small."

Be suspicious of the letter

Don't celebrate right away. Just because the letter says you have a $30,000 credit line at 3.99 percent doesn't mean you do.

Dr. Phyllis Mansfield, a professor at Penn State-Erie's business school who studies credit card companies' letters to college students, says card-issuer letters don't always deliver what they promise.

"It will say pre-approved, but it doesn't necessarily mean you are," Mansfield explains. "They're just trying to get you to apply.

"I would wonder if this is an ethical offer, or if this is a come-on," Mansfield says. "People may be pre-approved, but then they will get a higher interest rate or a lower balance."

A rate of 3.99 percent "is just very low, and it may not be a bona fide offer," Mansfield cautions.

Watch your steps

Even if the deal is for real, be very careful.

"What I've learned to do with credit card offers is read almost like a third grader," says Cate Williams, president of Consumer Credit Counseling Service of Greater Chicago, and vice president of financial literacy for Money Management International. "Don't try to read too much into it.

"The offer I recently got from a large bank said that if you move over to us, you'll get all the bells and whistles, but it did say it would give me a fixed rate on just the amount I move over from some other nasty evil card that I have," Williams says. "So it's just that $1,000 that's locked in.

"The average consumer would speed-read that and think that I can have that for purchases as well," she says.

Williams says it's important to think in a bigger way. "You know the credit card company can't continue to lend you money at a loss. When interest rates go up, and that $1,000 transfer is paid off, the interest rate is going to change."

That's why Oleson of Iowa State says you should make sure the permanent rate really is permanent.

"Make sure it is a fixed rate. A variable rate will look pretty nice right now because of low interest rates, but in three years it probably won't."

Oleson says that in his clinic, he has not yet seen life-of-the-balance rates raised. Late payments, though, always change everything.

Be punctual -- or else

Even if you do get an offer, remember the essentials -- pay your bills on time.

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"If you miss a payment, and missing a payment can be only a day, that can send you to the credit penalty box," Williams says. "They can accelerate you to the worst interest rate."

Most credit cards now have clauses that say if you are late on any other credit card, they can jack up your rate. But some credit-card watchers are now seeing that even late payments on utility bills can cause card rates to jump.

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Product Rate Change Last week
Balance Transfer Cards 15.80% --0.00 15.80%
Cash Back Cards 16.42% --0.00 16.42%
Low Interest Cards 11.09% --0.00 11.09%
 
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