Zero-interest offer could end up being costly

By Eileen Alt Powell
Associated Press

Q. The bank that issues my credit card has sent me a check for $5,000 and says I can use it any way I want, with zero interest charged until next April if I keep my card payments current. It sounds tempting. What's the catch?

A. As the old saying goes, "If it sounds too good to be true, it probably is." And that's the case with these so-called courtesy or convenience checks.

"You really have to look at the small print," said Jean Ann Fox, director of consumer protection for the Consumer Federation of America in Washington, D.C. "These offers generally are structured so the banks make a pretty penny on finance charges after luring you in with the false promise of free money."

Here are some of the fine print drawbacks that Fox pointed out:

• Sometimes there are balance transfer fees of several hundred dollars that can all but cancel out any savings on interest.
• The zero percent rate applies only to the amount you borrow via the courtesy check. The bank's regular credit card rate, generally about 14 percent to 18 percent, applies to any balance you had on the card before you cashed the check — and to any purchases you make afterward.
• Your monthly payments are applied first to the balance carrying the zero percent rate, so your higher cost credit keeps growing.
• The zero percent deal disappears if you fail to make the minimum payment or if you're late with your payment. The "default" rate is the normal 14 percent to 18 percent credit card rate.

"The biggest question, of course, is whether you can afford to pay it all back by next April," Fox said. "If not, you've loaded up your card with a lot of debt to pay down."

Rudy Cavazos of the nonprofit Money Management International debt counseling service of Houston, said banks offer the checks as a marketing ploy to entice consumers to move balances from other credit cards.

Taking advantage of the offer, in theory, could be useful for debt-burdened consumers if they use the courtesy checks to consolidate their debt, then increase their monthly payments and pay down their balances.

The key is that they have to stop using their credit cards, Cavazos said. But most don't do that.

"People don't realize that the zero percent rate applies only to the balance transfers and not to subsequent purchases," Cavazos said. "So they transfer their balance, and then they go out and charge that 42-inch plasma TV. When they get their next billing statement, they're surprised they're charged 18 percent interest on it."

Cavazos said the bigger question is, "Why are you considering a convenience check at all?"

Accepting one of the zero percent offers — without dealing with basic financial problems — can simply end up getting you deeper in debt, he said.