Credit Offers—Bargains or Traps?

How much is it? A simple question but one that seldom gets a straight answer in the real money world.

In order to cope well in this strange financial world, however, it is essential to learn how to “count beans”, as the old expression goes.

While working at getting rid of your credit card obligations, for example, you may get a lot of tempting offers to transfer your balances to a reduced rate. Sometimes it makes sense but often it doesn't.

Reading the fine print is important. Understanding what it means is even more so.

For example, I received an offer from a bank to transfer balances to a low 1.9% until early the next year. It appeared to be a tempting opportunity for someone with a credit card balance to reduce their rate. But look at the details.

By the time the transfer clears and figuring the actual date this money would have to be paid before the rate being raised, I would be lucky to get six months use of the money.

Paying back this advance in equal payments would reduce the effective period to three months.

This is one of the missleading aspects of many of these offers. They are often effectively much shorter than people think and then higher rates kick in.

The actual interest rate is not bad if you do not consider that paying interest of any kind is bad. I prefer to earn interest not pay it, but that is another story.

But reading further I see that there is a 5% transfer charge. Since the maximum period to actually use the money is only six months that becomes 10%. And if paid back in equal payments over the six months 20%!

Conclusion: this offer of 1.9% is actually a minimum of 11.9% and paid in equal payments, 21.9%.

To be successful with money a person must learn to think differently than most people do. The fact is, most people don't really understand money at all. They never think about where their money goes.

If you waste a lot of money on ATM fees, if you pay money for bank services you never even dream of using, if you pay exorbitant annual fees for prestige credit cards (who are you really impressing?), or if you waste a lot of money on other needless charges, don't be surprised if your bank account has a smaller balance than you want.

Start reading the fine print, but from a new perspective. Ask youself about the total long term consequences of taking any action.

Use a calculator regularly to see how much you are being asked to pay after all the charges are included. And start congratulating yourself when you avoid costly mistakes others make daily without any awareness of their losses.