Credit cards - Watch out for zero interest; it has its pitfalls

The ordinary U.S. household has 19 credit cards, and an outstanding debt of almost ten thousand dollars from their use. Bank cards are convenient, but they are also costly, with rates of interest that can run as much as 30% annually for those who do not pay their monthly bills in a timely manner. Americans use credit cards like crazy, lured in by "limits" that are astronomical. It's not uncommon for someone to have a credit limit that equals or exceeds their yearly income.

Until the charge card issuers raised their minimum payments in 2005, a lot of people who paid only the minimum payment every month actually saw their balances rise after sending in payment. For those who have problems with bank card debt, it can be somewhat difficult to pay money back when the interest rates are so high.

Some people with such problems may find an offer in the mail one day from a company marketing another credit card with a special promotional offer. 0% interest sounds great to a lot of individuals and they often move quickly to transfer their ten thousand dollar balances to the new credit card account so they can pay 0% interest for a while. Occasionally, bank card companies offer introductory rates that can run as low as zero percent. The promotional offers from credit card companies differ, but they usually offer a cheap introductory interest rate for the first few months if you move a balance from a current account.

So, what's the hitch? Are these advertisements genuine?

Anybody considering a zero interest credit card should check out the fine print on the documentation for the credit card. Yes, zero interest bank card advertisements are legitmate, to a degree. The fine print of zero interest advertisements are frequently on the back of the statement, and written in what seems like micro-print.

Following are the things may encounter in such an offer:

• Yes, they will evaluate your credit report on occasion to see if you are paying your phone bill in a timely manner. Financial institutions may increase your interest rate for making late payments to anyone else, using what is known as the "universal default clause."
• You might lose the "low" rate if you make a late payment on the account.
• Payments will be applied to the charges compiling the lowest interest rate first, so any new purchases not paid back will accumulate interest at the high rate.
• New expenses will accrue interest at a much higher rate, many times as much as 20%. The rate of interest can be applied only to the transferred balance, and not to new purchases.
• You may lose the short-term rate if you make a late payment on any additional account you have! The introductory rate will apply only for a specifically stated period of time.
• They may raise your interest rate any time they like.

Absolutely, if you can transfer an outstanding balance, pay it promptly, and avoid using the account for anything else, it may be worth your effort. For most people, zero interest bank card loans simply represent an opportunity to establish yet another high interest debt. If you are extraordinarily disciplined, you may be able to make use of a short-term, low interest loan. If you aren't disciplined enough to use a balance transfer, be cautious, as it could be a pricey mistake. The whole purpose of these offers is to entice you to sign up. They aren’t being nice; they want you to default so that they can make more money from you. You should know better than that...