Low rate APR offers can be a huge trap, or a huge boon to you. Here’s how to max the potential in those deals, without getting stuck.
Know What You’re Getting
To encourage new credit card sign-ups, credit card companies often entice potential customers with low introductory rates. Sometimes referred to as “teaser-rates”, these low rate offers can actually be a good deal IF you plan ahead and use them wisely. The majority of 0% or low rate introductory offers are for balance transfers. However, some cards offer the same intro rates for “access cheques”. These are essentially blank cheques available for use on any purchase. You can even write in your own name and deposit them into your bank account. Sound dangerous? When using these cheques, the credit card company will usually treat them as “cash-like” transactions which start accruing interest immediately – and often at lofty rates. However with the right plan (and introductory offer), these cheques can be used effectively. Just make sure you understand the terms of the offer.
So whether you’re going with the more traditional balance transfer offer, or plan on taking advantage of the blank cheques, it is necessary to inspect the details of the offer so there are no surprises that can leave you in a financial bind. Read on for tips on how to take advantage of intro rate offers.
Don’t Treat It As A Loan, Treat it as a Time Warp
Surprised? Most common credit card advice is geared towards ensuring you don’t fall into the mindset of keeping the debt, and instead actively pay it off or down, hence the “treat it as a loan” advice. That’s smart thinking, but the lure of the minimum payment is often hard to resist. One way to make certain you don’t get stuck carrying a balance is to treat that low-rate offer as an opportunity to expand the spending power of your cash.
For instance, let’s say it’s January, and you are close to having the money for a new motorcycle, or new carpet, but not quite there yet. Using a cash advance cheque on a low APR credit card offer makes sense: you can seize the seasonal deal (motorcycles and carpet are cheapest in January) and it will take about six weeks from your use of the cheque before you have to make a payment of any kind. By then, you should have the cash, and will have saved some serious money. Note: be sure to look out for any “transfer” fees for using the cheques, and ensure your savings exceed any potential costs.
Be Your Own Payment Plan
Sometimes, life throws us surprises, whether we want them or not. Low APR offers are useful in those situations, in that you can essentially structure a payment plan for yourself. Use a low rate deposit cheque to take care of the surprise, and then set up an aggressive schedule to pay off the amount before the special APR expires. Don’t simply pay the minimum payment amount: that’s a sure way to keep your debt load high. Instead, be your own “bank loan officer” and pay as much as you can each month. You can do the same for past surprises that are on higher rate cards: do the math, and if the transfer is beneficial, put the balance on the low rate card and your payments will go more towards principal, less towards interest. Canadians owe an average of $3,573 in credit card debt: by paying aggressively, you can avoid such large numbers yourself.
Protection, With the Points
Many people get hooked into using their credit cards for the promise of reward points or other incentives. While those benefits can add up, they do not necessarily outweigh the fees and associated costs of carrying credit card debt month-to-month. So it’s usually best to never use a card to make charges you cannot cover. However, financing some purchases with a credit card can offer additional protections that are not available when paying with cash. Some cards offer benefits such as extended warranty benefits, price protection, or purchase assurance. While these insurance-like features can aide in some cases, it’s prudent to familiarize yourself with the details of your account so you know what’s covered and what isn’t.
Finding a card with a low introductory rate AND a rewards program that fits your lifestyle can add to your bottom line – when used responsibly, and with a plan. When you add in additional protections and services that are not available when paying by other methods, the benefits do outweigh the costs. While this may seem like a lot of work, there are situations where such extra precautions are well worth the extra effort. After all, cyber fraud is increasingly common and merchants report that almost 2% of all online revenues are lost to fraud.
With some creativity, discipline, and common sense, you can make low APR offers a force for your financial benefit and protection!
