Even After The CARD Act, 0% APR Cards Still A Slippery Slope

While America’s card issuers are being forced to take the country’s new credit legislation seriously, that doesn’t mean they’ve stopped fleecing their customers. Ever since the CARD Act passed in 2009, offers for 0% APR credit cards have actually become more, rather than less, prevalent. While balance transfer credit cards aren’t the fee-laden tiger traps that they used to be, they’re still raking in millions of dollars every year for their issuing companies at the expense of the average Joe. Here’s how the credit industry is trying to get their hands on your money these days with no-interest cards.

Before the CARD Act, the crux of the whole 0% APR promotion for card issuers was their ability to control how balance transfer customers paid off their debts. When a person transferred their debt to a no-interest card, two balances were created – the one they carried over and an “active” balance that benefited from the promotional rate. The issuing card company could then apply all of a customer’s payments to the active balance, leaving the transferred balance (the one with the higher interest rate) untouched. Even though the customer appeared to be paying off their balance in full every month, that transfer balance continued to rack up massive interest.

Under the new legislation, card companies have been forced to reverse the procedure. Nowadays, when someone transfers a balance to a 0% APR card, all of their payments must be allocated to the debt they carried over. This is a pretty sizeable disadvantage for card issuers, but since the CARD Act made balance transfers seem trustworthy again, card companies chose to go ahead with the offers and just work around the new regulations.

These days, most of the money card issuers make on 0% APR credit cards comes in the form of balance transfer fees. The Citi Simplicity card charges a 3% fee for every transferred balance, and the Chase Freedom card can charge as much as 5% for the same service. Now, that percentage might seem small, but it means is that you’ll pay at least $300 in tolls when you transfer a $10,000 balance to a 0% APR card. Considering that you’ll have to make credit card payments on top of it, that’s a lot of money.

In addition to these transfer fees, card companies are also encouraging consumers to spend more with their 0% APR credit cards by attaching cash-back promotions to the offers. For example, the Citi Dividend Platinum Select gives balance transfer customers $100 for spending at least $500 within the first three months. This is anything but a harmless bonus. Card companies are luring their customers into charging their no-interest balance, even though it isn’t affected by credit card payments until the debt they’ve transferred is paid off. As a result, the new charges will start racking up on a new balance while you struggle to pay down the first one – and if you can’t pay both down by the time the promotional period expires, you’re going to start getting hammered with interest.

Of course, balance transfers can still be useful for consumers who are struggling to pay off their debts. You simply need to know how to use them. If you’re going to transfer your balance to a 0% APR card, go for one that doesn’t charge a fee, like the Slate by Chase. Then, make sure you never, ever charge anything to the card until your existing balance is paid off. You might even want to freeze it, bury it or hide it in your son’s messy closet. By putting the card literally out of reach, you’ll save yourself from even more debt when that niggling urge for retail therapy comes on.

By following these tips, you can make interest-free payments work for you, and for over a year. That can certainly help reduce your debt. It’s certainly a lot better than allowing it to continue to grow on your current card.

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