credit card question

[Giselle]

I have the following situation. Have had this credit card for many years. I ALWAYS pay the balance in full every month so I have never paid interest charges. recently I took one of those promotions "convenience checks" in which I paid a fee of 2% upfront on the amount borrowed. The terms were "one year interest free with no minumum payments. With the amount of money I borrowed I paid off another debt. The amount borrowed shows up in my credit card balance as expected. I still use the card for regular purchases and I always pay the balance of the purchases in full, leaving only the balance under the promo which is not due until Jan 2014. The problem is that for the past two months I have been charged "interest fees" which I have no idea why. When I called the credit card company they tell me that the interest charges are NOT based on hte promotional balance but on the other purchases? I have every statement with me and it shows that all the purchases have been paid off in full before their due date. I have spoken with four representatives and two supervisors and they all tell me a different thing. Bottomline is: if the total balance on a credit card is paid in full every month there should be no interest charge. And second, if a promotion says, "no interest, no minimum payment until january 2014" it means that as long as the balance is paid off BEFORE the promotional day expires it should not pay interest as well right? ANy ideas on why the bank insist in charging me interest?

[lorraineb]

My guess is that it's a terrible credit card trick that I have heard of. While you get the 0% interest, any new additional payments to the credit card get placed at the bottom -- your payments go to paying off the 0% loan, not the new payments on your credit card and you can't begin paying those until the loan has been paid off. They trap you. By making it impossible to pay off the new credit card charges before the 0% loan, you will pay interest. Just another reason not to trust credit card companies with the offers they give.

[disneysteve]

Are they charging you interest on the entire balance or just the new purchases?

My guess from what you've said is that they aren't charging interest on the promotional check amount but since the account now has an outstanding balance, that eliminates the grace period on all subsequent purchases and they are hitting you for interest on everything else.

So let's say you used the check for $1,000 and last month you charged $500. You'll pay interest on the $500 but not on the $1,000.

If that's the case, I'd certainly raise hell with a supervisor if that wasn't stated in the terms of the convenience check offer. I assume you've reiviewed those terms and found nothing of the sort.

[cooliemae]

I agree with lorraineb...

With DS's example, the $500 in purchases goes to the bottom and your payment of $500 went towards the $1000 of zero interest, leaving you with $500 at 0% and $500 with the nominal APR.

[scottgriffin]

Which One?

Thanks for the question that you had. I have a question when it comes to business credit cards. If I am a business owner and I need to find a credit card that gives me great rewards for sky miles and air line tickets. Do you know which credit card carrier would be best to go with for that purpose?

[twest]

This happened with us one time as well. Luckily we had not put very much in new purchases before I noticed the interest. I began reading and found out that once you do make that new purchase you are considered to have a balance and are charged interest. My card was Lowes and we did what disneysteve said and called to complain and they dropped our charges. I then went ahead and paid off our promotional money just because I didn't trust them anymore. I know it was our fault. I should have read the fine print better, but it really left a bad taste in my mouth for Lowes. We still have the credit card but we make a purchase on it and I go and pay it off right away.

[neatdesign]

Credit card accounts have what the industry call "buckets" to categorize different types of charges. There are typically three buckets: Purchases, Cash Advances and Special (for promotional charges). Although it depends on the individual account's terms, the buckets often have different APRs. For example, Purchases 12.99%, Cash Advances 18.99% and Special 0% for 6 months, then 12.99%.

If the entire balance is in the Purchase bucket, usually paying that off in full each month avoids finance charges from accruing. That's because your entire payment only has to go into one bucket.

But if your balance is split between the Purchase bucket and one or both of the other buckets, then your payment has to be split (allocated) between those buckets as well. That prevents your monthly Purchase bucket balance from being paid in full, because it ISN'T being paid in full. It's only being partially paid, because the rest of your payment is allocated to the other bucket(s) with a balance.

Important to note: You cannot choose how your payment is allocated. In other words, you cannot tell the credit card company, "Apply my entire payment to my purchases." It doesn't work like that.

For example, if your promo offer was $1,000 and you have $500 in purchases, and you only make a payment of $500, it will be split to pay down some of the $1,000 Special balance and some of the $500 Purchase bucket.

Continuing to charge new purchases when you've taken advantage of a promo offer or taken out a cash advance just keeps adding to the Purchase bucket, which means the finance charges continue to accrue over time.

Generally speaking, the only way to avoid this is to 1) pay your ENTIRE statement balance in full each month (purchases + promo offer + cash advances); or 2) stop using the credit card once you've taken advantage of a promotional offer. Unfortunately for you, you've already done the latter so #1 is probably your only option at this point if you want to avoid paying finance charges.

Even though the offer you received said that there are no minimum payments due on the 0% APR amount you borrowed until Jan 2014, I wouldn't be surprised if the fine print explains that any new purchases you make are still subject to your regular account terms, and that any payments you send in will be split between both balances -- and thus could result in accrued finance charges on the purchases.

*Disclaimer: The above is only my opinion which I'm basing on my previous experience working at a credit card company. My comments may or may not be accurate or applicable to your individual circumstances. Use at your own risk! Always refer to your creditor or account terms for the best information.

[neatdesign]

My guess is that it's a terrible credit card trick that I have heard of. While you get the 0% interest, any new additional payments to the credit card get placed at the bottom -- your payments go to paying off the 0% loan, not the new payments on your credit card and you can't begin paying those until the loan has been paid off. They trap you. By making it impossible to pay off the new credit card charges before the 0% loan, you will pay interest. Just another reason not to trust credit card companies with the offers they give.

This payment allocation practice was made illegal by the Credit CARD Act of 2009:

"The Credit Card Accountability, Responsibility and Disclosure Act of 2009 requires card issuers to apply payments above the minimum to the balance with the highest rate first, then to the debt with the next highest rate and so on. Previously, issuers were allowed to apply payments to promotional-rate balances first to maximize profit from interest charges."

[JoeP]

Not trying to beat anyone up here, but this is yet another reason to avoid credit cards whenever possible. The mental stress, trying to decipher the rules, escalating through call centers, reviewing your statements, asking for advice...ask yourself if the time and mental energy is really worth it.

[~bs]

Not trying to beat anyone up here, but this is yet another reason to avoid credit cards whenever possible. The mental stress, trying to decipher the rules, escalating through call centers, reviewing your statements, asking for advice...ask yourself if the time and mental energy is really worth it.

If you had a problem with your debit card and bank statement, you'd go through the same thing with the bank...

To each his own, but IMO it is worth it if you can manage your finances well. If you ever had to deal with a scam or a vendor that overcharged, that misrepresented an item, you'd be glad you used a credit card instead of debit. Because with a debit card, once the money leaves your account, it's GONE. Your only recourse then is to beg money back from the vendor.

Additionally, the 1-2 months of no interest on credit card purchases is a huge benefit. I have a business with a 2-3 week business cycle. This means that I can make, say a $10,000 inventory purchase on the credit card, sell it, and pay off the card with the proceeds. No cash out of pocket, and an additional 2% net profit due to the rewards.

[disneysteve]

Not trying to beat anyone up here, but this is yet another reason to avoid credit cards whenever possible. The mental stress, trying to decipher the rules, escalating through call centers, reviewing your statements, asking for advice...ask yourself if the time and mental energy is really worth it.

Yes, it is absolutely worth it. The convenience and protection and safety and rewards are well worth any possible exceedingly rare problems that might arise.

I've encountered billing problems many times in my life that had nothing to do with a credit card. I've found errors on my bank statement. I've been incorrectly charged by hotels, cell phone companies, utilities, etc. Nobody is perfect. Everyone makes mistakes. Everyone has rules and regulations that must be followed. To single out credit cards and say they aren't worth having because you might get hit with some fee just doesn't make any sense to me.

[MonkeyMama]

Not trying to beat anyone up here, but this is yet another reason to avoid credit cards whenever possible. The mental stress, trying to decipher the rules, escalating through call centers, reviewing your statements, asking for advice...ask yourself if the time and mental energy is really worth it.

I've had credit cards for 20 years. We pay the balance off every month, use it for convenience and security, and that is that. It is really *quite simple* to never have any credit card hassles.

If you actually use your credit card to "borrow money" is a whole other story. That is where they get you, and is probably the last place I would actually ever borrow money from. This is an example of "borrowing money" or "taking a loan," which is beyond the "convenience" scope that most "take advantage of the perks only" credit card users would consider. {& that said, I have taken advantage of 0% loans over the years. So I would admit you can even game the system while borrowing - coming out ahead. Usually reward cards are totally different than good 0% cards so I have never combined the two}.

I suppose the endless comments that credit card users can never come out ahead... I just find it annoying. It doesn't get any simpler than "pay your balance off every single month, before the due date." Because that is *all* you have to do to have an enjoyable credit card experience. There is absolutely no mental stress/no hassle here.

[jpg7n16]

If you ever had to deal with a scam or a vendor that overcharged, that misrepresented an item, you'd be glad you used a credit card instead of debit. Because with a debit card, once the money leaves your account, it's GONE. Your only recourse then is to beg money back from the vendor.

In the interest of fairness, Debit cards actually do have the same protection from fraudulent charges:

From: http://usa.visa.com/personal/cards/debit/index.html

Visa Debit/Check Card

...

Gain peace of mind with Visa's extra security protections.

When you sign for your purchases, your money comes directly from your checking account, but you also get security protections that help prevent, detect and resolve fraud, including:

• Visa's Zero Liability Policy*, which protects you from unauthorized charges. Any funds taken from your account due to fraudulent use will be returned to you.
• Continuous fraud monitoring to detect and prevent suspicious activity on your debit card
• Access to Identity Theft Assistance to help you recover your identity and prevent further problems
• A 3-digit security code to verify your identity for Internet and phone purchases.

The extra downside is that the money isn't in your account while you work through the dispute. But to say you have to go "beg" your vendor is nowhere near the truth. You just dispute it like any normal card dispute.


I def use credit cards for the rewards. And pay off my balance multiple times per month (whenever I happen to check the balance, I pay it off. Usually weekly/every other week.)

[~bs]

^

It is not the same. There is a BIG difference between fraud due to unauthorized charges (which most banks will cover all or most of, think many banks have a $50 minimum liability stipulation, which they waive) and fraud resulting from transactions that you did initiate. Banks typically cover the former, not the latter. Once you initiate the transaction, and the money leaves your account, your recourse is against the merchant only. Again, begging for your money back from the vendor.

Say you buy shoes from an online vendor, box arrives at your doorstep ripped open, and shoes are missing. It is not an unauthorized charge, so the bank tells you to deal with the vendor, who tells you that the tracking information shows delivered, and to suck wind. On the other hand, if you charged the item on your credit card, you can file a chargeback, provide your evidence, and the 3rd party credit card dispute specialist makes a decision on the dispute. Typically they side with the buyer unless there really is something specific and obvious that makes them side with the seller.

[dczech09]

^

It is not the same. There is a BIG difference between fraud due to unauthorized charges (which most banks will cover all or most of, think many banks have a $50 minimum liability stipulation, which they waive) and fraud resulting from transactions that you did initiate. Banks typically cover the former, not the latter. Once you initiate the transaction, and the money leaves your account, your recourse is against the merchant only. Again, begging for your money back from the vendor.

Say you buy shoes from an online vendor, box arrives at your doorstep ripped open, and shoes are missing. It is not an unauthorized charge, so the bank tells you to deal with the vendor, who tells you that the tracking information shows delivered, and to suck wind. On the other hand, if you charged the item on your credit card, you can file a chargeback, provide your evidence, and the 3rd party credit card dispute specialist makes a decision on the dispute. Typically they side with the buyer unless there really is something specific and obvious that makes them side with the seller.

This is plain and simply not true. If you purchase something online and the package comes ripped, that is either due to the vendor or the carrier (who is essentially a subcontractor of the vendor). Either way, your only recourse in such a situation is to go to the vendor for replacement or refund. The credit card company is simply a middleman that facilitates a transaction, just like the bank. Do you think a credit card company is going to allow a "chargeback" even though they still have to pay the vendor? Dream on.

The only way the credit card company will honor a chargeback is if the vendor gives the money back to the credit card company. They will then chargeback your account with that same amount (essentially making it as if the transaction never occurred). The vendor first needs to authorize a refund, refund the credit card company, then the credit card company applies the chargeback on your account. Ultimately, it is the vendor that you have to deal with.

Debit Card- your bank pays the charge with money from your account. Plain and simple.

Credit Card- the credit card company pays the charge, then credits your account, requiring you to debit the charge and pay it off.

Regardless, your only recourse is the vendor because they are who you bought the product from. The bank or credit card company does nothing more than move money around in these situations. So of course a bank will tell you to go to the vendor. Credit card company will do the same.

Visa requires banks with debit cards to provide the same exact protections. As jpg stated earlier-
The extra downside is that the money isn't in your account while you work through the dispute.

If I am wrong, please provide real factual backup because this is how I understand things.