This is NOT a good idea and you really shouldn’t be carrying a balance at all, but these credit card companies sure do figure out ways to make more money off of you. From SmartMoney this morning:
Discover’s Motiva card, launched this month, offers a twice-a-year cash-back bonus equal to your interest charges for one month, provided you make payments on time for six months in a row. Bank of America’s Money Return Visa, on the other hand, gives revolvers a 10% rebate on the interest charges they’ve paid for the past year.
Ohh, cash back on the interest I already paid. Gee, thanks for giving me some of my own money back. In the article there are a few scenarios the writer ran in order to test the offers from a few cards, it’s an interesting read. But if you are carrying a balance, be sure to be on the lookout for the following:
1. Default rates
Promotional offers don’t last unless you’re at your perfect credit-card behavior. These days, a credit-card company can jack up your rate to its so-called default rate “” as high as 30% or more “” as soon as you’re late with a payment or exceed your credit limit. And thanks to a practice called “Universal Default,” you can be slammed with a default rate even if you do that with another credit card, or your credit score drops for whatever other reason. (For more on that, read our story.) “With these offers, the credit-card companies are just betting that consumers will mess up,” Bilker says. “And many of them will.”
2. The fine print
Before you take advantage of any promotion “” especially if it’s 0% APR for life “” read the fine print. With Citibank’s offer, make sure there isn’t a minimum amount required for each of the two monthly purchases you have to make to keep the 0% for life, Bilker says. “Call them up and ask them point blank, ‘Can I charge $1.50 twice?'” If there’s a requirement of, say, $50 for each purchase, you would end up paying a lot more in interest than the $15 we got assuming a $3 monthly charge.
3. Interest on purchases
When you do a low-rate transfer, keep in mind that credit cards apply payments toward the lowest-rate balance you carry. So if you charge new purchases that carry the card’s regular APR (often 15% or more), your payments will go toward the low-rate balance, while the high interest on new purchases will pile up. Be sure to retire the credit card as soon as your balance transfer goes through.