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Yellow Brick Road of Zero Interest Credit

by Author Barbara Nevins Taylor

The offers sound great. Transfer a credit card balance and pay zero interest and then you find yourself on the yellow brick road of zero interest credit.  Banks promote zero or no interest on balances you transfer from your existing card to a new one.  But they don’t clearly disclose the high interest rate that kicks in later or the fees that you must pay.

That’s why it’s welcome news that the Consumer Financial Protection Bureau (CFPB) warned banks and credit card companies about using this deceptive tactic.

CFPB Director Richard Cordray said, “Credit card offers that lure in consumers and then hit them with surprise charges are against the law. Before they sign up, consumers need to understand the true cost of these promotions. Today, we are putting credit card companies on notice that we expect them to clearly disclose how these promotional offers apply to consumers so that they can make informed choices about their credit card use.”

Typically banks and credit card companies offer deferred interest and sometimes convenience checks when you transfer a balance. But you are often charged a fee to transfer a balance or make a purchase with the new credit card during that promotional period. And any new charges, after you get the card, incur interest charges right away.

The CFPB also says, “Some companies’ marketing materials do not clearly disclose that consumers must pay off the promotional balance by their due date to avoid racking up unexpected interest charges on routine purchases for which they were not charged interest previously. For some consumers, these surprise charges can make the cost of transferring a balance more expensive than revolving the same balance on their existing card.”

CFPB TIPS 

  • Avoid the interest: if you do switch to a new credit card company, make purchases with cash or another credit card until you pay off the balance. That way you can take advantage of the zero interest on the existing balance without adding new charges.
  • Make payments on time to avoid surprise charges: Pay off the balance before adding new charges.
  • Compare the interest rates among credit cards: If you carry a balance, shop around and compare interest rates on cards.

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