I’m a big fan and frequent user of 0% and low-rate credit card balance transfer offers.
You can save a ton of money in interest charges with a relatively modest up-front fee, usually 2%-3% of the balance.
However, I’ve also warned that you can get burned and pay more interest than you thought if you don’t use them properly and carefully.
For one thing, that special low APR doesn’t apply to any new charges you make on that card.
Perhaps even worse, you’ll also lose the grace period on any new charges until you pay the balance in full, meaning you’ll not only pay a much higher APR on those new charges, but you’ll be doing so as soon as you make those purchases.
Let’s say you’re carrying a balance on a 0% offer on your credit card, then charge $500 on that card. Assuming the full APR on your card is 15%, you’ll owe as much as $6 in interest on the $500 purchase before you even get your statement in the mail.
That’s why you should never make new purchases on a card where you’re carrying a balance transfer. If you must make new charges, use a different credit card, a debit card or pay with cash.
Now the Consumer Financial Protection Bureau is taking credit card companies to task for not making this clearer to consumers. Issuers could even be breaking the law if they don’t make that message clear enough or deliberately try to hide it.
Few credit card issuers go out of their way to help consumers understand the rules about how balance transfers affect grace periods, so the CFPB action is long overdue.
“The Bureau believes 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,” the bureau said in a statement. “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.”
The agency said some banks have created “misimpressions” about these deals by failing to include or not “prominently locating” in their marketing materials any information about the loss of the grace period, or using “technical language that fails to clearly explain the full terms, risks, and potential costs of the offer.”
Marketing materials “should clearly, prominently, and accurately tell you that you will pay interest right away on new purchases if you accept a promotional offer but don’t pay off the entire balance, including the promotional balance, by the payment due date,” the CFPB said.
Further, the agency warns issuers that they “may be at risk of engaging in an abusive practice if they fail to provide adequate information” or make “reasonable efforts” to alert consumers about losing their grace period.
Balance-transfer offers aren’t the only area where these grace-period issues come into play, the CFPB says. They also apply to deferred interest offers, such as those used to finance big-ticket purchases like furniture, and convenience checks.
If you think your card issuer isn’t being up front about hidden fees, you can submit a complaint online or call the CFPB at 855-411-2372.