Don't get stuck with unexpected credit card charges

By Anthony GiorgianniConsumer Reports

If you're trying to save money by transferring a balance to a different credit card, be sure you're not leaving yourself open to surprise interest charges.

The Consumer Financial Protection Bureau is warning card issuers about what it sees as deceptive offers for reduced- or zero-interest balance transfers.

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At issue is whether those who take advantage of the promotions for low- or -zero interest balance transfers are properly informed that by creating a monthly balance—even one subject to zero interest—they could be giving up the interest-free grace period they may be getting on new purchases. The problem affects those who pay off their credit card balances every month.

Usually, cardholders who don't carry a balance won't be charged interest on new purchases as long as they pay the charges in full by the card's payment due date. But if they transfer a balance from another card, they'll typically lose that grace period as long as the transferred balance remains unpaid. That's true even if they continue to make payments equal to their new purchases every month.

The CFPB says some card issuers don't make that clear in the promotional material they use to advertise such services as convenience checks, deferred interest/promotional interest rate purchases, and balance transfers. In some cases, the agency says, the information is missing; in others, the disclosure isn't made prominently or it's provided using technical language. As a result, the agency said, consumers may be misled into believing that the transfer-related transaction fee is the only cost of obtaining the promotional rate.

Looking for a new credit card? Check out our credit card buying guide.

"Credit card offers that lure in consumers and then hit them with surprise charges are against the law,” the CFPB Director, Richard Cordray, said in a statement announcing the agency's warning to card issuers (pdf).

What to do

Before taking advantage of a balance transfer offer, make sure you understand all the costs, including the transfer fee. Read the promotional material carefully and question anything that's not clear. Keep in mind that if you transfer a balance to a credit card that you pay off every month, you're likely to be charged interest on your new purchases the moment you make them. That could be more costly than if you had not transferred the balance to begin with.

One way to avoid the problem is to stop using any card you transfer a balance to until you pay off the transferred amount. (Make any new purchases using a different credit card or pay by debit card, cash, or check.) Keep in midn that promotional ffoers require minimum payments, which you must continue to make to retain the promotional rate. (Pay more if you can). And you should pay off the entire transferred amount during the promotional period, or you'll face higher charges on any amount that remains unpaid.

Never make a transfer to a card that already has a balance. That's because the law allows card issuers to apply the minimum payment portion of your future payments to the low- or zero-interest promotional balance instead of to the higher-interest balance you're trying to pay off.

If you're struggling to pay off your credit card debt, another option is to ask the card issuer to voluntarily lower your interest rate. That way, you'll avoid the transfer and related fees and other costs. The credit card company doesn't have to lower your rate, but it doesn't hurt to ask.

—Anthony Giorgianni

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