How many ways are there to raise funds for deals? Many. Have you ever used your credit cards for cash advances? This is one quick way to get the financing you need.
There are a number of important things to consider here. Some of those include: What is the interest rate on the cash advance? How long can you use it? What is the fee to do the transaction?
When you get the offer in the mail, it can be very tempting. I just got a great 2.99% for a year with a cap on the cost of the transaction at $250. I took it and will use the money for a year. Where else can I get money at that rate? And I got a good sized chunk.
However, I have learned the hard way some pit falls to watch out for. First, of course, always make your payments on-time; early is better. If you’re late on any, you’ll pay the higher interest rate on the entire amount you borrowed for the entire time you’ve had it. All deals are off.
Second, be sure to ask what the transfer fee is. Some charge a percentage of the amount you borrow, some a flat fee. It can be high so ask. You can always ask for a lower fee. Maybe they can!
Third, how long can you use it? If it’s only 3 or 6 months, it may not be worth it. You may not have time to use it and get it back to pay off the loan that quickly.
Fourth, and VERY important, only do this on a card where you have a ZERO balance and do not plan to use it for anything else. If you have anything else charged to this card, the interest rate on that will be higher than the teaser rate you are trying to get. When you send in your payment, it always goes to pay off the lower rate first and the other charges at the higher rate continue to grow until the lower rate transfer is paid off. It can take you a very long time to start paying off the fees on the higher rate charges and this is how the credit card companies make so much money from these special offers.
ALWAYS READ THE FINE PRINT!
Pay on time, pay off early, ask what the fees and charges are, know the true and final interest rate to see if its really worth it to you, know how long you can use the money, and get cash advances only on cards with zero balance that you will not use for any additional charges.
Done right, credit cards are a great source of financing.
Update!
I just found out another credit card company trick. They often say you can transfer balances “for the life of the loan”. Be sure to find out how long “the life of the loan” actually is. In this particular instance, it’s 3 years. Obviously, they hope you’ll go beyond that so they can collect HUGE amounts of late fees.
Buyer beware!
Mar 29th, 2010 / 10:17 am