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Dear Debt Adviser,
I have one credit card on which I make a monthly payment of about $1,000 to $1,500. My balance is about $5,000.
Last year, I needed to use one of the checks they regularly send me and wrote out one for $370.
When I attempted to send a separate check to pay this off, I was told I had to pay off the entire balance
for purchases on my credit card before any amount would be used to pay down the balance on my check. I wrote to customer
service and was told the same thing.
I further looked at my last statement at the bottom of the page and saw something I could not believe --
my check for $370 is now showing a balance of $1,833.33 at an annual percentage rate of 22.99 percent. In contrast, my
credit-card purchases are at 8.99 percent APR.
I cannot believe this is legal in the banking industry. Because my balance is about $5,000, I can only
imagine what the balance on my $370 check will be when I finally pay off the purchases portion of my bill.
I have decided to use my card as little as possible to bring my account down to zero.
Do other credit cards use this type of "program"? Are people as dumb as I've been? How can we stop this?
-- Joan
Dear Joan,
If misery loves company, you can take some comfort from knowing you have a lot of company.
I know you don't want to hear it, but from your card issuer's point of view, it is providing you with a
"convenience." The company disclosed the terms of the convenience check in advance and in writing.
Like many millions of others, you just didn't read what you agreed to. I believe this is a part of the
American psyche -- we are all born with a gene that allows us to ignore (with impunity) assembly instructions, directions
and our doctor's advice.
Back to your question: Yes, all cardholder and other borrower agreements include terms detailing how payments
are applied and, not surprisingly, they can be expensive if ignored.
For example, I had a deferred payment plan on some furniture recently. If I paid by May 1, there was no
interest. If I paid on May 2, I'd have to add $1,500 in finance charges.
Just to be safe, I paid on April 1.
No, you are not dumb. Like many others, you just don't pay enough attention to the fine print of your credit card agreements.
And it's not all your fault. Personal financial education is rarely taught in schools and parents would
rather talk about sex education with their kids than how much they make or what they spend it on.
However, it is mostly your fault. So, since I can't fix all the schools today, the next best thing I
can do is suggest you and my readers very carefully review any financial agreements (especially the miniscule type) and
understand all the terms before using them.
Now, for the good news. The lesson you have learned regarding your convenience check was really cheap. There are
about 1 million or so people who didn't read their mortgage agreements and are now losing their homes, second homes and minds.
You should consider transferring the entire balance from the current card to another card, loan or line with a
better interest rate. That way, you will be paying the same lower interest rate for the entire balance.
Keep in mind, however, that I want you to read your new agreement. If you transfer to another card, you will
see that you are likely agreeing to terms with application of payments similar to your old card when it comes to cash advances
and convenience checks.
What you know now will protect you from making the same mistake twice. Try to pay down your credit card --
$5,000 is too big a balance to carry on any credit card.
Next time you need some immediate cash, don't use a cash advance or convenience check from your credit card.
Take it out of your emergency savings fund instead.
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