Credit

Is Zero Percent for Real?

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The desire to climb out of credit card debt is universal for anyone who is fighting this big problem. And it isn’t an isolated problem. More and more people are having big problems with credit debt especially in these times when you just about have to use credit every day.

There is something a little strange then about credit card companies coming in with offers to help you climb out of credit card debt when its they that are the problem in the first place. It’s almost like a drug pusher pushing a new drug that can get you off drugs but the drug he is pushing is just as addictive as the last one. But when you get offers for new credit cards each month, they often are pushing plans to help you get out of debt by going into debt to them.

Probably the offer that comes in that is most difficult to overlook are the offers to let you do a balance transfer of some of your debt and pay no interest on it. These are often called zero percent offers and they have skilled marketing people write the copy for these offers so you are prone to believe that you really are going to be able to have a loan paying no interest so you can just pay off the principle and that’s that.

Are these zero percent credit card balance transfer offers for real? Well, they are in the sense that they might transfer some of the funds and yes, the interest rate you will see on the first statement will be zero percent. But, like all things, there are catches and things to look out for. You have to remember that the credit card companies are entirely in the business of collecting interest. They don’t do anything else. They offer no value to society, build no roads or hospitals, sell no food or medicine, make no TV shows to make you laugh. They sit there, house your debt, collect interest and try to talk you into running up more debt.

When you get a zero percent offer, they plan on recovering the lost money from the time they support your debt, and you pay no interest. One way they do that is with a transfer fee. They will almost always charge you a 3-5% balance transfer fee with a minimum and sometimes a maximum value. Read the fine print carefully to make sure you understand how much this is going to be and that you agree to it. But be aware that the transfer fee is nothing more than disguised interest. So calculate that against the interest you would have paid leaving the debt where it is sitting now before you cash in on a zero percent balance transfer.

You will rarely see a zero percent balance transfer that is not for a very limited time frame, usually no more than three to six months, sometimes up to 18-months. With the transfer fee factored in, you have to wonder if the effort of moving the money was worth it. And at the end of the introductory period, they are going to raise your interest rate to something that they, the credit card company want it to be. Be absolutely sure you know what that interest rate is going to be and that they live up to that stated level of interest. If you enjoy that zero percent transfer for three months and then face years at 21% interest, you did not win in that transaction, the credit card company won.

Teaching the Kids About Credit

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One of the ways some of us get into credit card debt trouble comes out of nothing more than lack of awareness of how credit cards can sneak up on us.

The first time you maxed out a card and faced the overwhelming task of paying down a credit card and getting yourself back on firm financial footing, it can be a sobering experience. And if you have gone through this experience, the school of hard knocks taught you well that it’s easier to prevent credit card debt than to recover from it.

Maybe the best thing about getting hard won knowledge is that you can pass it along to your kids. So how can you go about helping your children establish a good relationship with credit and learn how to use it responsibly so they don’t have to learn about credit card debt and credit card abuse the hard way? Just like everything else in life, they depend on you to teach them how to function as adults. So we should take this responsibility seriously.

First of all, teaching kids to use credit effectively is not about keeping them from having credit. If anything, the opposite is true. A credit card is as essential a tool for modern living as a car and a cell phone. We would even make the bold statement that to send a child out to fend for himself or for herself without a working credit card in her pocket, a respectable credit rating already building up and the training in how to use credit is nothing less than irresponsible parenting by adults. It is equivalent of sending your child into a battle with no weapons. Credit is essential and smart use of credit is even more essential.

You can help your kids begin to understand the basics of getting good credit by getting them a credit card in high school or college. You can pay the bills but this is a good way for them to pay for what they need and you can keep track of their spending from that monthly bill you get. But make sure that credit card is in your child’s name so as you pay it off each month, they build up the good credit rating from what you are doing. Consider it another one of the many legacies you are passing along to your kids.

But don’t just let your kids go hog wild with their credit card. In fact, you can work with a credit card company to establish a credit limit and not allow it to go up. In that way, you can set a limit on the amount of credit they have each month. And if they go over it and suddenly cannot buy lunch because they abused their credit, that afternoon of going hungry will teach them more than two days of lecture about fiscal responsibility can do.

Make sure your kids are aware that you paying their bills is a privilege and that they are very lucky to be able to start their adult lives with a sponsor like this. Then give them three jobs they must complete to show they are worthy of this privilege.

(1) They must save all receipts of every purchase they make. If they buy something and don’t get a receipt, they must make one.

(2) They must maintain a ledger of spending. This is similar to a check book ledger, but it must be complete with every purchase they made, and a running total and it must be maintained daily. If an expenditure shows up that is not on that ledger, they will be required to pay that back to you or risk losing their credit card.

(3) They must sit you once a week to review the credit card bill and explain item by item what each entry on there is. This will do a lot to keep them from using the credit card frivolously.

These simple habits if done over a period of months will teach your children how to track, monitor and be aware of their spending and their use of credit. In that way, when you cut the apron strings entirely, they will not only have the credit they need to have a good adult life, but they will also be wise in how they use it. And there is no better gift you can give to a child than that.

Playing the “B” Card

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When you are trying to get out of credit card debt, sometimes desperate times call for desperate measures. There is a progression of alternatives most people go through in trying to find ways to drive that credit card debt problem down and get it under control. At first just trying to pay them off month to month seems reasonable. But as the debts mount up, more creative measures are often tried.

It is when you take that next step of leveraging debt against debt that you know things are getting out of control. This is when you start paying off one credit card with another. Now there are reasons to do this such as moving debt from a high interest account to another that is doing business more favorably for you. But you have to watch those “deals” because often there are transfer fees or other hidden charges to sneak up on you. And if the lower rate is a “limited time offer”, the advantage of the lower interest rate for a few months may not be worth the extra fees. And if that new credit card carrier then jacks your fees up higher than they were on the old creditor, you are worse off than before.

When the credit card debt then begins to become a real problem, the next level starts to take advantage of your assets. You can take out a second mortgage and get a pretty good rate that is controlled because that is what they called a “secured loan” which means you are using the equity of your house as collateral to fight the credit card debt. But these kinds of loans are risky because if you did default on them, you could lose your home.

When the credit card debt begins to get serious again, even despite all these serious measures you have taken, you can get pretty panicky. And you can get resentful because there is no question that the credit card companies seem to do all they can to keep you trapped in this debt as long as they can. And why shouldn’t they after all? They make a lot of money off of your credit card debt. And they don’t have to do anything to keep it rolling in.

This is why when it comes to making a decision between just starting to default on the credit card debt, it might be time to pull out the stops and go after the credit card companies to put a stop to the escalating bill. But you can put a stop to it by calling them directly and not being afraid to play the ultimate card, the “B” card – bankruptcy.

Now, declaring bankruptcy has become more difficult since the current administration in charge of our government made it harder for regular folks like you and I to use this tool to stop the constant escalation of our credit debt. But it still is possible to use bankruptcy and if you do, the credit card companies could lose all of that money. And they know it too. Now you don’t want to threaten bankruptcy unless it really is a possibility for you. But if it is and you call the credit card companies and let them know this is your next step, you suddenly have all kinds of leverage with them.


Once the credit card companies know you are serious about going that route, if you tell them you would like to work out a deal to pay off some of the debt you owe, they may be very open to reducing your debt by half or more. And if you can get that kind of deal from every credit card company you owe and you can get them to lower your interest rate to make your ability to pay more reasonable, you might be able to avoid the bankruptcy entirely.

And if that is the outcome, you did a good job of showing the “B” card but never having to play it.

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