Card Offers 101
by David Berky
One day I got a call from my
credit card company asking me if I would like to increase
my credit limit by borrowing up to $9000 at their special
rate of 15.9%.
The operator stated, "Your credit
card rate will then be a low 15.9%. How much would you
like to transfer today to take advantage of this offer?
Do you have any high interest loans you would like to
pay off and reduce your payments?"
The previous day I had called
them to get two bogus late payment charges taken off
my statement. I also had to get my interest rate lowered
back to my usual rate rather than the "penalty rate"
(22.9%) they charge to anyone who is late, misses a
payment or goes over their credit limit.
Wondering if my rate got changed
back to my usual rate, I asked the operator what my
current rate was. She said that it was at 12.9%, which
was my usual rate for this card.
I do carry some debt on other
cards (it helps with my credit rating to be making regular
payments) but all the other debt I have is at lower
rates than this card. I mentioned that I had no other
debt that was at a higher rate than what she was offering.
She then replied that I could
just take the money as a cash advance and do whatever
I wanted with it.
So I asked her if I understood
correctly what she was offering. "So you are offering
to raise my interest rate if I get further into debt
by getting a cash advance?"
"Yes, you can have up to $9000
and do whatever you like with the extra cash," she replied.
I was amused that she said that I could "have" not "borrow"
the money and it would be "extra cash" rather than "additional
debt". But after all, she is in sales and the words
"have" and "extra cash" are much more enticing than
the more realistic alternatives - "borrow" and "additional
I politely told her that I was
not interested in raising my interest rate or borrowing
more money, "but thanks anyway."
I then wondered how many other
people would jump at the opportunity to pocket a quick
$10,000 at the "low" rate of 15.9%.
I was also amused that she encouraged
me to pay off my high interest debt with this money.
Well, to my standards 15.9% is high interest debt. Granted
it's not the 24-25% charged by department stores but
still it was more than I was currently being charged
on any of my other cards.
Shouldn't an offer that would
appeal to me be one that offered me money at a lower
rate? Her offer seemed backwards. She was trying to
entice me with the vision of "extra cash" in my hand
to do whatever I would like.
I took a moment to do some financial
math (the most important kind) on this offer and found
that if I had a current balance on that credit card
of $4000 at my current interest rate of 12.9%, I would
be paying about $43 a month in interest charges.
If I had accepted her offer for
an additional $9000 at 15.9% (and I suspect that my
regular rate of 12.9% would have risen to the 15.9%
rate also), I would be paying about $172 a month, exactly
4 times what I am currently paying. If I made a payment
of $200 a month to pay off this debt, I would be paying
for over 12 and a half years.
What I learned from this experience
is that I should get into the credit card business.
Maybe I'll check on some bank and financial institution
stocks today. With offers like this they must be making
Once again, those who understand
interest earn it, those who don't, pay it.
© Simple Joe, Inc.
David Berky is president of Simple Joe, Inc. which sells
the Simple Joe's Debt Eraser PC software. Debt Eraser
can help anyone get out of debt quickly and inexpensively
by creating a Rapid Debt Reduction Plan.
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