I’m feeling so special. My bank sent me a letter, complete with “convenience checks” yesterday. Normally, I just send the the checks straight to the shredder, but one of the headings in this letter caught my eye. Here’s a part of the letter:
There’s never been a better time to use these checks
Take a vacation…transfer a higher-rate balance…purchase something you really need…even write yourself a check and deposit it into your checking account to use however you like. Whatever you decide, you’ll enjoy a 1.99% introductory APR on these checks through your September 2008 statement date.* After your introductory period, your rate will be variable — the Prime Rate plus 12.49%, currently just 19.99%.* With such a low rate, it pays to use the attached checks.
There’s so much wrong with this, I don’t even know where to begin. We’ll start with “Take a vacation”. Suppose I decide to take that vacation to Disneyland I talked about yesterday. The bank is offering me a credit line of $8500, so I’ll just write a check for the whole amount. I may as well do Disneyland in style right? Actually, come to think of it, as expensive as Disneyland is, I might be staying at Motel 6 for $8500. But that’s beside the point.
So now I have a charge of $8575 on my card (there was a $75 transaction fee for using the check). If I start paying $200 a month right away (which is what I’m paying toward my Citibank card right now), it will take me until January 2013 to pay off my trip to Disneyland. (I used this calculator to figure that out) And the interest? $3282! That’s a grand total of $11,857 for my trip to Disneyland!
But not only am I paying more than $3000 more than what I actually spent on my trip, I’m spreading the payments out over 5 years. That’s 5 years of $200 a month payments. $200 a month that’s now not available for things like rent, food, clothing….you know, the things we all need to survive. Suddenly, I’m more limited in what I can do with my paycheck every month. And there’s nothing I can do about it….for 5 years, unless I can come up with a way to pay more every month and get the debt out of the way sooner. That debt is like a ball and chain wrapped around my ankle.
Now let’s look at this another way. I still want to go to Disneyland, and I still have a budget of $8500. If I saved $200 a month, it would take me 3.5 years to save enough for the trip. But if I had a financial emergency one month, like maybe I need new tires for the car that I haven’t saved for, I could free up that $200 to pay for tires and push the trip back a month. I wouldn’t like it, but at least I’d have the flexibility to use the $200 a month as I please.
To sum it all up, if I want to take this trip, I can either finance it with my convenience checks , paying $200 a month for 5 years, for a grand total of $11,857,
I could save $200 a month for 3.5 years, have total control over where my money goes, and pay a total of $8500.
Washington Mutual, I’m quite certain you’re wrong when you say, “with such a low rate, it pays to use the attached checks.” Because when I look at those figures, the one who’s doing the paying is ME. So thanks for the offer, but I’m going to send these checks through the shredder right away.
Have you ever used “convenience checks”? Have you ever been burned? Feel free to share your story in the comments.
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I'm just an average mom, trying to live a frugal life and get out of debt. I write about things that have (and haven't) worked to improve my family's financial situation. What works for me may or may not work for you, and you should always consult a financial advisor before making important financial decisions.
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