Marketing & Management
Don't Be Surprised If the Credit Card You Love Bites You
...by Nancy Steffens
We all know that old saying, if it looks too good to be true, it probably is. The frequency with which small businesses are invited to accept money from credit companies is astounding. My advice is to say, “Where’s the SHREDDER!”
There aren’t any real giveaways out there; they will cost you in the end and maybe even cost you your business. Credit card companies seem to know when an ill wind blows through the retail market. That’s when the great offers begin to float in and invite you to set aside your better judgment.
It is my experience that the credit card world isn’t filled with good Samaritans trying to help small businesses. Make no mistake — they’re out there to make money. For example, let’s say the offer of the card is for a credit limit of $10,000 with no interest for X number of days. Sounds great, times are slow, and you can pull in a few things you might not have otherwise. This opportunity allows you more freedom; you may even do a balance transfer for a larger loan making it more manageable during the slow times. You’re happy and the pressure of being a little short has been lifted from your shoulders. Be cautioned: you have to be very sure to make the payment is on time or the whole loan changes. They clearly say this in the information packet/guide you may or likely may not have read.
Like clockwork, the card company begins to sends you checks in the mail and advises you to use them; however, they usually carry a rate of interest. But your card came with little or possibly no interest for X number of months! The bank is not just trying to make your life a little more comfortable? The card company may even accommodate your credit line to say $15,000, no interest increases for 9 months, unless you use the checks. Now is the time to be on your toes!
Then, there are banking regulations you may not be aware of, which come from what we will call the “Mother Company” for your credit card. The Mother Company is the big company who actually issues the cards and may own several different card companies. It is critical to know who the Mother Company is. Why? Lets say you owe on an account and unknowingly use a check from the Mother Company to pay off the account. Seems like a workable plan, getting rid of a high interest account by paying with a very low interest check offer. Unfortunately, if you don’t know that the Mother Bank also owns the company you are trying to pay off, the check will be returned as denied because of banking regulations that forbid the use of a check from the Mother Company to pay off an account in the same company. But they didn’t tell you there might be a conflict! Or did they? Remember the introductory book everyone throws away? All the information is in that book.
The problem becomes really costly when you have to pay a late fee for the account you sent the check to, possibly a return check fee, and then a check return fee to the Mother Bank. Talk about a bad situation! What is really terrible is you’ve opened the door for your original account to raise your interest rates, remember you were late, and that know you have a returned check. But even if you missed that last big mistake, the bank has one more way to separate you from your money: the cash advance. The interest rate you have on purchases is very different from the interest rate you will have on cash advances. The bank will usually say right up front the interest on a cash advance is much higher — sometimes as much as 25%. Unfortunately, the thing they don’t talk much about is the repayment of the cash advance. If you had read that little printed book, you’d have known that you aren’t allowed to repay the cash advance first or even separately. First, you have to pay the purchases off; only then are you able to pay on the cash advance. So month in and month out they begin they collect money from the interest on the cash advance while you pay for your purchases.
You have two remedies. First, of course, is to pay the account off totally. This is the best remedy but the hardest to do. You also have the option of using a balance transfer to another bankcard to zero your account and then never make this mistake again. Although this is not the best option, it does allow you to escape the interest circle. Remember to call first and ask if you are able to do a balance transfer from your cardholder to the new account.My advice? Shred that first offer and wait out the slow time you are having. Consider very carefully the cost of the money you borrow.
Article by Nancy Steffens. Blossom Babies Hat Company (Someone who has made all the mistakes!)
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