Credit Cards, Financial Advocacy, and Bankruptcy in New York

Credit Cards, Financial Advocacy, and Bankruptcy. New Yorkers might be wondering what these three financial categories have in common.

The link is the following: When you couple the use of credit cards, especially in the expensive New York metro area, to pay for consumer staples such as groceries and gas (with a lack of knowledge surrounding the fine print in your agreement) you can unfortunately find yourself in the third category.

I recently was asked to give a speech by Lawline, to educate attorneys and consumers on the loopholes and fine print embedded in one’s credit card agreement. In the speech, I used an example which seems to be ever more present in today’s world and one which I want to discuss with you; the 0% APR Balance Transfer. The average American consumer has approximately $9,000 worth of revolving credit card debt at any one time. Mind you they are likely paying anywhere from 12%-20% on the balance. Then, a new offer comes in the mail. “Reduce your high interest rate cards and transfer your balance for 0% for one year.” You’re excited. Finally a way to stop paying interest. So you transfer the whole $9,000, thinking you just saved yourself some serious change.

The problem: That 0% interest rate is ONLY GOOD FOR THE BALANCE AND DOES NOT APPLY TO PURCHASES!! If you use that credit card, even once, to make a purchase, that purchase accumulates interest on a much different rate, usually again 15-20% and guess what? You can’t pay that purchase off until you pay off the balance you transferred. That means that the purchase (or purchases) you made will be accruing 20% interest up until you pay off the $9,000 you transferred in full. Whats more, if you do not pay off the $9,000 by month 12, you now owe money on the remaining balance at the “new” interest rate, plus the purchases at their interest rate.

Let me simply this. You transfer $9,000 to your new 0% card. New Balance: $9,000. Next you purchase clothes for the kids at $1,000. APR-18%. You send in a payment for $1,000. Guess where that $1,000 is going? Its paying off the 9,000 balance and not touching the 1,000 you just charged. So that purchase is now growing at 18% month after month until you pay off the $9,000. What happens if you keep making purchases? Your balance keeps rising, interest keeps accumulating and you likely don’t pay the $9,000 in 12 months. Everything becomes due at a different rate now. You fall deeper and deeper into debt and possibly bankruptcy.

How do you stop this? Very simple: Only apply for more credit if you absolutely need it. DO NOT MAKE PURCHASES ON CARDS YOU USED FOR THE PURPOSE OF DOING A BALANCE TRANSFER. Finally, watch out for “transaction fees.” Credit card companies typically charge you around 3% of the amount you transfer to them for the privilege of allowing you to pay them. On a $10,000 transfer, that’s $300 you pay for literally nothing. Before you make this decision, make sure you think it through.