Credit card users sometimes receive offers in the mail, such as promotional cheques, but credit experts warn consumers must always read the fine print before taking on additional debt.
Credit card users often receive cheques in the mail that offer a low promotional rate.
They are seen as a way to avoid paying interest, but at least one woman says using the cheques cost her more in the long run.
Last fall, a sewer line burst at the home of Velangeline Lachance and her husband.
The repairs cost them nearly $6,000.
“We weren’t able to use our water for three weeks,” said Lachance. “Our basement had to be jack-hammered in half.”
Lachance used a promotional cheque from American Express to cover the repairs.
For a $50 fee, it offered zero per cent interest for six months.
“I thought, that’s not bad,” said Lachance. “When you have to put thousands of dollars on to it, we can save that in interest costs.”
Or so she thought.
A few months later Lachance discovered she had been charged interest all along because she continued to use her Amex card.
She didn’t know the majority of the payments went to cover the balance on the low-interest cheques, not the high interest balance on her card.
“In the end, it was a lose-lose situation,” said Lachance.
American Express says they use a specific payment formula for balances with multiple interest rates and the consumer does not get to decide how the bulk of their payment will be applied.
Credit Counsellor Christi Posner says that is not the only thing people should be concerned about when taking advantage of promotional offers.
There are terms and conditions that if you miss one payment, even by a day, that 2.99 or zero per cent interest rate can turn into 19.99 again very quickly,” she said.
And, interest on promotional cheques is often charged beginning at the time of the purchase meaning there is no grace period.
Often, there are also fees associated with the cheques.
Posner says that is why it is important to read the terms of service, which will vary from one card to another.
As for Lachance, she said she has learned an expensive lesson and will pay more attention to the terms and conditions next time she receives promotional cheques in the mail.
“I feel mislead and a bit taken advantage of,” she said.
According to the Credit Counseling Society, the cheques can be an effective tool for managing debts provided you take a few precautions.
They say you should always pay at least the minimum balance every month, not use your credit card for other expenses, and be sure to pay off the entire balance at the end of the promotional period because the interest rate will likely climb after that.
The federal government has taken steps to prevent the cheques from being sent to credit card customers. Starting June 21, banks will no longer be permitted to send you the cheques without your approval.
- with a report from Karen Rocznik
