The Zero Percent Seductress

When you’re happily married, you unconsciously (or consciously) put out an “I’m unavailable” vibe to ward off potential suitors.  Once human seducers are nullified, however, there are still a variety of other temptations, including money and food.  The most intense seducer of them all may be the credit card—more specifically, the 0 percent kind.  Be it a balance transfer or purchase offer, the lure of available money for a period of time with no interest often seems as delectable as a certain apple in the Garden of Eden.

I confess—I’ve taken quite a few bites of that no-interest apple.  Let’s roll the clocks back to see why.  I have a home equity line of credit (HELOC) that began at a very low interest rate about three years ago.  For uninitiated readers, a HELOC functions a lot like a credit card.  As a borrower, I’m offered a specific line of credit, based on the equity in my home, and I can withdraw funds against it whenever I want, as long as I stay below the credit limit.   I pay interest only on the money that I borrow, and once the funds are replenished, I can borrow them all over again.  The HELOC is attractive because you can borrow with no closing costs.  But it’s not perfect—it’s an adjustable-rate mortgage (ARM), and in this climate of rising rates, that means my interest rate keep going up.

Since reducing debt is a passion of mine, I like to pay off as much principal each month as possible.  Enter the zero percent balance transfer.  By moving my HELOC balance to a no-interest card for a year, I can funnel all those potential interest payments directly to principal, and reduce my indebtedness more quickly.  As long as I don’t miss payments and remain disciplined, it’s a clever way to reduce what I owe. The operative word, of course, is disciplined.

Recently, temptation led me to have a relationship with a “0 percent on purchases for a year” credit card.  Because I pay my balances in full each month, I generally don’t have a need for such an instrument.  But with some large expenses looming on the horizon, I broke down and accepted one, with a well-crafted plan to pay off the balance before the introductory offered expired.

But seductresses aren’t nicknamed “home-wreckers” for nothing.  Even though I’m very disciplined about my credit, I found, in that offer, the snake slithering around in the fine print.  After I used it for my initial large expense (the lower pre-payment for my oil bill), my car needed some significant (and surprising) work.  “Put it on your 0 percent card!” I thought, because spreading out the payments would make it easier on my monthly budget.  Then, the yearly dues for my tennis club became due.  “Put it on your 0 percent card!” I thought, because spreading out the payments would make it easier on my monthly budget.  Sound repetitive?  Yes!  And it’s exactly this type of repetition that has the potential of turning me from a responsible debtor, to a troubled debtor paying a ridiculously high interest rate.

If you can use zero percent cards in a disciplined manner, they can be a financial lifesaver.  You need, however, to understand their drawbacks.  First, there’s that problem of control.  If you’re not careful, you can too easily abuse it.  Then, in balance transfer cards, there’s that “balance transfer fee” to watch out for.  Some offers waive them, but most have a fee that can be as little as $25 or as high as 3 percent of the total amount transferred.  That’s the way the banks make their money…you really didn’t think that they’d let you have their money for nothing, did you?