Have you ever done something dumb with credit cards before?
I have a cash-back card, and I’m good about keeping it paid down, so I felt pretty happy when the card company would mail me rebate cheques a couple of times a year. I have a handle on consumer credit, go me! On average I was “up” about $200/year.
So, last February when they offered me a 0% loan (with a 1% “service fee” up front) it was almost a no-brainer. I wasn’t going to be making any risky investments if I had to repay in a year… but if I can borrow at 1% and get between 2-2.5% in a regular savings account, why not? After giving Revenue Canada their slice of the action, I should still make about $100. Sign me up!
All I had to do was make sure to keep my card balance paid down to the amount of the loan (since I didn’t want to be paying off my 1% cash early). How hard could that be? (cue dramatic music)
December rolls around and I started to think about moving some money between accounts, to pay off the loan by the end of January. So I took a closer look at my December statement to see where I was… huh?… what do you mean I paid $100 in interest? And $40 in November? And $60 in October? But I pay all my bills on time! It turns out I was too good at paying them off. Occasionally I checked my balance often enough it didn’t show my previous payment yet… so I sometimes repaid twice, and slowly nibbled away some 1% cash each time.
Because I was only looking at the total on my statements, and not checking the “interest paid this month” line… I didn’t realize what was going on. For the first few months of my loan I paid $0 interest… then I started to pay too much … and over the last couple months I had essentially been floating a $3500 balance on my card (1% money that I accidentally paid back, which I was now paying full interest on). Doh!
End result: my brilliant scheme to make $100 has now made me nothing.. in fact I’m $200 in the hole after interest charges. So much for the “cash back” card 🙂
I wasn’t smart enough to keep a steady non-zero card balance for a year, and it cost me. I’m paying the whole thing off _today_. Bah!
(Oh, and Happy Holidays!)