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Warning On Deferred Interest Credit Cards

14 January, 2015



It sure may have been convenient during the holidays.  You purchased the perfect gift on the store’s credit card knowing you don’t have to pay any interest for a specific period of time.  But when that promotional period is over, the entire amount must be paid, or you’ll owe backdated interest on the original amount charged, even if you’ve paid much of it off.  There are some of these cards that apply the interest charges only to the unpaid amount.   According to the Wall Street Journal, interest rates can be as high as 25%.  These cards have been around for years and are offered by such big retailers as Apple, Walmart, Home Depot, Amazon, Office Depot.   They entice consumers to spend more than they might normally, and make buying an expensive item as easy as falling off a log.  Not being a swimmer, I avoid logs.   

I’m sure for many consumers who know they’ll be able to pay off the balance during the promotional period, these kinds of cards are useful.  Some of the promotional periods, by the way, last up to 18 months.   But there are many more who get these cards for an impulse purchase and then get in over their heads.   I suppose that’s their business.  But I do hope this topic is on the agenda for the Consumer Financial Protection Bureau ( www.cfpb.gov ) so that these credit cards at least have to be overbearing in their announcements to consumers just how these deferred-interest credit cards work.  That might give some consumers pause before they sign on the dotted line.

So, double check what you signed up for.  What’s the promotional period and the interest rate that kicks in after that?   If it’s not paid off, is the interest charged on the original amount or the outstanding balance?  How can you make sure you’ll have the dough?  Your credit rating is important so if you can start 2013 knowing what you’re dealing with, that will be a good thing!  Good luck.   Until next time, here’s to good planning!

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