One day I got a call from my credit card company asking me if I
would like to increase my credit limit by borrowing up to $9000 at
their special rate of 15.9%.
The operator stated, "Your credit card rate will then be a low
15.9%. How much would you like to transfer today to take
advantage of this offer? Do you have any high interest loans you
would like to pay off and reduce your payments?"
The previous day I had called them to get two bogus late payment
charges taken off my statement. I also had to get my interest rate
lowered back to my usual rate rather than the "penalty rate"
(22.9%) they charge to anyone who is late, misses a payment or
goes over their credit limit.
Wondering if my rate got changed back to my usual rate, I asked
the operator what my current rate was. She said that it was at
12.9%, which was my usual rate for this card.
I do carry some debt on other cards (it helps with my credit rating
to be making regular payments) but all the other debt I have is at
lower rates than this card. I mentioned that I had no other debt
that was at a higher rate than what she was offering.
She then replied that I could just take the money as a cash
advance and do whatever I wanted with it.
So I asked her if I understood correctly what she was offering. "So
you are offering to raise my interest rate if I get further into debt
by getting a cash advance?"
"Yes, you can have up to $9000 and do whatever you like with the
extra cash," she replied. I was amused that she said that I could
"have" not "borrow" the money and it would be "extra cash"
rather than "additional debt". But after all, she is in sales and the
words "have" and "extra cash" are much more enticing than the
more realistic alternatives - "borrow" and "additional debt".
I politely told her that I was not interested in raising my interest
rate or borrowing more money, "but thanks anyway."
I then wondered how many other people would jump at the
opportunity to pocket a quick $10,000 at the "low" rate of 15.9%.
I was also amused that she encouraged me to pay off my high
interest debt with this money. Well, to my standards 15.9% is high
interest debt. Granted it's not the 24-25% charged by department
stores but still it was more than I was currently being charged on
any of my other cards.
Shouldn't an offer that would appeal to me be one that offered me
money at a lower rate? Her offer seemed backwards. She was
trying to entice me with the vision of "extra cash" in my hand to do
whatever I would like.
I took a moment to do some financial math (the most important
kind) on this offer and found that if I had a current balance on that
credit card of $4000 at my current interest rate of 12.9%, I would
be paying about $43 a month in interest charges.
If I had accepted her offer for an additional $9000 at 15.9% (and I
suspect that my regular rate of 12.9% would have risen to the
15.9% rate also), I would be paying about $172 a month, exactly 4
times what I am currently paying. If I made a payment of $200 a
month to pay off this debt, I would be paying for over 12 and a half
years.
What I learned from this experience is that I should get into the
credit card business. Maybe I'll check on some bank and financial
institution stocks today. With offers like this they must be making
money.
Once again, those who understand interest earn it, those who
don't, pay it.
David Berky is president of Simple Joe, Inc. which sells the
Simple Joe's Debt Eraser PC software. Debt Eraser can help anyone get out of debt quickly and inexpensively by creating a Rapid Debt Reduction Plan.
