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Ten tips

Be cautious when using convenience checks

By LAURA T. COFFEY
Published April 3, 2005

Are you surprised by the number of "convenience" checks you receive in the mail from credit card companies? Credit card issuers want you to use them because they stand to collect hefty fees from you when you do. It is possible to beat the system with some checks, but only if you exercise extreme caution. Consider these tips.

1. COUNT THE COSTS. If you use the checks to make purchases, you'll typically be charged a fee of 2 to 5 percent of the check amount, and the interest rate on your purchase likely will be 20 percent or more. What's more, the interest usually starts accruing the minute you use the check.

2. SHOW INTEREST IN THE INTEREST RATE. Information about the interest rate may be tricky to find, so examine the offer carefully and call the credit card company if necessary. If the introductory interest rate sounds exceptionally low, read the fine print even more diligently: It may expire soon, or you might lose the rate if you make one late payment.

3. UNDERSTAND WHERE YOUR MONEY WILL GO. Find out where your payments will be applied first: to your new convenience check balance, or to your outstanding credit card balance? Surprise! Your credit card company is almost certain to apply payments toward the balance with the lowest interest rate first. That way purchases made with the higher rate can linger and interest can keep accumulating month after month.

4. AVOID PROBLEMS BY PAYING OFF BALANCES. One way to steer clear of the whole interest rate dance is to pay off your entire credit card balance in full - and on time - each month. If that's not possible, however, then use convenience checks for purchases on an emergency-only basis.

5. SHOP AT YOUR OWN RISK. You're afforded considerable consumer protections when you shop with a credit card, including the right to dispute charges on your bill. Not so with convenience checks, even though they're tied to your credit card account.

6. START SHREDDING. Most convenience checks don't require signature verification, so they provide an easy way for thieves who happen upon your checks to cash them, make purchases or open a bank account. If you've gotten in the habit of simply throwing the checks away, make a point of cutting them up or shredding them first.

7. BE CAREFUL ABOUT BALANCE TRANSFERS. In addition to making purchases, you can use the checks to transfer balances from credit cards with higher interest rates. Sounds good, but before you do so, find out how long that low promotional rate will be in effect and whether any transfer fees will apply.

8. KEEP AN EYE ON YOUR OLD CARD. If you transfer a balance, you might have to continue making payments on your old card for a while. The entire transfer process can take up to six weeks.

9. YOU CAN WRITE YOURSELF A CHECK. Those balance-transfer checks don't have to be made out to other credit card companies only. You also can make one out to yourself, and if you're very careful, you can make smart use of the checks for short-term borrowing.

10. KNOW HOW TO BEAT THE SYSTEM. If you receive checks with a 0 percent rate offer, here's what you can do: Make a check out to yourself, deposit it in a high-yield savings account and start collecting interest. Before the promotional period ends, withdraw the amount you need to pay off the balance and then keep the interest you made. Be sure to apply all the previous tips so you don't get zapped.

Sources: Bankrate.com (www.bankrate.com) Smart Money magazine (www.SmartMoney.com) DebtSmart.com (www.debtsmart.com)

[Last modified April 3, 2005, 00:09:18]