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A credit card company has sent me an offer of a balance transfer with 0% interest until November 2017.

Their Q&A section has this question:

Q: If I take advantage of this offer, will it affect future interest charges on my new purchases?

The question is answered as follows:

A: Prior to taking advantage of this offer, if you did not have a balance or if you paid your balance in full each month, you did not pay interest on your new purchases. This is referred to as an interest-free period (also called a grace period). If you take this offer and do not pay off your entire balance each month (including the promotional balances that you add by using this offer), you will lose that interest-free period. This means that you will begin paying interest on all new purchases, even if you pay your purchase balance in full each month.

Reading the answer it looks like utilizing this balance transfer offer changes how I will pay interest on this card.

For example, let's say that I have a max credit line of $5000 and a balance of $0 (i.e. the entire credit line is available for use). I then proceed to utilize one of the balance transfer checks that this company sent me and pay off a debt at an other credit card company.

After this point I make a purchase of $100 on this card and I pay off this purchase 15 days later (inside the same cycle). It looks like (judging from their answer) I would end up paying interest on the $100 purchase even if I paid it fully within the same cycle.

Is this a correct interpretation of their answer to the question, or am I misunderstanding it?

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You are misunderstanding the answer.

Suppose that you are in the habit of paying off the total balance due shown as due on your most recent monthly statement in timely fashion (meaning on or before the due date). You use the 0% rate balance transfer offer with 0% fee to pay off $500 on another credit card, and also make a $100 purchase in the current month. When the monthly statement for the current month is issued, it will (typically) show a Balance due of $600, interest charges of $0, and a Minimum Required Payment of $6 (1% of the total balance due). Some card companies insist that the minimum payment must be at least $10, or $15, etc, but let's ignore that bit of trivia. At this point, you have 25 days (typically) to pay off the entire $600, in which case you will not be paying any interest on that $100 purchase. If you choose to pay less than $600 (but at least $6$) by the due date, then several bad things will happen.

  • Your account will change status from "Last monthly balance paid in full" to "Last monthly balance not paid in full" and you will be charged interest on all new purchases from the day of purchase. Also, you will be charged interest on the average daily balance of the current month, and this interest charge will appear on the next monthly statement.

  • Assuming you paid at least $6 in timely fashion, $6 of your payment will typically applied to the 0% interest rate amount (yes, this is not prohibited by the CARD Act of 2009). It is only the excess above that $6 that must, by law (CARD Act again!), be applied to the highest interest part of the balance. Thus, if you paid $100, it will not suffice to clear that $100 purchase, and you will owe interest next month on that remaining $6.

As the answer that you are reading tells you, there is no way of avoiding interest being charged on purchases except by paying off the total monthly balance shown as due on the next monthly statement. If you really want to make full use of that 0% balance transfer offer, don't make any purchases whatsoever on the card in all the months for which the offer applies (including the month in which you first use the offer). Then, you can pay off the balance transfer amount in small chunks of Minimum Required Payment each month. Yes, your account will have the status of "Last month's statement balance not paid in full" but since the balance is being charged 0% interest, you don't really care. But be sure to have enough money put by to pay off the rest of that 0% balance by the time that the offer expires (usually 6, 12, or 18 months) or else you will be whacked with huge interest payments.

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