Catch the wave of low card rates


Your Money

October 03, 2004|By Gregory Karp

Don't let credit-card debt bum you out. Surf credit cards as if you're riding a great wave and you'll see that balance drop.

Just remember: One slip and wipeout!

Rate-surfing is an effective but risky way to eliminate credit-card debt. Surfing refers to transferring card balances from one low introductory rate to another to save on interest expense.

The key is to use the lower rates to pay less interest and more on the principal until you eliminate the debt entirely.

And then, long term, you need to stay debt-free by charging only what you can afford to pay off immediately, financial experts say.

The danger of surfing arises when you make a late payment or let the introductory period expire without surfing to another card. In both cases, the card company will raise the interest rate, likely to more than 20 percent. The same is true if you exceed the credit limit on the card.

"If you do it wrong, it can be disastrous," said Jordan E. Goodman, author of Everyone's Money Book (Dearborn Trade) and operator of Money "With these introductory rates, card companies have almost no tolerance for error."

But surfing might be worth a try.

Paying less interest can make a huge difference, especially if you have $9,200 in credit-card debt, which was the household average last year, according to

Keeping the math simple, paying 20 percent interest on the average balance for a year will cost you $1,840. Paying 2 percent with introductory rates costs $184. Spending the $1,656 difference to pay down the principal goes a long way toward becoming debt-free.

Along the way, the payoff accelerates each month as the balance declines and you pay less interest if you don't put new spending on the card.

"The danger is if you are using these low-rate offers but not making any headway on repaying the debt because you're using it as an excuse to charge up more or just treading water on your debt repayment," said Greg McBride, an analyst with financial Web site

Gregory Karp is a writer for The Morning Call of Allentown, Pa., a Tribune Publishing newspaper.

Sneaky moves to keep an eye on

If you're thinking about rate surfing with credit cards, be sure to read the fine print. Credit-card companies will use any excuse to jack up the rate and charge penalty fees because you didn't follow the rules. "It's all in the fine print of the credit-card agreement that nobody reads," said Jordan Goodman, author of Everyone's Money Book.

"It's very subtle, but they're doing things to try to trick you into paying late. And it works," Goodman said.

Here are some sneaky ways card companies can get you:

Under pressure: Grace periods, the time between the end of the billing cycle and the payment-due date, are shortening. That gives you less time to pay and a better chance the card company can ding you with a late fee of $30 or $40.

In the mail: Some card companies place due dates on weekends, when mail won't be processed until Monday, increasing the chance that your payment will be late. Others require payment by a certain time on the due date. If your deadline is noon and their mail doesn't come until 2 p.m. with your payment, you're late.

Runaround: Card issuers can provide far-away addresses, lengthening the mail- delivery time and increasing the chance the payment will be late.

Trap: Many cards will offer a low introductory rate on balance transfers but assess a much higher rate for new charges. Worse, your payments are then applied to the lower-rate debt first, making it harder to make headway on the principal.

A fix: Even so-called fixed-rate cards can change their interest rates with as little as 15 days' notice. That's more likely as the Federal Reserve continues to increase its benchmark interest rate.

By association: Your new card company could raise your interest rate just because you're late on a payment to a different creditor. Look for the "universal default" clause in the fine print.

-- Gregory Karp


How to stay above the waves

So, how do you surf successfully?

Start right away. Benchmark interest rates, which drive credit rates, are only going to rise over the near term. So your credit-card debt will only get more expensive.

Check out card offers you receive by mail, and look at offers online. Go to the Web sites of major credit-card issuers or comparison Web sites such as, or

Finding offers and applying for new cards is the easy part. Keeping track of when introductory rates expire is harder, especially if you're surfing with multiple cards.

Use a computer spreadsheet to stay organized if you're handy with those. Or at least note on your calendar the dates payments are due and when the promotional rates expire.

Try to transfer balances from several cards onto one or two with high limits, so you have less record-keeping. Having fewer cards also cuts down on the transfer fees you pay when shifting balances. They can run from $5 to $75, depending on how much you transfer.

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