Citibank's dirty tricks with their 0% interest offer
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Let me first tell you about the history with Citibank's 0% interest offer.
In October 2004 a friend asked me to apply for a Citibank Platinum Credit Card because she would earn a $100 referral bonus if I got approved. My friend asked more than a dozen of people, of which a few applied, two got approved and she got the $100 for one of these two (for me, to be specific). She and I had to call in several times until they finally acknowledged that I was indeed a referral.
With this card came a 0% interest for one year on balance transfers and on new purchases. I did not really need another credit card at all (had too many already), and I am the type that completely pays the balance every month, thus never paid any interest to a credit card company. However, I also have a few mortgages and a home equity line of credit (HELOC) with rates between 5 and (now) 6.5%. So I decided to pay down my HELOC as aggressively as I could and to make only minimum payments on the credit card. I would do this for 9 months and then use the next 3 months to pay off the card completely so that after the 0% period is over after 12 months, I won't pay any interest to the credit card company. The credit card interest would be higher than the HELOC rate (6.5% now) and is tax deductible on top of that, making it effectively something like 5.5%.
After 9 months I had racked up a balance over $10,000 on my Citicard and paid down my HELOC by $30,000. Not bad. Now I had 3 months left to pay off that 10k balance (which I managed somehow without borrowing from the HELOC again).
All in all I probably saved 6% on an average balance of $6000 = $300 in those 9 months. Not the world but $300 saved is $300 earned.
I was now ready to close this card and called in. They tried to keep me as a customer and offered me another 12 months of no interest on balance transfers. Hmmm.. I liked that!
What about new purchases, I asked? In the first 12 months I had enjoyed 0% both on transfers and on purchases. No, they could not offer that. But they could extend the 12 months to 15 months if I spent at least $300 on that card in the first 3 months. What a dirty trick!!! But I saw through their scheme right away and so my next question was whether any payment will be credited towards the highest interest part of the balance. They said now, any payment is always credited against the lowest balance first.
So let's look at what would happen if I was so stupid to follow their offer:
I make a $10,000 balance transfer to pay my HELOC. No interest for 12 months.
I buy gasoline, flowers, dinners for $300 to extend it to 15 months.
Now I make the minimum payment on the balance of $10,300.. Let's say I pay $400.
That $400 payment will be credited against the $10,000 – because that's the low-interest part of the balance.
Next month I will owe $9,600 on the balance transfer and still $300 on purchases plus I will pay something like 7% (not tax deductible) interest on the purchases. I will always pay interest every month because any payment is credited against the balance transfer – only after I pay off the $10,000 I can start paying off the pitiful $300 balance.
I asked Citibank's account service lady if there is a possibility to credit the payment against the high-interest purchase part of the total balance and she said NO.
The limit on this card is $15,000. In the same phone conversation I ordered a $15,000 balance transfer to pay down the HELOC. I also cut up the card to make sure that I will never use it for any purchases.
It is a dirty trick to offer 3 more months of no interest to lure people in and practically taking away the whole benefit of the 0% interest offer. When you get a 0% offer, make sure to read the fine print. Is it 0% on purchases and on balance transfers?
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