The dirty secret behind a balance transfer
Life is a beach and then you dive right? Well, tell you what? Loans are a bigger beach and diving is prohibited! The past 3 months or so, I have been trying really hard to get rid of my mammoth debt by cutting corners everywhere. I undertook the money experiment where I scraped about every darn place I could and ended up a 1000 dollars richer. I was ecstatic. That meant I was a 1000 dollars closer to debt-freedom. In fact, I am about 33 percent away from the day when I will have zero debt. Absolutely no debt that is. No mortgage, no credit cards, no car payments, no nothing. I have been dying to see that day every since I left home in 2000. That day is a big big deal for me. However, there have been quite a few roadblocks on the way to that goal. One such roadblock came about by my beloved credit card company Citigroup.
In my quest to consolidate everything into a single loan, last week, I made a balance transfer of 4k to my Citi account. They had a zero percent promotion until September of 09 and I had a couple outstanding balances on prime rates. So my brilliant brain thought, for a 3pc transaction fee, I could get a zero rate for 9 months. 4k in 8 months, that’s $500 a month for 8 months. Not a bad deal right? I did the transfer by paying a $120 transaction fee. Next week, I was expecting a balance of $4120 in my statement. But I see $4146 instead. They had charged me $26 in ‘finance charges’. I call them up asking them why the $26 in finance charges and this is the reply I get.
Since you had an existing balance ($2000) on the account and then you made a balance transfer of $4000, your new balance was $6000. However, you did make a payment of $2000 which we have promptly applied towards the $4000 @ 0% APR. The $26 was finance charges for the $2000 that you have had previously @ prime APR. Our policy states that any payments made to the account would be applied to low rate balances first.
If you haven’t gotten confused enough by now, I don’t blame you. This is what corporate America thrives on. A confused consumer. Essentially, what it meant was I had a total balance of $6000 out of which I had paid $2000, thinking that it was towards the statement balance of $2000. But what Citi says is that the $2000 I paid went towards my transferred balance of $4000 even though I had made the payment and the transfer on the same day. So, now my 0% balance was down to $2000 in a matter of 5 days (against my original plan of 8 months) and my prime rate balance was still stuck at $2000. What that means is until I pay off the entire loan, I will be getting charged a prime rate on the $2000. If I were to stick to my original plan of $500 a month for the next 8 months, I shall be charged about $26 a month for the next 4 months and another $65 for the remainder of the 8 month period, a total of $169. This is in addition to the $120 that I had already paid for the transaction. What a ripoff! All I can do now is either take those charges bending backwards or I will just have to pay off the entire balance next month out of my emergency fund. What a bummer dude!
Lesson learned here is, if you are planning on doing a balance transfer, make sure that you have absolutely no existing balance on the account, no pending charges of any sorts. Let the statement arrive, you make sure there are zeros all over the place and only then you go ahead with the transfer. Otherwise, they will make you pay interest on that $20 haircut you got from that Korean woman last week, for the next 3 years.
Ciao!
Oh, by the way, I did call Citi like 4 times and got my $26 back. Take that to the bank Citibank!
One way to get the proper price is getting into the shoes of the seller himself. He has to sell his goods and he has his own constraints and Achille’s heels. Find them out. Look at the demand for his goods. Look at his competitors. Most businesses run by juggling money than by investing from the pocket. No businessman wants it to be tied to something lying in the godown. Many a times he would sell it at cost price or even for a loss. One thing let us remember- businessmen want money! We could get a discount of Rs. 4 lakhs for a PABX costing 14 lakhs. The best bargain was Rs.11 lakhs for 2 operating microscopes that were originally quoted as Rs 22 lakhs. CAn you believe? I donot believe in fixed prices, especially quoted by Multi-nationals!