The credit card offer

by David Berky

One day I got a call from my credit card company asking me if I would like to increase my credit limit by borrowing up to $9000 at their special rate of 15.9%.

The operator stated, "Your credit card rate will then be a low 15.9%. How much would you like to transfer today to take advantage of this offer? Do you have any high interest loans you would like to pay off and reduce your payments?"

The previous day I had called them to get two bogus late payment charges taken off my statement. I also had to get my interest rate lowered back to my usual rate rather than the "penalty rate" (22.9%) they charge to anyone who is late, misses a payment or goes over their credit limit.

Wondering if my rate got changed back to my usual rate, I asked the operator what my current rate was. She said that it was at 12.9%, which was my usual rate for this card.

I do carry some debt on other cards (it helps with my credit rating to be making regular payments) but all the other debt I have is at lower rates than this card. I mentioned that I had no other debt that was at a higher rate than what she was offering.

She then replied that I could just take the money as a cash advance and do whatever I wanted with it.

So I asked her if I understood correctly what she was offering. "So you are offering to raise my interest rate if I get further into debt by getting a cash advance?"

"Yes, you can have up to $9000 and do whatever you like with the extra cash," she replied. I was amused that she said that I could "have" not "borrow" the money and it would be "extra cash" rather than "additional debt". But after all, she is in sales and the words "have" and "extra cash" are much more enticing than the more realistic alternatives - "borrow" and "additional debt".

I politely told her that I was not interested in raising my interest rate or borrowing more money, "but thanks anyway."

I then wondered how many other people would jump at the opportunity to pocket a quick $10,000 at the "low" rate of 15.9%.

I was also amused that she encouraged me to pay off my high interest debt with this money. Well, to my standards 15.9% is high interest debt. Granted it's not the 24-25% charged by department stores but still it was more than I was currently being charged on any of my other cards.

Shouldn't an offer that would appeal to me be one that offered me money at a lower rate? Her offer seemed backwards. She was trying to entice me with the vision of "extra cash" in my hand to do whatever I would like.

I took a moment to do some financial math (the most important kind) on this offer and found that if I had a current balance on that credit card of $4000 at my current interest rate of 12.9%, I would be paying about $43 a month in interest charges.

If I had accepted her offer for an additional $9000 at 15.9% (and I suspect that my regular rate of 12.9% would have risen to the 15.9% rate also), I would be paying about $172 a month, exactly 4 times what I am currently paying. If I made a payment of $200 a month to pay off this debt, I would be paying for over 12 and a half years.

What I learned from this experience is that I should get into the credit card business. Maybe I'll check on some bank and financial institution stocks today. With offers like this they must be making money.

Once again, those who understand interest earn it, those who don't, pay it.

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