Everyday Cheapskate

In a recent column, I cautioned my readers to not even think about using those convenience checks that show up in the mail and are issued by banks and credit card companies.

One reader responded, "I paid for some very expensive dental work with convenience checks at a 3.9 percent interest rate until the purchase is paid off. I have also used them for other emergencies, such as a well repair and a new dryer. Why are they a bad deal?"

Let me count all the reasons convenience checks are such a bad deal:

1. Convenience checks trick people who are naive and have the fundamental belief that credit card companies have their best interests in mind.

2. Convenience checks are always subject to a hefty transaction fee of 3 percent to 5 percent of the amount of the check you write, or $25 to $75 (depending on the offer), whichever is greater. Using a convenience check to "pay for expensive dental work" could make that work even more expensive. Let's say the bill is $10,000. A 5 percent fee would mean $500 is tacked onto the balance upfront.

And here's the problem: You will not see this information on those convenience checks nor on the paperwork that comes with them. You have to call the bank and ask in order to find out the terms. Does that sound right to you?

3. The federal law that protects us when we use credit cards does not apply to the convenience checks issued on that same account. That is a sneaky trick the issuing bank can pull on a customer.

4.

A convenience check starts accruing interest on the full amount immediately after the check is drawn -- even if you carry a $0 balance on your card and normally would have a 25-day interest-free grace period.

5. Most banks have a sneaky provision in the fine print that says if your card has an existing balance, any payments you make will be applied to the lower balance first, at your current interest rate, before they are applied to the convenience check balance. That means the convenience check balance will continue to accrue unpaid interest as long as you use the card to make purchases.

The Motley Fool's Marko Djuranovic (www.Fool.com) calculated how much a convenience check purchase of $10,000 would cost over the long term. After accounting for all the hidden fees, accumulated interest, and minimum payments due, if he could not repay the entire $10,000 within the first two years, it would cost him 38 percent of the total amount borrowed.

Quite a few readers have said they have been successful in demanding that their banks or credit card issuers stop sending convenience checks. Call today and make the same demand of your credit card issuer. In the meantime, should convenience checks show up in your mailbox, shred them immediately. The last thing you want is for a thief to find them in your trash.

Mary Hunt is the founder of www.DebtProofLiving.com and author of 17 books, including "Debt-Proof Living." You can e-mail her at mary@everydaycheapskate.com, or write to Everyday Cheapskate, P.O. Box 2135, Paramount, CA 90723. To find out more about Mary Hunt and read her past columns, please visit the Creators Syndicate Web page at www.creators.com.
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