Bankruptcy

Convenience Checks: A Convenient Disaster

By Chris Kramer

You may have noticed something called "convenience checks" in your credit card bills or other mail from your cardholder. When you get these, be very careful about what you decide to do with them.

These checks do not work like regular credit card transactions?in fact, they can end up costing you much more than you intended to spend. So read up on why these sources of credit are a bad idea for anyone trying to stay away from debt.

The Dangers of Convenience

• High, instant interest: You?ll have to read the fine print to determine exactly what the interest rate is on a convenience check you receive, but don?t assume it?s the same as your credit card?this post indicates that they?re usually higher than 20 percent. As if that weren?t bad enough, interest begins accruing immediately on purchases made with these checks. Normal credit card purchases don?t accumulate interest until the end of the billing cycle.
• Transaction fees: Simply using these checks will cost you money. We all know that convenience comes at a price, and in the case of these checks it?s generally around five percent of the purchase made, which can be a shockingly high number if you?re paying a large bill with one.
• Decreased credit availability (and score): Receiving one of these checks does not mean you?re cleared to use it?the amount you spend will count toward your credit limit. Because credit card companies have been slashing credit amounts lately for even strong customers, you should probably check with yours if you aren't sure about your limit. Oh, and available credit is one of the factors that affects your credit score, so using too much could lower yours.
  • Limited protection: While the Fair Credit Billing Act protects you from certain purchasing mishaps that occur when you use your credit card (like buying damaged goods), it does not protect purchases made with these checks.
  • Identity theft risk: If you opt not to use these checks (which is probably the smartest financial move), make sure you shred or otherwise destroy them to eliminate the chance of a thief using one and costing you serious money (and even stealing your identity).

  Remember: these checks do not act as a cash gift or "extra money." They are high-interest loans that could throw you for a financial loop, and if you're already struggling with high credit card balances, could throw you into bankruptcy.

  Additional Resources

  Fair Credit Billing Act (PDF)

Full post as published by The Bankruptcy Blog on April 07, 2010 (boomark / email).