Our government believes (and I am with them on this one) that receiving these cheques encourages people to borrow money without realizing that there are additional fees (like upfront points to be paid) as well as interest to be paid not only on this payment but other transactions on the same credit card and other ways for us to get into financial trouble.
Special offers from credit card companies can be very useful if you know what you are doing. For example, you might be paying much less interest than any other way, including mortgage (which traditionally is considered lowest in interest). If you decide to use one of these offers, make sure to follow these rules:
1. Know well how you are going to pay back this loan. This is the first and most important rule! As tempting as low rate looks, you have to remember that is not permanent and if you don't pay it back on time, interest will increase to 18-21% (or in some cases even more). It's OK to use balance transfers to delay payment until project (like property renovation before a sale) is finished, but if you expect no income from this loan in the next 6 months, you probably shouldn't use it.
2. Do not use this credit card for anything else. Thought you will be getting a low rate on balance transfers, anything else will be charged at regular interest (18% and up) from day one. You are not paying any interest on a credit card transactions only if all outstanding balances are paid in full by due date. But as soon as you used a check (or transferred funds any other way) you acquired outstanding balance on which interest is charged. This means that any additional transactions only add to the card's balance with interest.
Also when you pay off part of the balance, payment will not be applied to the most expensive transactions. Different credit cards my have different rules, but at the end of the day they want you to keep paying interest and the higher the better.
3. Make sure that balance on your credit card is zero. For the same reason as above, you don't want to pay high interest on anything else other than balance transfer you are doing.
The smart way to fund your project is to pay for services using credit card, take advantage of interest-free period then transfer balance to another credit card that is used only to consolidate credit under low interest.
4. Check if there is upfront charge. This might not be a deal breaker, but you have to account for it. For example if there is 1% upfront charge and you need to borrow money for only 1 month, it's like paying 12% annual interest on top of interest they will charge later. However for longer terms, it might make sense
5. Check for how long the term will apply (usually 6 months max) and mark your calendar or set a reminder to pay balance off by this date. If you have multiple credit cards you might transfer balance again to another card and this will be considered paying off balance on original card.
6. Last but not least. Do not max out your credit card. Try to keep balance within 80% of maximum. This will help your credit score a lot!
Speaking of the new ban, doing transfers over the internet or phone is always a better idea than check because you control timing (when transfer will be applied) much better than through the mail. Bottom line with or without checks balance transfers can be powerful source of finance, but you always have to know what you are doing!
Now how long do you think we have to wait for these checks to stop coming? Just in a week after this ban was introduced I got two sets of them :(
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