In the past, whenever the Federal Reserve lowered its key rate, credit card companies followed up by lowering credit card interest rates. However, such has not been the case during the recent Fed easing that began last summer. Yesterday, the Fed lowered rates by 3/4%. In the coming weeks, we will find out if credit card companies will be sharing the wealth with consumers. Smart Credit Choices will actively post updates as soon as they become available.
There are a number of ways to pay taxes with a credit card. However, there are two expensive consequences of doing this. Here, we will explore the hidden fees attached to paying taxes with a credit card. At the end of this article, there will be a list of 0% APR cash advance credit cards that can help you save hundreds of dollars if you choose to pay your taxes with a credit card.
THE PROBLEM: The most straightforward hidden fee you will incur by paying your taxes by credit card is a 3% cash advance fee. This fee, which has no dollar limit, will cost you $30 for every $1000 you pay in taxes. Unfortunately, there is no way around this fee. All credit cards charge a 3% cash advance fee. It is, however, important to keep this in mind.
Now, the complicated part. As someone who has spent way too much of his life reading credit card fine print, I consider myself privvy to all of the nasty tricks credit card companies play. And the trick I am about to explain is by far the worst. Here’s the basic deal: all payments you make to your credit card apply to the balance with the lowest interest rate. So let’s say you have a $3000 balance on your credit card from purchases being charged a 12% interest rate and you take a $3000 cash advance. A typical cash advance interest rate is between 22% to 27%. Therefore, if you send in $3000 to pay your bill, you will pay off the low rate balance and be stuck paying 20% interest on the cash advance you took to pay your taxes.
The Solution: While the number of these offers is limited, there are a handful of credit cards that offer a 0% interest rate on cash advances. This rate lasts for up to 1 year. With a 0% APR cash advance credit card, you can easily save over $600 on interest, plus prevent the headache that comes from using your previous credit card.
Here are credit cards that currently offer 0% Cash Advances:
If you’ve already used a credit card for a cash advance and are paying astronomical cash advance interest rates, you may want to consider a credit card that offers 0% APR balance transfers. With one of these credit cards, you can also save hundreds of dollars on interest. You can compare all balance transfer credit cards in the balance transfers section of Smart Credit Choices. Also, below is a list of the top three offers:
Getting a 0% APR for 1 year on both purchases and balance transfers is not as easy as it used to be. In January of 2007, just about every credit card company issued at least one credit card with a 0% APR that applied to both types of transactions. As of march 14th of this year, the number has dwindled dramatically. Currently, both Chase and CitiBank issue credit cards that offer 0% interest on purchases and balance transfers. The remaining issuers either offer a 0% APR on either purchases or balance transfers, or 0% rates that are less than one year.
Bank of America also issues a number of credit cards that offer a 0% APR on balance transfers and cash advances. However, they do not offer a card with a 0% APR for 1 year on purchases and balance transfers.
Discover offers a tiered structure of 0% for 1 year on balance transfers and 0% for 6 months on purchases.
American Express still offers one card with a 0% APR on purchases for 15 months, but no cards with 0% deals on purchases and balance transfers.
Lastly, Capital One just removed the 0% rate on purchases on a number of their “No hassle” credit cards.
Overall, the movement away from offering consumers a 0% APR on purchases and balance transfers is a disturbing trend. Hopefully, the credit card companies won’t strip us of all the good offers.
When the Fed meets next week, a 3/4% drop in rates is expected. The question is, will credit card companies share this with consumers? A number of credit card companies, including Capital One, have recently changed the way interest rates are calculated so that the rates they offer are not based on the Prime Rate. In essence, this move will keep certain interest rates at current levels, even though money will be cheaper for banks. Other banks, such as Chase and Citi, reduce the rates they charge consumers when the Federal Reserve drops its key rate, which translates into lower interest rates for consumers.
Smart Credit Choices will keep you posted on any updates.
Over the past two years, the quality of balance transfer deals on the market has declined significantly. For example, there used to be a number of credit cards that offered no fee balance transfers along with a 0% APR for a year. Today, very few of these offers exist. Recently, a number of credit card companies have even removed balance transfer fee limit, rasing the cost of some balance transfers dramatically.
How Balance Transfer Fees Are Typically Calculated
The majority of credit cards charge a balance transfer fee of 3% with a maximum fee of $75 per transaction. Every credit card you transfer a balance from counts as a transaction.
How Much Would a Card with No Balance Transfer Fee Limits Increase Costs
The short answer is quite dramatically.
At present we are aware of two cards with no limit on balance transfer fees. They are the Citi Platinum Select and Citi Diamond cards.
Avoiding Balance Transfer Fees Altogether
As balance transfer fees increased, the number of credit cards offering no fee balance transfers decreased. Dramatically! There were more than 10 of these offers available last March. Today, there are two credit cards that offer a 0% APR on no fee balance transfers. (Since this list frequently changes, please refer to the balance transfer deals section of Smart Credit Choices to learn about these offers)
The amount of money you can save with these credit cards is substantial. For example, a $7000 balance transfer would normally cost $75 to $150. As you can see, with a no transaction fee balance transfer you save quite nicely.
