Does your credit card issuer send you the blank “convenience checks” along with your statement? If so, do you use them or just throw them away?
Well, you are probably better off just ripping them up and putting them in the trash.
1) Hidden Costs. If you deposit a convenience check into your credit card into your checking account, but have exceeded the cash advance limit then you could be charged an overdraft fee. In addition, if you use this type of check to pay a bill – then discover the retailer doesn’t accept them, you could be subject to a returned check fee.
2) Less Protection. The Fair Credit Billing Act guarantees credit card purchasers some protections. For example the FCBA allows refunds for defective merchandise and the chance to dispute bogus charges on your account. However, when you use a convenience check, you don’t have any of this. If something goes wrong you’re out of luck.
3) No bonus points. A lot of people get credit cards to harvest the reward points. However, if you use the (in)convenience checks, you don’t get any reward points. No miles, no cash back, no free gasoline, no COSTCO membership. Nothing.
4) Fees and High Interest Rates. Typically the card companies charge you far more than what you’d pay your non-convenience check balance. The exact amount varies, but its often twice as much as a regular balance. For example if your regular card charges you 11%, then the interest rate on the check could be 22% or higher.
In addition, you’ll likely get stuck with a 2 to 5% fee on the check you write. So, if you write a convenience check for $300, you could get stiffed with a fee of 6 to 15 bucks.
5) Repayment restrictions. Check this out. Some card issuers mandate that you can only pay back your convenience check after you have discharged the balance on your card first. Okay, so for example if you are carrying a balance of $5,000 on your card, you’ve got to dump that before dealing with the convenience check funds. This of course is a problem because you’ll likely rack up a lot of interest by the time the card balance is paid off. Naturally, this is buried in the fine print.
Finally, Congress’s recent enactment of the Credit Cardholders’ Bill of Rights Act of 2009 (Credit CARD Act) means that many card companies are increasing interest rates and imposing new fees before the law limits their ability to do so. In this type of environment look for convenience check fees to be even higher and repayment restrictions even tougher.
Best,
James
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