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Credit Card Redux

A long, long time ago (last December), I decided to change my typical habit of spending cash in favor of using a credit card for most purchases. I did this because I got a credit card offer that had a one-year 0% rate for purchases. (It also offered 0% on balance transfers, but I didn't have any balances to transfer.)

Creditors are hoping for two things when they make offers like that. One, they're trying to acquire new customers. It worked — 0% on purchases is a great deal and I was happy to oblige them. The other thing they're trying to do is encourage people to accumulate a large balance. That worked too — I don't mind carrying a balance at 0%.

At this point, the plan breaks down. The creditor's hope is that the large balance people accumulate at 0% won't be paid off when the 0% period ends. They know that most people won't be prepared to pay off the balance in full. They want people to start paying 9% or 15% or 23% or whatever ridiculous interest rate is applicable.

Last year I took out a CD for my credit limit, assuring that I would be able to pay the balance in full if that was necessary. This lets me earn a few percent on money that would otherwise have been spent. But I hoped I wouldn't have to pay off the balance.

I've been watching my mail closely as it's gotten near the expiration of my 0% period. I've regularly received solicitations for two cards offering the same deal as my current one (0% balance transfer and 0% on purchases) — the Citi Diamond Preferred Card and American Express Blue. They've sent me the same offer every month, and have been kind enough to send mail so that the new offer arrives before the old one expires. This has given me the opportunity to be patient, waiting for the terms of the offers to change.

It happened. I haven't received a replacement offer from American Express yet, and I verified that the Citi Diamond Preferred Card is no longer being offered. This month's solicitation was for a Citi Diamond Preferred Rewards Card, which is not offering 0% on purchases. I checked their website and the old card is nowhere to be found. With less than a week remaining on the previous offer, I decided it's not worth the risk to wait for American Express and I applied for the Citi card (under the old terms).

Curiously, they only allowed a balance transfer of $9,600. This wasn't a problem because my other card's balance was only about $8,800. (I requested the full $9,600 balance transfer anyway — I'm expecting to make some large purchases soon, and would also be happy getting a check back for the overpayment.) The credit card companies must have finally figured out that lots of people are taking advantage of 0% balance transfers to earn interest with CDs, and are trying to limit balance transfer amounts to the size of a typical household's credit card debt.

I'll hope I can do this again, in August. (The new card's 0% is only good through August.) But with interest rates rising, I doubt that I'll be able to take advantage of 0% on purchases again. It's hard to tell if 0% balance transfer offers will still be around, either. Happily, I'll be able to earn at least 4% on a CD until then.

Tiny Island