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'Convenience checks' come with gotchas

Those checks from your credit card issuer may come with some conditions you're not aware of. Here's what to consider before you sign.

By MSN Money Partner Jun 7, 2013 2:17PM
This post comes from Jason Steele at partner site logoIf you are like most credit card users, you have probably received credit card "convenience checks" in the mail from your bank. Card issuers will send out these checks, unsolicited, with the expectation that cardholders will use them to pay their rent, mortgage, utilities or any other biller that does not accept credit cards.

Senior man writing check © Dennis Wise, Photodisc, Getty ImagesThe cost of the convenience can be high, though.

Here’s what every cardholder should understand before using credit card convenience checks:

1. Cash advance fees. The easiest way to understand these checks is to realize that they are simply cash advances that do not require cardholders to visit an ATM. Therefore, the cardholder will incur cash advance fees of 3%  to 5% with most credit cards.

2. Higher APR for cash advances. Along with the cash advance fees, the balance created by convenience checks is subject to the card’s cash advance APR, which is often in the 20% to 30% range.

3. No grace period. Cardholders who pay their balances in full each month will still incur interest on the amount of any cash advances or convenience checks written. So the high interest rate begins to be accrued the day the check is cashed until the cash advance balance is paid off.

4. Minimum payment amount will not apply. The CARD Act of 2009 requires banks to apply customers’ payments to the balance with the highest interest rate first, but only the portion that is in excess of the minimum payment. So those who make only the minimum payment will continue to accrue the high cash advance interest rate on the value of the checks written.

5. Security risks. These checks do not have all of the federal protections that cardholders enjoy from their normal credit card purchases. Convenience checks can be stolen from your mailbox or trash and can used by thieves. Therefore, unused checks should always be shredded. And finally, cardholders who do not wish to receive convenience checks should contact their card issuer and ask to not have them sent.

Some alternatives to convenience checks

There are several services that cardholders can use to pay people with their credit card without resorting to convenience checks.

PayPal allows payments to companies and individuals to be funded with a credit card, but it does charge a fee of just under 3%.

Better yet, Amazon Payments also allows $1,000 a month to be sent to individuals without any fees. Recipients can then withdraw their payments to a linked bank account.

In addition, Google Wallet recently began offering a similar service with no fees, but you must receive a payment first before you are eligible to make one. Fortunately, a qualifying payment can be as small as a penny to enable this feature.

Paper checks issued against your credit card account can come in handy in a bind, but cardholders should always be aware of the costs involved.

By comparing these checks to some of the alternatives, credit card users can make the best decisions when they need to pay a person or business that does not accept credit cards.

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Jun 9, 2013 11:30AM

The information provided was nearly worthless. "Convenience" checks can be used very advantageously by the consumer and it only requires extreme vigilance and some knowledge- which the writer failed to provide.

(1) Do not ever use the checks for a "cash advance", or to transfer balances from your  "higher APR credit cards" as  they suggest you do.

(2) Don't use the pre-filled checks- that's one way the issuer makes money on you; by charging a transfer fee for EACH check you use. So use only one (blank) check, deposit it in your checking account, and pay off the "higher" balance cards yourself.

(3) Be very, very sure of the terms of your credit agreement. If you have used your credit card in the past 2 billing cycles, it does not matter that you have paid the balances in full at the time you use the convenience checks because credit cards usually figure APR by computing "average daily balances" carried over 2 billing cycles. You could end up with a 0% balance transfer, and still have to pay interest on previous balances you paid off months ago. Nice trick eh?

(4) Always compute the actual cost of your fabulous, stupendous, can't pass this up etc. offers. 

A 0 % check with a 3% transfer fee on a $10,000 transaction  will cost you $300. Even with a great offer of 0 % for 24 months, it will actually cost you about 2.9 % APR to carry this supposed "interest free" obligation. So use it, but wisely. One way to use it is to buy a pre-owned car, because (depending on the model) used vehicles usually carry higher interest rates than new ones, and almost never 0%. I bought a new car once for 0 % for 5 years, but never a used one. So paying a credit card 3% for 2 years to buy a good used car may be a really good deal.

I have purchased (2) cars with 0 % balance transfer checks in the past 15 years. Of course, back then Chase was offering me "no fee" transfers, and "minimum" $5 "maximum" $35 transfer fees. I still get many offers,  but now they usually carry a 3% fee, so I just shred them .

I hope this helps someone.

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