Credit Card Cheques - An Expensive Convenience
Below is a MRR and PLR article in category Finance -> subcategory Credit.
Credit Card Cheques: The Costly Convenience
Credit card cheques are often marketed as a handy way to access funds when cards aren't accepted, but their high costs are often overlooked.
Understanding Credit Card Cheques
When you think of credit cards, you likely picture a plastic card used for payments. However, credit cards have evolved to include borrowing by sharing account numbers over the phone, online shopping, and even cash withdrawals. Today, they're more like a general line of credit. Credit card cheques fit into this concept but come with notable expenses and controversies.
What Are Credit Card Cheques?
Credit card cheques function like traditional bank cheques. You write them to a recipient, subtracting the amount from your credit account. Issuers promote them for use where cards aren't accepted, such as paying utility bills by mail. However, using these cheques adds to your card debt, often at a higher cost than regular credit card use.
The Costs Involved
Using a credit card cheque is typically treated as a 'cash advance,' incurring a handling fee of around 2.5%. On top of that, interest rates for cheques are usually much higher than standard purchase rates. For instance, cheque and cash advance rates can exceed 20%, while regular card purchases might be closer to 10%.
Allocation of Payments
The way payments are allocated is crucial. Repayments are applied to cheaper debts first, meaning cheque debt, with its higher interest, lingers longer on your account. This can make your total debt more expensive and harder to clear, which isn't always clear on the cheques themselves.
The Debate Over Credit Card Cheques
Critics argue that the costs aren't transparently communicated, leading to calls for restrictions on unsolicited cheque distribution. Instead, customers would need to request them specifically.
Should You Use Credit Card Cheques?
While they offer convenience, credit card cheques are not a cheap credit option, especially if you carry a card balance. It's somewhat ironic that after promoting the convenience of plastic over cheques for years, card companies now promote cheques when it benefits their bottom line.
In conclusion, it's essential to weigh the convenience against the costs when considering credit card cheques. Awareness of their implications can help you make an informed decision.
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