What Are Credit Card Convenience Checks and How Do They Work?

[Greg Bernhardt]

Within the past couple of months I've signed up and received two new credit cards. After a few weeks the companies sent me 5-6 blank checks that I can apparently use? Anyone know what this is about? This is the first time a credit card company has sent me some checks to use. How are they different than checking account checks? Why only 5-6? I kinda just want to throw them away.

 

[enigma]

They want you to use them to pay off other debts.

Shredder -> Circular File -> Go online and turn off the "send me useless crap that can contribute to identity theft" option

 

[diazona]

My understanding is that, whereas a normal check causes money to be removed from your checking account when it is deposited, these checks produce a charge against your credit card when they are deposited instead. You can use them in any transaction that would accept a normal check, but the transaction will wind up getting paid for through your credit card instead of directly from your checking account.

I've gotten a few of these but never used them. Then again, it's very rare for me to make any transaction that requires an actual check; if you're a frequent check user, you might find some use for them. (This is aside from any concerns about identity theft)

 

[Evo]

Within the past couple of months I've signed up and received two new credit cards. After a few weeks the companies sent me 5-6 blank checks that I can apparently use? Anyone know what this is about? This is the first time a credit card company has sent me some checks to use. How are they different than checking account checks? Why only 5-6? I kinda just want to throw them away.

You can use them for things you can't use a credit card for, which isn't too much now days. Back in the old days, you could pay your mortgage, buy a car, etc...

But Enigma is right, most people use them to pay off credit cards. Now if the apr on the account with the checks is much lower than other accounts, it would make sense to consolidate your debt under the cheaper account, but be careful, sometimes these checks have a higher rate.

 

[ArcanaNoir]

but be careful, sometimes these checks have a higher rate.

Be careful! This checks can have EXORBITANT rates! Usually much higher than the regular rate on your credit card, they usually have their own special rate, that is very high.

 

[Greg Bernhardt]

Be careful! This checks can have EXORBITANT rates! Usually much higher than the regular rate on your credit card, they usually have their own special rate, that is very high.

So it's kinda like a cash advance?

 

[ArcanaNoir]

So it's kinda like a cash advance?

Exactly.

 

[Greg Bernhardt]

Exactly.

thanks, all I need to know, into the fire they go!

 

[BobG]

But Enigma is right, most people use them to pay off credit cards. Now if the apr on the account with the checks is much lower than other accounts, it would make sense to consolidate your debt under the cheaper account, but be careful, sometimes these checks have a higher rate.

Be careful! This checks can have EXORBITANT rates! Usually much higher than the regular rate on your credit card, they usually have their own special rate, that is very high.

Yes, read the fine print. You can usually do a balance transfer that will at least be at the same rate as your new card and can probably even get a very low rate for perhaps as long as the first six months or so (and then after that, they're getting paid a regular interest rate for a higher balance).

The convenience checks are often a horrible option in that it's an opportunity to sneak in different rates with a chance the customer won't go back to check the documentation they got with the card. And the only way to know is to check the agreement.

Even without the higher rate, it would still make more sense to check on a special rate for balance transfers than to use the convenience checks.

 

[dlgoff]

thanks, all I need to know, into the fire they go!

Good choice Greg. Save those interest $$ for PF.

 

[PAllen]

Just to underscore how horrible these checks usually are, typical terms are:

1) 3% charge up front, the moment you use one.
2) An interest rate accruing from moment of use (no grace period) that is at least 6% more than the credit card base rate.

 

[jtbell]

We always get some of those checks with our credit card statements, and sometimes we get them between statements, with a blurb about a special interest rate on them. We've never used them, because we don't want to pay any interest, period. We don't need them for balance transfers because we never carry balances on any of our cards. We always pay them off during the grace period after the statement date.

 

[edward]

This was a big problem before the recent change in banking regulations.

The banks gave credit cards with tempting low interest rate introductory offers. About the time the low introductory rate expired the banks sent out the checks.

The amount on the checks usually carried a lower interest rate than using your credit card.

All payments had to go towards paying the amount on the lower interest rate portion and none went on the higher rate portion until the lower rate portion was paid in full.

Even if a person made a double payment it all went to the lower interest rate portion on the account.

About the time people got close to having the lower rate payed off the banks sent out some more lower rate checks.

The big problem of course was that nothing was payed on the higher interest rate amount. Consequently the higher interest rate balance amount grew until people decided to put it all on a new card with a low introductory interest rate.

Then when the low introductory rate on the new card was about to end the new bank sent out low interest rate checks.

Sure it sounds totally ridiculous, but we just went through over 10 years of it. A lot of people refinanced their homes, paid off the card and started out fresh again. That is until the car needed new tires then they got another credit card. Rinse and repeat repeat repeat.

Now if an extra payment or extra amount is made monthly it must go to the higher rate balance.

 

[DoggerDan]

They want you to use them to pay off other debts.

Shredder -> Circular File -> Go online and turn off the "send me useless crap that can contribute to identity theft" option...

No, no, no...

What you do with them depends on the terms of your credit card with respect to using those checks. Many credit cards have clauses which jack credit transferences into higher-rate categories, but the options vary significantly.

It's best to shop around. Develop a spreadsheet for accurately comparing options. Even the most complicated financial equations are less complicated than those for Physics :).

Read the fine print, and pick the best set of solutions that will result in the lowest overall annual interest cost.

If you pay your credit card in full with room to spare, there's little reason why you need a credit card at all. It's nice for those once in a while purchases beyond your cash means to float it, but if you have the case and you're not clearing net, well above market, just pay cash. Or pay credit and pay off credit.

 

[Greg Bernhardt]

Or pay credit and pay off credit.

Yeah, the only reason I have credit cards is for airline miles! I used to pay cash for everything.

 

[PAllen]

No, no, no...

What you do with them depends on the terms of your credit card with respect to using those checks. Many credit cards have clauses which jack credit transferences into higher-rate categories, but the options vary significantly.

It's best to shop around. Develop a spreadsheet for accurately comparing options. Even the most complicated financial equations are less complicated than those for Physics :).

Read the fine print, and pick the best set of solutions that will result in the lowest overall annual interest cost.

If you pay your credit card in full with room to spare, there's little reason why you need a credit card at all. It's nice for those once in a while purchases beyond your cash means to float it, but if you have the case and you're not clearing net, well above market, just pay cash. Or pay credit and pay off credit.

Well, there is not wanting to walk around with $5,000 in cash; places that don't take checks; and credit cards have advantages in disputes over debit cards. Then, of course, there are those rewards.

I pay credit cards in full each month but could not imagine living without one due the inconvenience of having sufficient cash at all times. I always know the ballpark size of my cash reserves, so there is no risk of not being able to pay off at the end of the month.

 

[jtbell]

Well, there is not wanting to walk around with $5,000 in cash

Imagine traveling for a month or two without a credit card and having to carry around all your money with you!

Actually, I can imagine that, because I did it the first few times I went to Europe in the 1970s. Those were the days when people routinely carried their money in the form of travelers' checks (American Express, etc.) when they traveled. I think my wife and I used up our last travelers' checks (left over from previous trips) in the early 1990s. That was when it became feasible to travel in Europe using only credit cards and ATM cards.