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The High Cost of Credit Card Convenience Checks

by Barbara Marquand

Those so-called convenience checks your credit card companies send you are enticingly easy to use. You just fill them out as you would regular checks, sign them, and Voila! The recipients are paid by your credit card companies when the checks are cashed.

But that user friendliness comes at an awfully inconvenient price. Here's why you should put away your pen and shred the checks instead:

1. Credit Card Checks: High Interest Rates

Think using convenience checks is just like swiping your credit cards? Think again. Those checks count as cash advances, which means you pay a higher interest rate on the amount than you would for a regular credit card purchase. Typically, credit cards charge a higher rate of interest on cash advances than on purchases--sometimes double the amount and often more than 20 percent. Ouch!

Fortunately, under new credit card regulations, issuers must apply any amount you pay over the minimum due each month to the highest interest rate balance first. Before the Credit CARD Act went into effect, issuers generally applied payments to the lowest interest balances first to maximize their profits.

2. Credit Card Grace Period? Forget It

Regular purchases you make with your credit card come with a grace period, so you pay no finance charges when you pay your bill on time in full every month. But there is no grace period for cash advances or convenience checks, so interest starts accruing immediately.

3. Fees for Writing Credit Card Checks

Besides the high interest rates, credit card checks often come with upfront fees for using them, typically 3 to 4 percent of the amount you borrow against your credit limit.

4. Credit Card Checks: A Thief's Payday

Make sure you shred credit card checks before tossing them in the trash. Otherwise, thieves can snatch them and write big checks to themselves. The purchases you make with convenience checks also don't carry the full federal protections against fraud that you have when you use your credit card.

Despite all this, if you're determined to use a convenience check, call your credit card company to check your credit limit and make sure your check doesn't exceed the amount. Bloomberg recently reported instances of customers writing convenience checks, only to learn later when the checks bounced that their credit card companies had lowered their credit limits. So much for convenience!

Published 06/13/11


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