If you own a credit card, you’ve likely received credit card convenience checks in the mail. If money is tight or you need to make a large purchase with a retailer that doesn’t accept credit cards, these convenience checks can come in handy.
But before you take the offer, it’s important to understand the following: what is a convenience check and what are the drawbacks of using one?
What is a convenience check?
Convenience checks are blank checks tied to your credit card account. Many people use them to finance large purchases, help them stay afloat when cash is short, or pay off another credit card.
Convenience checks often come with a 0% APR promotion to make them more enticing. Sometimes, however, they’re not coupled with a promotion and the interest rate can be even higher than the regular APR on the card.
Also, in most cases, you’ll be charged a fee to use convenience checks. It can be anywhere between one percent and five percent of the amount you use, depending on the card and the promotion. Sometimes, you’ll get lucky and get an offer with no fee and a 0% APR promotion.
5 things to consider before cashing convenience checks
Convenience checks can be a useful tool if you use them right, but they can also cause significant problems if you’re not careful. Here are five questions you should ask yourself before using a convenience check.
1. Do I need it?
Convenience checks give you more flexibility than your credit card does. If the check’s arrival is timely, it may be tempting to take the cash and buy something on your wishlist or pay for something you can’t with a credit card.
But just because it’s there, doesn’t mean you have to use it. Take a step back and determine whether there’s a legitimate need. Do you have the means to pay it off quickly, or could the interest rate and fee cause more financial problems than they solve?
2. What is the APR?
You can find this information either on the check itself or the paperwork that comes with it. You should also double check the regular purchase APR on the credit card to compare. If the APR is higher on the check, it’s not worth it.
But if there’s a 0% APR promotion, it may be worth holding onto in case you need it. The promotion can especially be beneficial if you’re trying to pay down high-interest debt.
Just be sure that you can pay off the balance in full – or as much as possible – before the end of the promotional period. If you pay just the minimum payment, you’ll be back where you started once the promotion ends.
3. What is the fee?
The fee for the convenience checks should also be visible in the information the bank sent to you. Even though the fee may sound like a small percentage, you’ll need to ask yourself whether borrowing money this way is worth the cost.
This question is especially relevant with convenience checks with fees in the higher range (i.e., four or five percent). If the fee is high or the APR is higher than your regular APR, and you need cash now, consider a personal loan instead.
A few months ago, I received a set of convenience checks in the mail. The bank was running a promotion with no interest for a year and no fee. It was perfect timing because I had wanted to build a new website and didn’t have the cash yet to do it.
Because I was planning on spending the money anyway, I took advantage of the offer and paid it back well before the promotional period ended.
4. Will it count as a cash advance?
With some convenience checks, writing the check out to yourself will code it as a cash advance. In this case, you may get charged a cash advance APR – which is usually higher than your regular APR – regardless of the advertised APR on the checks.
Cash advances also come with fees of their own and accrue interest immediately rather than giving you the regular grace period.
Make sure you read the fine print in the paperwork the bank sent you to ensure writing a check to yourself won’t count as a cash advance. If you can’t find anything in writing or it isn’t clear, don’t be afraid to call the bank to clarify.
5. How will this affect my credit?
Your credit card convenience checks may allow you to use up all or some of your total credit limit on the card. Be mindful of how much you’re using, especially if you already have a balance on the card.
How much you owe is the second most influential factor in your FICO score. Experts recommend keeping your credit utilization – your balance divided by your credit limit – below 30 percent at all times.
So if you have a $10,000 credit limit, try to keep your balance below $3,000. This figure includes purchases already on the card and the convenience checks you plan to use.
Now that you know what a convenience check is, you need to decide which ones to discard and which ones to keep. If you’ve received credit card convenience checks without a promotional APR offer, get rid of them. You can usually get cash at a better rate through a personal loan.
If you decide to go ahead and use convenience checks with a promotional offer, pay them off as quickly as possible. Also, don’t be late on any of your payments. Otherwise, you may lose the promotional APR.
Whatever checks you don’t use, be sure to shred them rather than just throwing them in the garbage. Not shredding them opens you up to identity theft since anyone can fill them out.
In the end, credit card convenience checks can be a tool or they can be a thorn in your side. Take the time to think through the decision. You’ll thank yourself later.
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