Your heart may jump when you open a letter and see a blank check from your credit card company, ready for you to write in an amount and cash it. But hold on here — is this a balance transfer deal, or merely a cash advance ploy?
Regardless, if you sign the check, you are about to take on more credit card debt, so think before you get out that pen. And remember this: Many experts suggest the first thing you do when you get a blank credit card check — also known as a convenience check — in the mail is put it directly in the shredder.
Why? The practice is rife for abuse. The terms and fees can widely vary, making it a confusing transaction. And those blank checks sitting around can prove tempting to someone with sticky fingers.
“Dishonest friends, family members or workers around the house have found convenience checks very convenient for getting a loan without going through the hassle of asking,” David M. Nelson, a fraud examiner in the FDIC’s Financial Crimes Section, has warned.
Is it a balance transfer check?
If you’re looking to help pay down another credit debt, these checks often offer a zero-interest user period, like typical balance transfer credit cards. But the terms may differ drastically from other 0% APR credit card deals. Some carry a transaction fee as high as 5% of the amount. Often, you may be better off just signing up for a new balance transfer card.
Is it a cash advance?
Often these blank checks are a form of cash advance on your existing account. This should raise all kinds of red flags. No. 1, you’ll be subject to a much higher interest rate than when you make purchases on your card. Then there are additional transaction fees for using the check, sometimes as high as 5% of the amount used.
If you use the check to buy something, the product won’t have the same warranty protection and other perks of using your credit card. And the clock starts on interest rates as soon as you use the cash, as opposed to the grace period you usually get if you pay your credit card off by the end of the month.
“Those blank ‘convenience checks’ from your credit card company offer a quick way to write yourself a loan, pay bills or transfer other loans to your credit card account. But be aware that the use of a convenience check is a ‘cash advance’ that comes with high costs and other potential pitfalls,” the FDIC warns.
The upside of convenience checks? Some do have agreeable balance transfer terms, if you sift through the fine print. And they are always better than payday loans — but that’s not saying much.
Unless you’re in a dire emergency, there are much better options available than cashing that blank check that came in the mail. Feeding it to the trashcan is often your best bet.
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