If you are like most credit card users, you have probably received credit card “convenience checks” in the mail from your bank. Card issuers will send out these checks, unsolicited, with the expectation that cardholders will use them to pay their rent, mortgage, utilities or any other biller that does not accept credit cards. The cost of the convenience can be high, though.
Here’s what every cardholder should understand before using credit card convenience checks:
1. Cash advance fees. The easiest way to understand these checks is to realize that they are simply cash advances that do not require cardholders to visit an ATM. Therefore, the cardholder will incur cash advance fees of 3% – 5% with most credit cards.
2. Higher APR for cash advances. Along with the cash advance fees, the balance created by convenience checks is subject to the card’s cash advance APR, which is often in the 20% – 30% range.
3. No grace period. Cardholders who pay their balances in full each month will still incur interest on the amount of any cash advances or convenience checks written. So the high interest rate begins to be accrued the day the check is cashed until the cash advance balance is paid off.
4. Minimum payment amount will not apply. The CARD Act of 2009 requires banks to apply customers’ payments to the balance with the highest interest rate first, but only the portion that is in excess of the minimum payment. So those who make only the minimum payment will continue to accrue the high cash advance interest rate on the value of the checks written.
5. Security risks. These checks do not have all of the federal protections that cardholders enjoy from their normal credit card purchases. Convenience checks can be stolen from your mailbox or trash and can used by thieves. Therefore, unused checks should always be shredded. And finally, cardholders who do not wish to receive convenience checks should contact their card issuer and ask to not have them sent.
Some alternatives to convenience checks
There are several services that cardholders can use to pay people with their credit card without resorting to convenience checks. PayPal allows payments to companies and individuals to be funded with a credit card, but it does charge a fee of just under 3%. Better yet, Amazon Payments also allows $1,000 a month to be sent to individuals without any fees. Recipients can then withdraw their payments to a linked bank account. In addition, Google Wallet recently began offering a similar service with no fees, but you must receive a payment first before you are eligible to make one. Fortunately, a qualifying payment can be as small as a penny to enable this feature.
Paper checks issued against your credit card account can come in handy in a bind, but cardholders should always be aware of the costs involved. By comparing these checks to some of the alternatives, credit card users can make the best decisions when they need to pay a person or business that does not accept credit cards.