You may already have a deferred interest credit card without knowing it. Another possibility is that you may be choosing to opt in for special holiday deferred interest plans that you can use for your holiday shopping needs. Both have the potential to be extremely detrimental to your finances and credit health. We will look at 3 major credit cards – Amazon, Care Credit, and Walmart – and see how their deferred interest programs work. You can decide for yourself whether or not these programs can benefit you, but their history is that many if not most people are unaware of the debt traps that lie beneath the perceived generosity.
If you have an Amazon Store Card, chances are you do not know about their $149 deferred interest plan that automatically kicks in every time you make any purchase that totals more than $148.99. From their website: No interest if paid in full within 6 months on any purchase totaling $149 or more. It is not an option. Many people have learned this unfortunate reality after not seeing any significant increase in their monthly payment – until 6 months later when their monthly payment skyrockets. That is what deferred interest in defined as; delaying the interest on a purchase until the 6 month period ends, then adding up all that back interest and adding it to your total balance all at once.
The way to avoid paying the interest is to pay off the entire purchase prior to the expiration of the 6 month period. But that is something that usually does not happen for most card users.
Let’s say you have an Amazon card that has a $2000 credit limit. You have a $500 balance remaining and decide to do your Christmas shopping online, running up another $500 in purchases all in one shopping spree. Since the $500 is more than $149, your purchase will automatically kick into the deferred interest status. You will not see much of an increase in your monthly payment at first. But, all the monthly payments you make will be applied to your earliest purchases; those that you ran up before the shopping spree. If you have a monthly payment of $50 a month, you will have only paid your original purchases down by about half, and 6 months later your monthly payment will jump significantly. You will also see your available credit drop by the amount of deferred interest you have racked up during those 6 months.
Care Credit, offered by Synchrony Bank, is a useful line of credit for people who want to keep their medical expenses separate or who want to stretch out payment of more expensive dental or veterinary expenses over time. The use of Care Credit is determined by the service provider – your dentist, doctor, etc. The problem is the same as the Amazon card. Once you don’t pay back the deferred amount you will see your monthly payment skyrocket.
The reason Care Credit is mention here is because their interest rates can be as high as a soul crushing 30%. Take a $500 deferred payment for 6 months at 30% interest. Let’s say you pay $40 a month to begin with. After 6 months, the amount of the accrued interest will roughly be $75. Your monthly payment will jump to around $55 a month and your available credit will drop by about $75. Now if you change that $500 to $1000 everything doubles in size.
Walmart makes the list because they usually have these mailings that tell you how you can avoid paying interest and take advantage of all of their holiday specials. They may do it once more each year, but their deferred interest effect remains the same as Amazon and Care Credit.
Although these deferred interest accounts and programs are bad for most card users, it is possible to use them to your advantage.
- First, start shopping with a $0 balance or only a few hundred dollars on your card when using a deferred interest program like Walmart’s.
- Next, keep your total purchases below $149 on Amazon. You can spend $140 every day, Monday through Sunday, just don’t buy more than $149 worth of stuff.
- Care Credit requires careful use of their card, especially if you apply and get a gut wrenching APR. Use the card once, then pay it down to zero before using it again. That means you need to plan its use. For example, if you have to spend $5000 on dental surgery, use the card and then lock it up – or cut it up – until your balance is paid down in full.
- Finally, many deferred payment cards have interest rates that near or exceed 20%. The APR is not negotiable no matter how long you use the card. Customer service will tell you in most cases you need to reapply to get a lower APR, which means you will have to pay off your entire balance before reapplying.
There is a very small number of people who can use deferred interest cards to their advantage – most of them have credit cards with low or 0% APRs, so they are not likely to use a deferred interest card anyway. For most people, they are only way for the banks to make a ton of money at your expense, and keep you paying for as long as possible.