The scenario you outline in your question is a perfect illustration of the reason consumers must be extremely careful when using promotional, low interest credit offers to finance purchases. While a 0% interest rate offer would seem to make using credit to purchase a high-price item a great option, most promotional offers come with many strings attached, and often end up costing the consumer much more than anticipated. The primary problem with such offers is that, if a purchaserÂ’s monthly payment is ever late, even by a single day, the creditor will usually increase the interest rate from the promotional rate to an extremely high default rate, which can often exceed 25% per annum. In addition, a late or missed payment may cause the creditor to apply interest at the default rate to all past months as if the default rate had been the agreed upon interest rate from the beginning of the loan; this practice of running interest on previous monthsÂ’ balances can result in huge finance charges to the consumer, and can significantly increase the loan balance and minimum payments, as happened in your case.
Because of the potential pitfalls associated with using promotional credit offers to make purchases, I generally encourage consumers to avoid such transactions; if you cannot afford to pay cash for a large-ticket item such as a new television or furniture, the you probably should not be spending the money. Rather, you should look for alternative ways to meet your familyÂ’s needs without overextending yourself with credit; for example, rather than financing furniture at the retail furniture store, you should visit the thrift store, used furniture stores, and check out what people are offering for sale or give-away in the newspaper classifieds and on websites such as Craigslist (www.Craigslist.com). Consumers are often surprised how much money they can save on high price household items, which are frequently purchased using promotional credit offers, by shopping around, buying used, and paying cash. For more ideas about how to reduce spending and save money, I encourage you to read the Bills.com budget guide, available online at http://www.bills.com/guide/.
From your question, I understand that the creditor who offered you this promotional financing has calculated interest on the account from the date the account was opened, and has added the newly incurred interest charges to your account, thus putting the balance of the account over your approved credit limit. Since you are now over your credit limit, you are being charged additional over-the-limit fees which are only making your financial difficulties worse. The only feasible option available to you in this situation will be to pay the account off, either by borrowing the money from another lender at a lower interest rate, such as an unsecured personal loan from your bank, or by borrow money from family or friends. If you have a 401(k) account or other retirement plan at your job, you could look into borrowing money against your savings; however, you should probably not withdraw money from your retirement account, as the penalties and taxes you will incur would likely do even more damage to your financial situation.
Another option to consider is transferring the balance of this debt to another credit card with a lower interest rate, preferably one with a 0% introductory rate; while I know that I said you should avoid promotional credit deals, since you have already incurred this debt, using a balance transfer could provide you with another opportunity to pay down the debt at a lower interest rate and without the fees you are currently being charged. However, you would need to make sure that you made all payments in a timely manner to avoid finding yourself in the same financial quagmire that you are currently facing. Once you have paid off this debt, I strongly encourage you to not use such promotional plans in the future, as they can be a serious pitfall for consumers. To learn more about debt and the various options available to consumers who are struggling with it, I invite you to visit the Bills.com Debt Help page at http://www.bills.com/debt-help/.
I wish you the best of luck in finding a way to resolve this debt, and hope that the information I have provided helps you Find. Learn. Save.