Should you pay off one credit account, and then use credit as a down payment on a home? A reader had this question:

Maybe you can help. I have a question/problem. I have a Chase card, maxed out, sadly, to $20k. I get these promo checks from time to time. With my interest rate, I’m paying about $260/mo in interest. I always, always make my payments on time, but I’m just barely staying afloat.

However, I have enough money in a newly liquidated account to pay off the entire balance. That money is to be used as a down payment on a house, sometime in the next several months. My “idea” is to pay off my balance, and then a day or two later, use one of the promo checks (namely the 5% APR unitl Feb 2011), to give me back that money to use for my house down payment. Thereby saving me about $200/mo in interest payments. That could help me lower my balance if the money is going towards my principle and not interest.

My worry is that, in the fine print they say that they reserve the right to decline: “Under certain circumstances (for example, if your account is past due or over limit, or if we reasonable believe that you will be unable or unwilling to repay the balance or as described in your Cardmember Agreement), we may decline to process your transaction, in which case, you will be notified.

Basically, if they decide to cut my limit, or not allow this check, or whatever, I would have my balance paid off, but I’d be unable to buy the house I’m trying to buy.

Any thoughts? Does your inside guy have any thoughts about this? I know it’s a bit un-orthodox. Thanks.

If you are serious about purchasing a home, I would avoid paying of the account and then using the promo checks. It’s a good idea, but with the current economic conditions, Chase could very well decide not to honor their previous offers.

Every day we get comments from folks whose credit limits have been drastically reduced for no reason. The credit industry is in a bit of a panic right now, because many banks are overextended. So, they are cutting credit limits, increasing interest rates, and going back on their previous offers of credit. Many times this is happening to good customers too – the ones who don’t ever make late payments and such.

So, proceed with caution there.

My advice is to call CHASE. They are known to be difficult to negotiate with – I’ll warn you of that in advance. But call them just the same. Tell them you are planning to balance transfer your debt if they do not lower your interest rate.

Do not threaten to close the account – It’s won’t do any good. Speak with a manager and threaten to balance transfer. Ask specifically to be transferred to someone in the retention department. (Those are the people that will have the most power to negotiate your interest rate.)

You should also ask them to waive any of their fees that might be on the card – membership fees, late fees, or over limit fees. I know from personal experience that they will remove at least one such fee as a “courtesy” but if you are willing to pressure them (politely) you can probably get everything removed.

So, to sum up, you probably shouldn’t use the checks. Just call and haggle with CHASE to see if you can get your rates reduced. It’s too big a risk right now that CHASE wouldn’t honor the promo checks.

Thanks for your question!

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This entry was posted on Wednesday, April 8th, 2009 at 07:47 and is filed under Debt Reduction FAQ. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.