Zero Interest Credit

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Zero Interest Credit: Too good to be true? By: Ari Page, business funding expert

The old adage is that if it sounds too good to be true, it probably is. Browsing through your mail, you’ve likely come across no interest credit solicitations from various institutions and wondered how they can do that. In the case of zero interest credit, the adage actually doesn’t apply.

To understand how they can do it, you must consider how banks operate. Modern banks operate through the use of short term financing and interbank loans, which are used for lending and, in turn, profitmaking. In other words, if a bank isn’t lending money, it isn’t making money. Since the great recession hit, interest rates have remained at historic lows and banks have been able to borrow at near zero percent from the Federal Reserve. Banks will then lend funds out through a variety of products, with a variety of terms. Again, with rates at historic lows, banks are able offer better rates to their customers.

But still, borrowing at zero and lending at zero doesn’t make sense, right? If you think about other ways that banks make money, it makes complete sense. Consider what banks do with credit card receivables.

Since 1987, banks have pooled credit cards securities into an asset backed security, which is then sold to investors. With over $200 billion in securities issued, companies, such as Citi, fund upwards of 50% of their credit card loans through asset backed securities using credit card receivables as their asset. Much like their mortgage and auto loan backed securities brethren, they’re sold based upon the creditworthiness of the pool. The ratings range from AAA to D, with AAA being deemed the least risky.

In other words, business owners, and other highly creditworthy borrowers, are pooled together into AAA rated securities, which offer the least risk to the investor and pay a lower rate of interest. Marginal borrowers, or those considered subprime, would be a higher risk and a lower rating, which requires a higher interest payment. The bank subsequently uses the investor’s capital to fund more credit card loans, while the investor earns interest on their investment.

In recent years, banks have tried to make fees part of their “bread and butter.” Not only do they do this to pad profits, but also to make up the difference for lost interest. Want to transfer money from a higher rate card to an interest free card? There’s a balance transfer fee for that. Unlike revolving cards or credit lines with an interest rate, the balance transfer fees may be uncapped to make up for lost interest income. Moreover, some cards also have an annual fee, which is simply you paying for the privilege of having the card or line of credit. Annual fees are most common on rewards cards which, generally speaking, do not offer interest free terms.

Working with a company of such a high caliber as Fund & Grow, which specializes in helping small business owners obtain no interest business credit, can help you sort through the morass of balance transfer fees and annual fees to ensure that your APR is as close to zero as possible.

Although the zero percent interest term may be capped, CCB Corporate Officer, Ari Page, mentioned in a recent radio talk show interview that “If you’re a professional and you know what you’re doing, that’s just not the case. Banks hope you’re not savvy enough to realize that if you know who to talk to and what to say, you can keep rolling over zero interest introductory offers for the foreseeable future” using what he calls “exit strategies.” According to Mr. Page, business owners are the “crème de la crème” in

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Zero-based thinking applies to investments of time, money, and emotion. According to several studies, the decisions you make regarding your business, investments, and much of your personal life will turn out to be wrong about 70% of the time. This means that over time, you will find that you have made choices and decisions that did not result in the outcomes that you have expected when you made those choices and decisions in the first place.

How could this be? It’s because the answers have changed. When you made the decision, you did so based on the information that you had at the time. You made the best choice you could have made at the time, all things considered; however, the answers have changed and because of this, your choice may now look much different.

So what is the leading indicator of a zero-based thinking situation? It is your level of STRESS.

Yes, that is correct: Stress! If knowing what you know now you wouldn’t get into the situation again, you are in a zero-based thinking situation. Whenever you feel chronic, continuous stress, you are likely in a zero-based thinking situation. Whenever something keeps you awake, interferes with your family relationships, preoccupies you when you are driving or commonly causes you ongoing anger or unhappiness, you might want to ask yourself the question, “Knowing what I now know, would I get into this situation again?”

So now, take a look at your investments of emotions, time, and money and ask yourself, “Knowing what I now know about this investment, would I do this again if I had to do it over?” If your answer is “no” the next question that you must ask is, “ How do I get out of this _____________and how fast?”

I am not recommending that you quit your job, sell all of your stocks, or walk away from your marriage relationship. What I am suggesting is that you seriously evaluate your current situation based on the way things are today, rather than the way they were when you originally made the decision. Have the courage and honesty to face your situation squarely and deal with it as it really is and not as if you wish it would be.

You must especially practice zero-based thinking in times of chaos in your life. Imagine holding up an empty picture frame in front of a scene representing each area of your life and asking yourself whether this is an area of your life you would do differently now. If you had to do it over, what would you differently?  What would it look like?