Avoid Credit Card Traps

Laura Rowley from Yahoo Finance wrote a great article titled Five Credit Card Traps to Avoid. Here are some quotes from the article along how we need to interpret them.

…more than 9 in 10 Americans don’t know how long it would take to pay off their credit card bill if they made only the minimum payments.

I am actually one of these people and I bet most of us are on the same boat. The actual answer is 7 to 8 years which is very long. The total amount of payment after 8 years is even more frightening.

There is a need for everyone to understand that the minimum balance due does not mean “the only charge I need to worry about”. Everyone needs to practice responsible spending when they have access to a credit card. If we cannot pay it in full each month, we probably should not use it.

…credit card disclosures were “written at a level too difficult for the average consumer to understand. …

This is probably well understood, so many of us do not bother with the disclosure when we apply for the credit card. At the very least, we should attempt to read this at least once and jog down key information like interest rates.

The following are the five credit card traps people most easily fall into when they don’t read the fine print.

your card company can jack up your interest rate and change the fees whenever it wants to, for any reason.

This means that if we owe money, credit card companies can start charging us unlimited amounts of money because it can raise rates at any time. This reinforces the fact that we need to avoid credit card debt at all costs.

…94 percent of cards charged over-limit fees of $20 to $39 — and they can be assessed monthly until the balance falls below the limit.

Never go above your credit limit, and stay responsible. It’s really as simple as that.

If you typically pay on time and get hit with a late fee, ask the company to remove it.

As the saying goes, it never hurts to ask. If we do not ask, the late payment fee won’t be waived automatically.

…method of calculating credit card interest up until the day full payment is received. It’s based on two billing cycles, instead of determining interest only on the immediate billing cycle.

I never knew this, but it seems like many banks employ this practice. For example, let’s say we borrowed $5000 before the first bill and paid $4000 when the bill arrived. On your next bill, the interest calculated will be based on $5000 instead of $1000…

Imagine you have a credit card with a 3.9 percent interest rate, which you pay on time and in full. Then you pay another credit card bill late. It’s not unusual to see the card with the 3.9 percent rate skyrocket to 28.9 percent

This is not fair since they won’t automatically lower my rates if I pay every credit card in full each month. We have to think like a selfish credit card company in order to look out for ourselves. The important thing here is to check our credit cards regularly and make sure we are on top of our finances.

Just remember, avoid credit card debt at all cost.

source Avoid Credit Card Traps