What are credit card traps? They are ways thatcredit
card companies try to trick you by slipping things into the fine print of a
credit card agreement. It is perfectly legal for them, because they
have “disclosed” the fine print to you, and you signed on the dotted line.
Remember, the way credit card companies make money is by interest and other fees such as late fees and finance charges. Obviously, they want to make as much as possible. It is up to you, the consumer, to read the details.
Common Trap #1 is the Universal Default.
Explanation: You have charged $2,000 on a card and are unable to pay it back, so you switch to a card offering 0% interest for a year, with no balance transfer fees. This gives you more time to pay the money back, right?
Watch out! Many times if you are even a day late paying any of your bills (mortgage, credit card bills, or car payments for example), the credit card company can claim you as “high-risk” and raise your interest rate. This rate (usually very high) is known as the default rate.
Common Trap #2 is the Adjustable Percentage Rate (APR).
Explanation: If you receive a card that offers a balance transfer interest rate that is 0% APR, be aware that this does NOT mean that the 0% will last until you pay the money back.
APR means adjustable percentage rate. Often the 0% percent rate will be a fixed rate for a few months, then it can “adjust” drastically.
Common Trap #3 is Late Fees.
Explanation: One of the most widely known credit card traps is late fees. If you are one hour late in your monthly payment, you will pay a hefty late fee, which can range from $15-$40. Or, some credit card companies will charge you a certain percentage of the balance as a late fee.
Here’s a tip for you: If you get charged a late fee and your payment was just barely late, call the company and complain (and threaten to transfer your balance). If you have a large balance on your card, and have paid on time before, they may drop the late fee one time to keep your business.
Common Trap #4 is a membership fee.
Explanation: Credit card companies will sometimes offer you an “exclusive” card, and if you read the fine print, you may pay $100 a year for the privilege. Or, if your credit is poor, the companies will charge you a membership fee just to issue the card.
Common Trap #5 is the minimum payment.
Explanation: I would say this is the most dangerous of all credit card traps, as it really is a hindrance to your goal of living debt free. When you get your credit card statement, if possible, pay more than the minimum payment. Paying the bare minimum will ensure that you are in debt for years to come (which profits only the credit card companies)
In conclusion, if you have credit cards or are thinking of transferring an existing balance, read the fine print. Always read the fine print to avoid credit card traps. Another tip: Be sure to send your payments on time (or early) to avoid those late fees. Be an educated and informed consumer.