6 Most Common Credit Card Traps
July 9, 2009 by MOYMRyan
Filed under Credit, Debt Management
To some extent, it is great news that President Obama has recently signed the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009. Among the many stipulations accommodated by this law are the prohibitions of:
1) retroactive rate increases;
2) card charges for pay-by-phone payments unless it is 60 days overdue; and
3) double-cycle billing or the imposition of card charges for previous and current balances.
Despite this new rule, however, cardholders must continue to be cautious about their credit card habits. This is because just as banks are starting to control their abusive practices, other modes of collecting hidden charges from cardholders will surely spring up that can hurt consumers just as before. Therefore, it is always wise to exercise utmost vigilance in the use of credit cards.
The following are the most common credit card pitfalls credit card users should watch out for.
1.) Cash Advance Interest Charges – As much as you can, avoid making cash advances from your credit card. The interest rate for cash advances is often several points higher than the normal purchase interest rate (the rate that is associated with everyday card purchases). Cash advance rates normally range from 20% to 25%. In contrast, the average purchase rate for a standard credit card ranges from 15.88% to 17.30%.
2.) Late Payment Charges – Late payments can charge you with as high an interest rate as 27%. Yes, more and more companies are earning more from late fee income than ever before due in part to this sharp hike in late fee (more than doubled between 1992 and 2000). Not only that, credit card companies have also decreased the time between when they mail your credit card statement and when payment is due, and about 66% of these companies have totally eliminated grace periods or don’t have one at all, between the payment’s due date and the date a late fee is assessed. In the past year, 13% of Americans have been 30 days late paying credit card bills.
3.) Higher Over Limit Charges - A typical credit card purchase ends up costing 112 percent more than if cash were used. Credit card companies are taking advantage of the American’s tendency towards out of control spending. If you exceeded your limit by as little as $1, many companies will charge you with as high as a $40 over-the-limit fee.
4.) Lower Minimum Payments – Low minimum monthly payments are considered dangerous traps as they encourage consumers to pay higher finance charges over an extended period of time. More and more companies have decreased minimum payments from 5% to the current standard of 2% or 3% to attract low-income consumers.
5.) The Many Faces of APRs – Beware of the seemingly low Annual Percentage Rates (APRs) that actually increase your debt. Currently, 57% of card offers are advertised at low introductory APRs. These APRs run on the average of 4.13% and last an average of 6.8 month. A consumer is drawn to this offer because normally a higher APR triggers a more expensive loan as you pay off credit cards in gradual installments. However, credit card companies do not clearly divulge that these short-term introductory APR’s are used to hide actual APRs that are an average of 264% higher.
There are other lures such as “Fixed” APR. However, despite the term, these APRs can increase with as little as 15 days notice to cardholders.
Hidden Transaction Fees – Interest rates from convenience checks and balance transfers are usually higher than interest rates for normal credit card purchases. Even pay-by-phone and charging on foreign countries have corresponding higher fee charges. It may be stated in the credit card notice that collecting minimum fees may guarantee the credit card companies higher fee income regardless of the transaction amount but cardholders easily miss them in long and very tiny print in the terms and conditions. Lost in the fine print as well is the stipulation that if the applicant is not qualified for a premium card, the credit card company can substitute a lower-grade, non-premium card which in fact is more expensive and has less flexible terms.
Related posts:
