15 Credit Card Traps and Sharp Practices
Understanding how Credit Card companies make their money will help prepare you to spot all the credit card traps, deceptions and tricks they employ to pursuade you to own their credit card and to bury yourself in debt with them. On first observation, it often seems that credit cards are a wonderful financial tool. Hey you can just use it to buy stuff and pay it off each month with nothing to pay, all the convenience and no cost. Wrong! The credit card industry
have invested heavily in developing techniques to make it very difficult to use a credit card without paying for it. They have got very good at making credit card holders pay for the priveledge through the nose. This section will help you get smart and better able to spot the traps
before you walk into it!
Short Grace Periods
Grace periods have been shortening. You could obtain 30-25 day grace periods a few years ago, now you will be lucky to get more than 22-25 days. By shortening the grace period, they make it more difficult to pay off the card without incurring some interest charges. The days of being able to simply pay off your card on a monthly basis and not pay any fees appear gone.
Cash Advances Expensive
There is almost never any grace period and the rates on cash advances are often higher than the normal rate.
Effectively erases any grace period. Even if you completly pay off the previous month, that months balance as well as the current month are used to calculate the interest. So you pay interest on it again.
Terms can change within 15 days
Credit Card Companies can change their interest rates with as little as 15 days notice even if you are on a "fixed" rate.
Penalty Interest Rates
Pay late and not only do you pay a fat fee, often $30 or more but you can find yourself penalised by being but on "penalty" interest rates 20-30% in some cases.
More Penalty Fees
Pay late, slip over your limit, use it outside its terms... wham! a hefty fee and it can get worse. If you have several cards they may switch you over to punitive rates also.
Low minimum payments
Credit card companies have been reducing their minimum payment recent in a synical move to make their offers sound more appealing. In the full knowledge that doing so will push many card users further into debt and boost their profits.
"Why not skip a payment this month, no problem" is how the offer goes. What the unwary don't know is that the amount they would have paid simply gets added to what they owe, including the interest. The following month you get a very nasty surprise.
The Balance transfer trap
Balance transfers often seem very attractive, but unless you do nothing but paydown the balance, you fall into a costly trap. Any purchases you make on the card are typically at a higher rate than the transferred balance. The trap is that the new purchase balance is effectively trapped at a high rate of interest. Repayments are directed at the transferred balance, leaving your new purchase balance fully exposed to the high rate. You cannot pay the high rate balance down until you have completely cleared the original transferred balance.
This is not a problem if both the transfer balance and new purchase rates are at the same low rate.
Expensive Credit Card cheques
Unscrupulous Credit Card issuers send out sheets of credit card cheques to help make ends meet, especially over holiday seasons. Read the fine print, these offers are desigend to increase your debt and often at horrendous interest rates and handling charges to boot.
Fifty-seven percent of card offers advertised a low introductory APR. The average introductory APR was 4.13% and lasted an average of 6.8 months. But credit card companies use low, short-term introductory APRs to mask regular APRs that are an average of 264% higher. These sharp rate increases are not prominently disclosed.
"Bait and Switch" Credit Card Offers
Direct mail credit card offers generally advertise the premium card the bank has to offer, yet the fine print includes the caveat that the company can substitute a lower-grade, non-premium card if the applicant does not qualify for the premium card. The lower-grade card costs more and offers less attractive terms, facts which are rarely mentioned in the official disclosures of the offer.
This new, anti-consumer practice is catching on quickly with credit card companies. In an offer, the company quotes a meaninglessly-wide range of possible APRs: Providian's Aria card, for example, quotes a range of 7.99% to 20.24%. The company then assigns an APR to each applicant once the card is issued, based on the applicant's credit history. Consumers are thus being denied the right to know the terms of a credit card before they accept an offer.
No Annual Fee
Check the contract for the contract that says "no annual fees" FOR THE FIRST YEAR or for first two years or that a membership fee is required.