Credit cards can be an extremely helpful personal finance tool when used correctly and with self-control. However, that doesn’t mean that you shouldn’t be wary of their use. Credit card companies make a profit when you don’t pay your balance in full and thus end up accruing interest. Due to this, many companies aren’t afraid to use tactics to entice their customers to spend as much money as possible on their card. Here are four sneaky credit cards tricks and traps to avoid so that you don’t find yourself in a mountain of debt.
1. Balance Transfer Traps
Balance transfers should be done with the utmost caution, as credit card companies are notoriously tricky in providing them. If you want to transfer a balance from one credit card to another, then make sure that you look at the APR that goes along with the balance transfer. Often, it will not be the same APR as the normal balance that you carry and in fact usually is much higher. Additionally, if you find a credit card that has a 0% introductory rate on the balance transfer, then make sure to read the fine print, as in exchange for the 0% balance transfer APR, credit issuers will often apply a high APR right away on any other charges you make on the card. Lastly, ensure that the funds being transferred are under your own name and not your spouse’s, as that way your debt-to-income ratio will stay the same, and thus you will have a better chance of being offered reasonable rates.
2. Sneaky Interest Rate Hikes
Credit card companies can increase interest rates without your prior knowledge. Although the Credit Card Act of 2009 made it illegal for issuers to increase their interest rates on your existing balances as long as you’re making timely payments, they can still raise interest rates on any future charges that you make. Additionally, if you don’t make a payment on time for two months in a row, the credit card company can increase your existing balance’s interest rate. Simply put, credit card companies are allowed to raise interest rates due to behavior or just because they want to make more profit. For example, American Express recently announced that they were increasing their interest rates simply because they were below the average of their competitors.
3. Hidden Transaction Fees
Credit cards and fees go hand in hand. The majority of companies that allow you to transfer a balance without interest come with a transaction fee that is typically between 3 and 5 percent of the amount that you transferred. This fee gets tacked on the total amount of debt that you’re transferring the moment that you do so. The good news is that credit card companies cannot use a sneaky trap that used to be widespread before stricter credit card laws came into play, in which they would tack on the fees on the highest interest rate balance on your account.
4. Making a Payment Even a Day Late
Although turning a payment in 24 hours late should not be met with a $30-50 late fee and the interest doubling, it often does. This makes late payments extremely expensive and so should be avoided at all costs. If you find yourself in need of money, don’t use your credit card, but instead consider a personal loan. Additionally, if you do get hit with an increased interest rate hike and late fee, then don’t hesitate to contact your credit card issuer and complain. There’s a good chance that they will revert the rate and get rid of the charges.