Your credit card is intended to make things convenient for you. After all, how easy is it to pull out your card and swipe it to get whatever new thing you’ve been wanting?
But, that doesn’t mean that it’s as easy as you might think. At least, when the bills start to come due it’s not going to be. It’s all about the fine print associated with your card and all those charges like late fees and more.
When you make a couple of charges to your card every so often it starts to add up, faster than you might think, and then you end up with a whole lot of debt. It’s actually a lot like falling into some type of trap, because the little bits that you add up here and there sneak up on you.
But if you’re aware you can usually find out more about the risks and even mitigate some of them for yourself.
1. Retroactive Interest
It’s common to be offered a 0% introductory period when you sign up for a credit card. But they’re not exactly the same. That’s what you need to watch for.
A lot of credit cards will offer you that 0% and when you’re making a purchase the 0% sounds good, but it only lasts for a set amount of time. When the promotional period ends you have to have the entire balance paid off or you get charged retroactive interest. You also get charged at a high rate (generally). You’ll find that most retailers will make this type of offer, but check the fine print and you’ll see that interest charges are retroactive when the promotional period ends.
Sure, 0% financing can be an awesome deal. You just need to make sure that you understand the terms and that you know the difference between waiving interest and deferring interest. Plus, you should make sure you can pay off the purchase before the promotional period ends. You’ll wind up paying a whole lot more if you don’t.
2. Upgraded Cards
Just hearing that term ‘gold card’ sounds pretty great, right? Well, you’ll find a number of different cards with great sounding names, like silver, platinum and palladium, offered with a number of different credit card companies.
In many cases these cards used to mean something, like higher income requirements or amazing spending limits, but in general these labels no longer mean anything at all, except that you feel prestigious.
What you should be doing is looking at the features of the card you choose, like interest rates and fees and even rewards, not what color the card is or what you get to call it. You can even find out more on our credit card page.
3. Minimum Payment
When you look at your credit card bill that minimum payment seems really tempting. It’s usually a small number that seems really reasonable and easy to pay each month. But when you do it you end up even further in debt. That’s because the minimum is usually only going to take care of the interest charges, so you end up with the same principle balance due.
As interest rates continue to come in you end up paying more and more and getting nowhere. The best thing to do is to keep your balance low all the time and to make payments larger than the minimum. You don’t want to be caught in a trap that causes you to spend several years paying off your balance, and far more money than if you’d bought the item outright.
4. Preapproved Offers
How often do you get a really great looking credit card offer in the mail? It says ‘important’ on the outside and you think that you must be special, right? And then you open it up and find out that you’ve been preapproved!
But that preapproval means very little. All it means is you met the minimum criteria that the credit card company requires to offer you a card. It doesn’t mean you’ve actually gotten it yet and you’ll still have to fill out the application from scratch.
You want to make sure you don’t fall into one of these traps of thinking this deal is special and only for you.
5. Fees on Top of Fees
Annual fees are becoming common, and interest charges have always been around, but you could end up with even more fees if you’re not careful. Going over the limit, paying late, replacing a card that gets lost, making purchases or withdrawals overseas, all of these things can cause additional fees.
Even worse, you can now even be charged a fee simply for canceling your credit card! So many people were getting fed up with all those fees that they decided to close their cards and be done with it. So the companies decided to make money on that as well and now there’s a cancellation fee on some cards.
If you don’t use your card frequently or frequently enough for the company you can sometimes be charged an inactivity fee as well. It’s important to keep an eye on everything you can for your credit card so you know what’s happening and when.
6. Interest Rate Increases
Your interest rate can be increased without warning or with very little warning, which means you start getting further in debt just on those charges.
In some cases these increases are because of something you did, such as paying late or going over the limit. Other times, they happen just because.
The best thing you can do is to make sure your credit card balance is paid off, in full, each month and that it’s done on time. Automatic payments that are transferred from your bank account at the same time every month can be a great way to go about it. After all, just one late payment, even a single day late, could cost you up to $50, reduce your score and it could mean that your interest rates double too.
What you should know is that you can actually opt-out of an interest rate increase. That doesn’t mean you get to keep your current interest rate indefinitely. It means that you get the opportunity to pay off your balance at the previous rate and then your card will be closed out. It means you’re going to lose the card, but you don’t have to deal with the interest. You do have to call the company and speak to customer service in order to do this, however, and it must be done by a specific deadline.
7. Cash Advance
It sounds great to be able to pull money that you don’t have at any time, but it can actually do a whole lot more harm than good. The reason for that is cash advances actually have a much higher APR than just about anything else you could do and they also have transaction fees. You may not even know about those fees and costs unless you carefully read the fine print and all the terms. When you decide to use your credit card to get money out it can actually cause harm in a number of ways, not the least of which is that it encourages you to spend more recklessly.
If your balance is really low and you pull out money you could end up going over the limit quite easily. The problem there is that you could have paid for the item more easily and now you’re going to pay extra fees and charges for going over your limit and a whole lot more. Is it worth it?
8. Fine Print on Your Bonuses
Most credit cards are going to offer you some type of sign-on bonus. Maybe it’s cash back or maybe it’s a set number of points for opening a new account, but it’s usually not that easy.
Usually you’re going to have to do something in order to get that bonus, whether it’s spending a set amount each month or a one time purchase. Those restrictions and rules are usually quite difficult to reach, especially when you’re trying to stay within your budget.
You may even get special offers for a really high percentage back, but it works only specific retailers or locations. You might get special deals only for a set amount of time or there may even be restrictions on how much you can earn, even if you do fall into the right category.
Rewards cards can be another trap that many people fall into. Sure, you get something cool and you get it for ‘free’ but that only works if you spend the same way you normally would and not if you decide to spend more so you can get that special reward.
You should also make sure that you look at rewards cards and options before you pick something out. They’re not all the same and that’s why we’ve created a credit card page to help you find out more.
9. Watch the “Special” Perks
Whether it’s rewards, points, discounts or anything else, it’s important to watch out for the details on any card you choose. You could get higher interest, higher fees and a whole lot more problems if you’re not careful. So those perks may not actually be worth it.
In fact, store cards are some of the best for giving your rewards when you buy from them. But when you buy from somewhere else you definitely don’t do as well as you might think.
What it Comes Down To
What it’s going to come down to is reading the fine print. Credit card companies are required to make their agreements available online. You’ll be able to find it if you look hard enough (just because they have to post it doesn’t mean they have to make it easy to find). It’s usually under ‘terms and conditions’ or ‘pricing and terms.’ This is what you want to look at to make sure you’re getting a good deal and you don’t fall into a trap.
Once you get an application or you’re given a pre-approval you have to be told about the agreement, which means you should scan through the documents you’re given to see if it’s somewhere in that envelope.