(Guest post by Bill Hazelton)
There are so many pitfalls of using credit cards, it’s almost impossible to cover all the tricks and traps that credit card issuers. Now more than ever, the credit card world is rife with tricks and traps to whack their cardholders with more fees, higher interest rates and anything else under the sun that they can justify to extract more money from their customers.
I’ve provided a list of the top 4 most blatant credit card traps to watch out for below.
1) “As Low As” APR’s: Typically, credit card issuers market their cards by promoting a low annual percentage rate (APR) that you’ll have to pay if you carry a balance, “As Low As 7.99%” for instance. Most card applicants don’t realize that not everyone will qualify for the lowest APR available. The APR that each applicant is assigned is based on their credit history as well as the card issuer’s scoring methods. The reality is that card applicants simply won’t know what APR that they’ve been assigned until after applying for the card. In many cases, applicants anticipate getting a low APR only to be shocked to find that their APR is at 24.99% or above!
2) Balance Transfer Fees: It used to be that any card holder could easily transfer a balance from a high interest credit card at no cost to another card promoting a 0% interest rate for 12 months or longer. These days, balance transfer offers are few and far between as card issuers are sharply cutting back on these types of promotions. No fee balance transfers are virtually impossible to find. Nowadays, all of the major banks and credit card issuers charge a flat 3% fee on balance transfers with no cap. So for example, if you wanted to transfer a $7,000 balance, you’d have to pay a $210 fee right off the bat. (What?!?!) In some instances, it still might be worth paying the fee to avoid paying those high interest rates. But above all, be clear that taking on new debt and getting it paid down is more expensive than ever.
3) “Up To” Cash Rebate Amounts: Card issuers have a slick way of promoting their cash back rebate programs. One common method is to promote cash rebates of “Up to 5% Cash Back” on your purchases. Typically, those “up to” cash rebate amounts are only for certain purchases, such as drug stores or supermarkets. There are usually caps or limits on the maximum rebate that you can earn as well. So, for instance, you might only earn that maximum amount on the first $200 of purchases that you make in each month. Typically, there are spending thresholds and tiers that you have to reach before you can get those cash rebates as well. So for example, you might have to spend $6500 on your card before you can start earning any cash back at all. Just keep your expectations low on what you think you can actually earn back from these programs.
4) Credit Limit Trap: This one really bothers me (probably because I’ve been whacked by it so many times). You might think that card issuers establish a credit limit on your account for the sole purpose of limiting your spending to that credit limit amount, sort of like a back stop. The reality is that the “over limit” fee is one of the single most levied fees of all of the credit card fees combined. That being said, you have to keep an eye on your credit limit at all times. Those over limit fees range from $29 on the low side to $49 on the high side so they can really hurt when you get whacked by them, especially for those of us with small credit limits. If you’re unsure of your current balance, call the card issuer on the back of your card before you make that next purchase and ask for a current balance amount.
Being aware of these tactics is half the battle. Understand that you’re not necessarily going to get the lowest APR that’s being promoted on any one particular offer. Avoiding those pesky balance transfer fees can only be done by not running up your card balance in the first place. Otherwise, be prepared to pay the piper for transferring that high interest balance. And don’t be fooled by those “up to 5%” cash back offers. Most of the time, you’ll only be earning a maximum of 1%, at best. And above all, always be aware of what your card balance is so you don’t go over your limit. Not knowing can get very expensive.
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This article was contributed by Bill Hazelton who writes frequently about personal finance and credit-related topics. Bill is the Managing Editor for CreditCardAssist.com where he provides tips and advice on personal finance and credit-related topics.
Credit cards can be a great asset or a huge albatross. I never carry a balance however so many people I know do and they are stressed and stretched to the max. More education, clarity and approval requirements needs to be implemented since they can cause such huge disasters in people’s lives.
Totally agreed Leslie. Credit cards when used properly (balances always paid down every month) are a tremendous resource and tool for consumers. The problem is that card issuer prey on the fact that most consumers DON’T pay down their balances every month.