While your credit card company might like to pretend they have your best interests at heart, it turns out that’s not always the case. Credit card companies, like most other businesses, have ‘loopholes’ in place to drain every cent they can from you.
Being aware of these tactics is the best defense. Otherwise, you’ll be paying astronomical interest rates and navigating through a minefield of penalties that are only mentioned in the very fine print of your credit card agreement.
Explore the following ways to monitor your interest rate and avoid those penalties:
1. The grace periods are shrinking or don’t exist at all. Back in the good old days, you had 30 days to pay your balance without suffering the financial burden of paying any interest. Most cards now have a grace period of either 20 or 25 days.
• Some credit cards have no grace period. This means that the interest starts accruing the moment you make your purchase and continues increasing until you pay off the balance.
• If you want to use your card and not pay any interest, find out when your company starts charging interest. The longer the grace period, the better.
2. Fixed interest rates aren’t really fixed. It would seem that a fixed interest rate card would actually be ‘fixed,’ but it’s not. Credit card companies can actually change rates whenever they please.
• To change your rate, all that’s required is a 15-day notice to you as the cardholder.
• Your credit card company is hoping you don’t pay attention to those pesky notices they send in the mail from time to time. That’s how they try to deceive you.
• Be certain you’re actually reading the mail from your credit card companies.
3. One late payment can result in 2 penalties. You might be all too familiar with the Late Payment Fee, which can be as high as $35. There’s also another possible fee that can be incurred: The Penalty Rate. This penalty can be charged if a payment is made 60+ days late.
• The penalty rate is actually a new interest rate that’s imposed on your account. The rate can be as high as 29.99%, and that’s exactly what most credit card companies charge.
• The law requires that the penalty rate be removed after six consecutive on time payments. The Card Act of 2009 has all the details.
4. That same penalty rate can be placed on all your credit cards. That 60-day late payment can result in all your credit cards having the penalty rate. This is true even if you’ve never made a late payment to those other cards.
• One mistake can cost you a lot of money. Having all your cards bumped up to 29.99% interest rate is significant if you carry balances on your credit cards.
• Make your payments on time. It saves you money and preserves your credit score.
5. Balance transfers can be expensive. Maybe you’ve seen those balance transfer checks credit card companies periodically send out. Depending on your situation, they can be great. But be careful!
• These checks seem like a convenient way to consolidate everything into one account. But many of those checks have a 3 to 5 percent fee attached to them.
• These fees can often cancel out any savings you would have gotten by transferring your balance to a card with a lower interest rate. Do the math before you write one of those ‘checks.’
Be aware of these dirty tricks so that you can avoid them. Avoid making late payments and always read the fine print. Remember the credit card companies are trying to separate you from your money. Don’t make it easy for them! If you always pay your balance in full and read the fine print, you’ll be in great shape with your credit.