Credit Card Tips and Tricks
When I was growing up, my mom didn’t use credit cards. I thought she was silly! It was more convenient to carry around a card than cash, and I somehow felt more like an adult. But like so many others before me, I didn’t know too much about credit management and I ended up making mistakes. I bought into some of the tricks credit card companies like to use that encourage you to spend more and drive up your recurring debt.
Before 2009, credit card companies were not as strictly regulated. But on May 22nd, 2009, the Credit Card Accountability Responsibility and Disclosure Act of 2009 was signed into law. This was an important piece of legislation since it gives credit cardholders rights against credit card companies and prohibits companies from unfair or abusive practices. However, since many of us overlook the small pieces of paper that come with our credit card bills, or even get our bills delivered digitally, you might miss some of the protections, such as alerts to rate increases, and changes in fee regulations or payment allocations.
You and Credit Card Companies Have Different Goals
The Federal Reserve Bank of New York reported non-housing debt for Americans in the first quarter of 2020 had reached $4.1 trillion. Much of that debt is related to credit cards that allow you to carry a predetermined limit and calculate your payments as a percentage of the unpaid balance. To break that down further, the average person had a balance of $6,194 in 2019. This was an increase of 3% over 2018 according to Experian’s 2019 Consumer Credit Review.
Although careless spending and shopping can be a contributing factor, many people use their credit cards to help pay basic living expenses. This includes medical bills, home and car repairs, and daily living costs like groceries.
Also Read: Manage Your Credit Limit Efficiently
However, the higher your debt the more money the credit card companies make. And the companies are making money by charging you interest. Since they are in the business of making as much money as possible, it’s important to understand how to read your bill and what tricks they use to raise their financial return.
Understand How to Read Your Bill-
Credit card companies are required to send you a statement at least 21 days before your due date. You may have chosen a paper bill or digital bill, but either way, the information is the same. When you get a digital bill you’ll have to log on to the credit card company website to check your statement. While this is an extra step, it’s important you understand the charges you’re getting every month, since this helps you figure out how to set up a payoff plan.
At the top of each bill, you’ll get an overview of your account status, which gives you your previous balance, purchases, fees and interest charged. You will have a minimum payment due to avoid any late payment penalties and if you’re 60 days or more late, your late payment will be reported to the three major credit bureaus. In addition to a late payment fee, the company can also raise your annual percentage rate, or the percent interest you are charged on your credit card.
Also Read: How to check Credit Card Statement
Credit card companies are now required to tell you how long it will take to pay off your credit card if you only make the minimum payment. This is an important box as it must also include how much you can pay every month to pay off the balance in 3 years. When you make only the minimum payments you will take the maximum amount of time and end up paying the maximum amount of Interest.
Don’t Be Captured by Teaser Rates
The competition in the credit card industry is fierce. Companies are looking for new ways to get new business and the most common are low rates. Some card companies want your business enough to offer 0% interest and hope you will be so excited that you’ll transfer your balance from another card.
Unfortunately, when you don’t pay the balance off by the time the rate expires, you’ll have a bigger balance at a higher interest rate than you did when you started. Credit card companies may also offer low-interest rates for people with great credit ratings. If you look closely at the fine print, you’ll see all other customers get charged a higher rate. Don’t get too excited about the early low-interest rates because the benefit will be minimal when compared to the cost of carrying debt on a new card.
The Fees Add Up
Credit cards can legally charge fees as long as the information is provided to the credit card holder. Late fees are just one type. If you pay attention to your credit card bill, you’ll notice the due date might be moving every month. It’s not your imagination! The late payment charge will be the same whether you’re one day late or 10 days late. If you don’t pay attention to the due date it will be like taking a $20 bill and dropping down the toilet. These fees can be overlooked when they’re added to your next bill and can add up to an average of $577 each year.
Also Read: Use of Credit Card to Build Credit Score
Even if you think you are making your payment on time, you may not be. Check the banks cut off time on the payment due date. If the cutoff time is 11 a.m. and you pay your bills after work at 6 pm, you may have missed the deadline!
Credit cards can also charge an annual fee to cver additional benefits beyond what you spend with your little plastic card. If you are paying an annual fee and there are no other rewards associated with a card that you will use, it’s time to look elsewhere. Some cards also have an inactivity fee. This means if you are paying down the debt and not using the card, they can charge you a fee.
And last but not least is the over-limit fees. Your credit card has a spending limit and when you go over that a purchase can be denied. Your credit limit is a safety net. However, some card companies allow you to charge over the limit and then add a fee of up to $35. If the next payment doesn’t cover the fee and bring the principal balance below the limit, you’ll get charged again.
It’s the Old Bait and Switch
The bait-and-switch is generally an illegal way of advertising one thing with the intention of substituting it for an inferior product. However, when your credit card company includes the information in the fine print, it may no longer be illegal. For instance, if you were promised a 0% interest on a credit card when you sign up on current charges and balance transfers you may have been tempted to move your higher rate balance to the new card.
Also Read: Best Ways to Use your Credit Card
However, when the first statement arrives you might find a 3% fee charged on the balance transfer plus a high rate of interest on the entire new balance. Credit card companies do not tell you that this sweet 0% interest deal is only available to people with a certain credit history and credit score. When you signed the application, it will have included a clause that you accept any substitute deal if your history and score do not qualify. Now you’ll be paying a higher percentage on the balance and the additional balance transfer fee.
What Can You Do?
It sometimes takes a little extra effort, but there are things you can do to fight back against these tricks. Now that you know what to look for, it’s time to take out the statements and be informed. The most important is to read and understand your credit card agreements before you sign them and then to compare what you sign against the agreement that is sent with the card.
Read the small print about late fees, annual fees and overdraft fees so you know exactly what to expect. And finally, pay attention to the interest rates on your money. While the convenience of using a credit card cannot be overlooked, you don’t want to pay interest on the food you ate two months ago, while clipping coupons to save money at the grocery store!