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Top 5 Dirty Little Credit Card Tricks
By Sandy Naidu | August 27, 2008
Here are the top 5 dirty, mean and sneaky tricks played by Credit Card companies:
Minimum Payments
The minimum payment required is usually between 1.5% to 2% of your total outstanding balance. If for example, your outstanding balance is $1000 then your minimum payment is only $20. At this rate it will take you years to pay off your $1000 debt.
Here are the facts about minimum payments:
- Minimum payments give you false sense of security.
- The only thing you avoid by paying off the minimum amount due is the late fee.
- You will still be charged interest if the outstanding balance is not paid off.
- Credit Card companies intentionally have low minimum payment requirement. They are hoping that you will fall into the trap and pay only the minimum amount and thus end up owing them huge amount of dollars in interest.
Interest Free Period
- If you take a cash advance then you will be charged interest straight away. There is no interest free period.
- The interest free period does not apply for all purchases. Let me and try and explain what I mean here using my most recent credit card statement as an example. Here are the statement details:
Statement Begins: 15 July 2008
Statement Ends: 13 Aug 2008
Payment Due Date: 08 Sep 2008
Minimum Payment: $174
Closing Balance: $8705Here are the two possible scenarios:
1. If I pay off the entire closing balance of $8705 by 08 Sep 2008, then I am safe - nothing to worry.
2. If I pay less than $8705 by 08 Sep 2008, then all the purchases that I made from 14 Aug 2008, will start incurring interest. These purchases will have no interest free period. Interest will be calculated from the date of purchase. So basically I will be charged interest on all purchases from 14 Aug 2008 plus interest on my closing balance (closing balance from the above statement). All these new interests will show up on my next statement.
Multiple Interest Rates
Here are some common tricks played by most credit card companies:
- One rate for purchases and one for cash advances
- A higher rate for purchases once you exceed the credit limit
- Some cards advertise lower interest rate but what they only tell you in fine print is that this low interest rate is only applicable if you make purchases above a certain limit.
- Some cards advertise low introductory rate on balance transfers. What you need to check is the interest rate these cards will revert to once the introductory period is over. The rates can be much higher than the market rates.
These cards offer low rates on balance transfers and a normal rate for your regular purchases. But they usually apply any payments you make first towards your lower interest portion.
An example:
Balance Transfer Interest Rate: 2% for 6 months
Normal Purchases Interest Rate: 20%
Your Balance Transfer Amount: $10,000
Your New Purchases For The Month: $2000Your Payment: $2000
Here is the trick -
The $2000 will be applied first towards your lower interest - i.e. it will be applied towards your balance transfer. So though you were good and paid off the new spendings, you still end up paying 20% interest on your new spendings.
Read my post about 7 Things To Watch Out For In A Low Balance Transfer Credit Card.
Low Down On Fees
- Some cards advertise that they don’t charge annual fees. They might not charge annual fees but most of these cards actually charge monthly fees.
- When you exceed the credit limit, apart from charging you interest, they also charge you a ‘over the limit fee’.
- The same for cash advances as well - Not only do they charge interest straight away but some actually charge very high fees for cash advances.
- If you are late in paying off your outstanding balance, you get charged a ‘late payment fee’.
Mind Games
I get at least one new credit card offer every couple of months. The offer letters use positive words like - ‘Congratulations’, ‘You Deserve A Platinum Card’ etc..They never ever use the word ‘debt’. Most of these offers are pre-approved. These offer letters are unsolicited. Some are for new cards and some are from my existing provider (offer to increase my credit limit). They play all sorts of psychological games to make you feel good and sign up for more cards - and the sad truth is many actually fall a victim to these games and sign up.
Research shows that one in three people are unaware of at least one of these tricks. We can make credit cards work to our advantage if we use them properly.
If you had any bitter experiences with credit card companies then please share them below….Or if you are aware of any other mean trick played by the card companies, let us know…
PS: I am submitting this post for a competition run by Darren Rowse of Problogger. If you have come to my site from Problogger.net then - ‘Welcome’. If you are a blogger and are unaware of this competition then check out the details here - Competition.
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Topics: Credit Cards |
12 Responses to “Top 5 Dirty Little Credit Card Tricks”
Comments
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August 28th, 2008 at 5:46 am
I have been caught by the interest free trap too many times.
And it can take AGES to get back to “interest free” on some cards - because you have to rezero the balance completely. *sigh*
Thank you so much for taking the time to visit my site and give me some feedback. I really, really appreciate it.
August 28th, 2008 at 6:47 pm
Hi Sandy,
I found my way here from the ProBlogger contest. Your headline was compelling and the article delivered. Good job!
Phoebe
August 30th, 2008 at 7:57 am
Thank you for your comment you left on my blog. And the biggest reason I’m in South Korea is to pay off my credit cards!
September 9th, 2008 at 4:54 am
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October 5th, 2008 at 6:23 pm
Quite informative article. Thank you for sharing these details.
November 15th, 2008 at 5:03 pm
The information is really useful for public, the credit card companies are using these cunning methods to due the honest and law-abiding citizens, one who refuses to repay on the ground of mis-match of the statement and takes a legal stand, these companies can do nothing agains him, but such persons are only a few. We should become one of those and show a bold face to the cheaters!
Shakti Kumar Jain
http://www.moneyatweb.net
http://www.askguru.svingshighway.com