4 Mistakes Your Credit Card Company is Waiting For You to Make
Many Americans have more than one credit card in their wallets. Actually, a lot of Americans have a whack of them. It’s not hard to get one these days. In fact, credit card companies are giving them to just about everyone, and are offering incentives to get people to sign up.
But before you convince yourself that these pieces of plastic are a huge convenience, you should also be aware of certain traps that credit card companies want you to commit in order for them to increase their profits.
The following are 4 mistakes that credit card companies are waiting for you to make so they can collect the dough.
1. Missing a Payment
Credit cards are notorious for charging ridiculous interest rates on outstanding balances, some as high as 20% or more. This is how credit card companies make the big bucks. And when consumers miss the deadline for a payment, there’s more money for these companies to be had. And even when the payments are “caught up,” a late fee of about $35 is tacked on to whatever interest that’s already been incurred on the outstanding balance. Sometimes a missed or late payment can even cause an increase in the interest rate, making future outstanding balances even more pricey.
To help avoid missing your credit card payments, set up reminders on your smartphone or sign up for a free online service that offers platforms to help you budget your bills and even sends alerts when bills are soon coming due.
2. Forgetting About Your Grace Period When the Expiry Date Arrives
In this case, we’re not talking about the grace period that card holders get just before a bill payment is due. The grace period referred to here is the one before the introductory low rate that card issuers offer is soon to expire.
Credit card companies are always coming up with teasers to get consumers to sign up for their cards, many times by offering really low interest rates. But many times consumers forget about the expiry date of this offer until it’s too late. Usually these low rates only last as little as 6 months, depending on the specific offer. If you don’t pay off your entire balance before this introductory rate expires, you’ll be stuck with interest being charged retroactively when you initially opened up the account.
3. Making Minimal Payments
One of the biggest mistakes that cardholders make – and one that card issuers want you to make – is paying only the minimal amount required. Many cardholders just look at the “minimal payment due” box and think they’re fine just skimping through month after month. The truth is, you’ll be paying dearly if you get into this habit.
Let’s say your balance is $500, which is being charged a rate of 19%. The interest you pay might not sound like much if you pay the $10 minimum payment. But it’ll take you nearly a decade to pay off your $500 balance at this rate. By then, you’ll have paid a lot more in interest than in your original balance.
4. Spending More Than Your Credit Limit
All card holders are given a specific credit limit that they’re allowed to spend up to. But this doesn’t mean you should automatically rack up your credit card. While some credit card companies allow consumers to go slightly over the credit limit, it’ll come at a price. These days, you can expect to pay a $35 penalty for such overspending.
Even though you essentially need to give the card issuer your permission to be charged this fee, you’re still not really in control. Because of the CARD Act, the credit card company has to get you to “opt in” before they can charge you this penalty. But even if you deny permission, they can still shut down your transaction.
Credit card companies are in business to make money, just like other business. They make more money when they get the opportunity to stick you with more interest fees. While budgeting might not exactly be the most enjoyable activity you can participate in, it’s a must. And that means keeping on top pf all of your bills, including your mortgage payments, car loans, and your credit card bills.
