Beware of Credit Card Traps

Pitfalls to Avoid When Using and Choosing Cards

Sep 18, 2009 Wei Yin Wong

When using or choosing credit cards, avoid minimum repayment, cash advances, exceeding credit limit, paying bills late, cards with reward points and charity cards.

While credit cards are convenient, they often result in huge consumer debts, hence the importance of using the cards wisely. Know what the common credit card traps are to stop living in debt. Here are some pitfalls to avoid when using and choosing cards.

Avoid Minimum Repayment

Many credit card companies require users to pay the 3% minimum monthly repayment. Unfortunately, that’s the amount that many cash-strapped households pay. As a result, the balance keeps going up as more interest rates are added on each month. There is no end to it even if users stop using their credit cards.

Many financial experts agree that to use credit card wisely, pay off all outstanding balances in full every month before the due date.

Avoid Cash Advances on Credit Card

Many people like using credit cards because they offer another convenience – cash advances. However, this will only rake up even more credit card debts! When users withdraw money from credit, they will be immediately charged an interest fee from the day of the advance, even on cards with interest-free days. Some companies also even charge a cash advance fee for that convenience.

Don’t Exceed Credit Limit

Many credit card companies appear to be very generous – they allow users to continue buying on credit even after they have reached their credit limit. Be forewarned, though. This convenience comes at a big price in the form of an over limit fee which may range from $30 to $50 a month in Australia.

Don’t Pay Credit Card Bills Late

Late payment of credit card bills will incur a fee too. This may be an additional $30 to $40 to pay the credit card provider. Read the monthly statement as soon as it arrives and check the due date. Those paying by check should pay a few days earlier as checks normally take three working days to clear.

Beware of Reward Points

Some credit cards come with reward points, introductory low interest rates and other benefits. Beware of these, though. Cards with reward points generally impose higher annual fees, sometimes twice as much as a standard credit card. Worse, some providers supposedly give bonus points to transfer outstanding balance from another card but cunningly (and often quietly) classify these points as a cash advance. The result? A cash advance fee and interest charge!

Resist Charity Credit Cards

Credit card providers are in the business of making money. If they claim a tiny percentage of users’ purchases goes to charity, they really mean tiny. Those who really want to support a charity organization should donate a lump sum instead of paying high interest, annual fees and an assortment of other fees through their credit cards only to be able to donate a couple of dollars to help those in need. Say no to charity credit cards.

There are several pitfalls to avoid when using or choosing credit cards. To get out of debts and make the best of credit cards, avoid paying minimum monthly repayment but try to pay the outstanding balance in full instead. Also, refrain from making cash advances, exceeding the credit limit and paying monthly bills late. When choosing a credit card, be wary of cards offering reward points and so-called charity credit cards.

Found this article useful? Read also How to Choose Credit Cards, Practical Credit Card Management Tips and Avoiding Credit Card Fraud.

References:

Power, Trish and Drury, Barbara. Investing for Australians All-in-On for Dummies. Queensland: Wiley Publishing, 2008.

Tait, Allison. Credit Card Stressbusters. Queensland: Wrightbooks, 2009.

The copyright of the article Beware of Credit Card Traps in Personal Budgeting/Finance is owned by Wei Yin Wong. Permission to republish Beware of Credit Card Traps in print or online must be granted by the author in writing.

Beware of Credit Card Traps

Avoid Cash Advances on Credit Card