10 Credit Card Traps
Credit cards have been around for a good, long time. Their original use was more similar to a charge card than what it is today, but the way in which people use these plastic cards has also changed a great deal.
Our society also looks at credit cards with a different view than they did years ago. Back when credit cards were first put on the market for use, they were intended for emergencies only, and were to be paid off as quickly as possible. In addition, credit cards were not owned by companies independent of the companies that were accepting them as payment. For example, a certain local company would issue a card to a loyal customer and the customer could use the cared only at that local business. No other company in the area or especially one in a different locale would accept the card in exchange for merchandise or services. They were not looked at as a way to live outside one’s means. Unfortunately, that view has changed dramatically in the past 50 years.
Credit cards are still good for emergency situations, just as they were half a century ago. However, people use these cards for far more than just emergencies today. Credit cards are viewed as a way to put off payment for debts. But as with all kinds of procrastination, the problem doesn’t go away; it actually grows.
One of the traps that credit card companies most often don’t inform customers about is the fluctuating interest rate of many cards. That 0.0% interest rate may look really nice for now, but what the company won’t tell a potential borrower is that that interest rate will most certainly undergo a dramatic change in the next few months. The 0.0% interest rate only lasts for a very short time and then becomes very, very high. The company may give the borrower some type of notice buried in fine print, but if that person fails to patiently wade through all of the tiny characters, he or she might be in for trouble with making payments.
Another trap that credit card holders often fall into is impulse buying. For many people, paying with a piece of plastic doesn’t seem to equate with the same amount paid in cash. It seems to that person as though he or she is not spending as much as they really are. This problem is easily solved, however. All the person needs to do is pay for everything in cash. This makes the connection in the person’s brain that their bank account balance is decreasing when they pay for things, therefore helping them limit spending on anything that is not a necessity.
A third pitfall of credit cards occurs when the borrower fails to pay off the complete balance each month. The credit card company may then charge a fee on the balance that most likely will have a terribly high interest rate. After the borrower pays for the yearly membership fee, interest on the remaining balance and any late fees, he or she could be paying even more than the monthly payment in just fees!
One enticement that credit card companies offer to prospective borrowers is the “fixed interest rate.” In reality, this supposedly constant rate fluctuate with as little as 15 days of notice to the card holder. If that particular card holder has a balance that he or she carries over from month to month, this could have disastrous effects on the person’s finances.
Another potential hazard for credit card holders is that going over the limit with that card could cause a charge of up to $35 to the client in question. Even if the card holder overspends by as little as one dollar, the company still charges that same flat rate of 20-35 dollars.
A sixth hazard that credit card applicants should avoid is ignoring the important features of the agreement such as the allotted time for payments to be sent in. In years past, most if not all credit card companies gave the user a month long “leniency” or “grace” period to make a payment on the balance put on the card. However, now there are no major companies that offer that long of a period of time. Now the average has shortened to 23 days. This is an important thing to note if the borrower is payed monthly, because he or she may not get the funds in time to make a payment on the balance.
One trap that is particularly sneaky is the one directed at a section of the nation’s most vulnerable people: college students. We have all heard about college experiences in which the student is desperate for money after paying the high tuition and fee costs that most universities charge. At this point, to the student, the credit card sounds like a dream come true, only to find out it will become a nightmare of financial ruin.
Something that most credit card applicants also often miss is the exhorbitant charges on cash advances. Some think that cash advances are the same as any other charge put on a credit card account. Unfortunately, this is not so. Fees for cash advances often carry a terrible interest charge along with them.
A ninth trap that credit card applicants can be lured into is the applicant may not always get the card, and thus the lower APR, that they were counting on. When a company reviews an application, they reserve the right to issue a lesser card in place of the card applied for if the applicant does not meet the lenders “approval.” These lesser cards often carry with them much higher interest rates than the card that was originally applied for.
Lastly, credit card companies often do not tell the customer that, if they make a late payment on another card, even if it is issued by a completely different company, that late payment will make interest rise on all of the cards. This has a domino effect on all of the customer’s dealings with creditors in the future. A bad credit report could lose the borrower a job, prevent him or her from getting a loan, etc. Credit cards do have their uses, but one must take a careful look at the fine print before applying for the card.