Nowadays it might seem impossible to do without credit cards. Good heavens! How did things come to such a point, if it’s becoming more and more expensive to live with them. Well, we could “thank” lawmakers, that allowed them to gouge consumers for immense interest rates and inconceivable fees.
Don’t believe it’s out of your reach to understand how it works: "Just read the fine print of your credit card agreement," says Consumer Program Director of the U.S. Public Interest Research Group in Washington, D.C. In fact it’s called “license to steal”. How is it possible, you ask? "The system is weighted against the consumer," says Robert D. Manning, a professor of finance at the Rochester Institute of Technology.
Are you going to buy a flat TV screen with credit card? You should be aware of the top 7 hidden dangers of credit cards. Check money-grabbing tricks credit card companies prepared for you.
1. Inactivity charges.
Do you know, that only keeping your card in your wallet could incur a hefty fee? Credit card companies don't make money if you don't use your cards, that’s right. But… they can still incur fee as much as $15 if you haven't swiped your card in six months, though charges may be incurred even for shorter intervals.
2. Late payment.
Marketing companies for researching consumer payment habits and credit usage says: “2% of all credit card holders occasionally miss getting in their credit card fees on time.” As you may guess, they pay too dearly. The national average is $29. Among the most exorbitant chargers are: Bank of America, MBNA and Providian. And there's yet another money-grabbing tricks credit card companies have up their sleeves if customer pays late: A higher interest rate. Only one or two late payments will trigger a higher interest rate ! Isn’t this insane?
3. Over-limit fees.
As you probably know credit cards have their limits. Exceed your credit limit by even one cent and you'll be incurred with over-limit fees of $25 to $39. And don't forget charges such as a $25 late fee can cause again a $25 over-limit fee.
4. The penalties with universal default.
Will you buy that flat TV screen with credit card? Card providers will regularly check your credit reports for late payments on any of your bills. Any late payment can be used as an excuse to hike up interest rate in your credit card, even if you have never made a late payment to the card provider. Do you say this will not happen to me? Well, still 39 percent of credit cards had universal default penalties in 2003. This year the figure jumped to 44 percent.
5. Payment allocation.
If you manage to balance your budget, and you purchases with your credit card or if you're paying off a promotional rate and then add charges beyond the promotional period, your card provider will first put your payments to the charges that will earn it the most money. What does it mean for you? Simply, it will direct your payment to the balance that has the lower rate, to allow the balance with the higher rate to accumulate and increase interest.
6. Dishonest card offers.
Do you get mails with advertises of the issuers’ premium cards at standing out low interest rates? Be aware that if you show interest, the proper print can say something quite different! The company can send you a more costly non-premium card with a higher annual percentage rate if you fail to qualify for the premium card. And do you expect clear explanation, why you failed? Be careful! Just because you applied for a card with a low rate doesn't mean the card that shows up in the mail actually carries that low rate.
7. Grace periods.
In the past grace periods were 30 days long. The grace period is the time during which your transactions don't accrue interest yet. They now amount to 23 or even just 20 days. Some cards have no grace period at all. Once again, read what you sign.
In the end, remember: Even if you don’t use your credit card it might cost you inactivity charges. And be aware it’s really hard to get back your money even if you go to court, especially as you signed agreement. And doesn’t really matter if Robert Heady, author of the best-selling book “The Complete Idiot's Guide to Managing Your Money”, calls it the “license to steal”. |