Being an owner of any kind of plastic requires you to be aware of credit card traps.
Credit card traps to avoid:
- Making minimum payments. This credit card trap really does not do much toward relieving much of your debt at all. It can take years to pay of a small debt this way. Pay all or as much of your balance as possible every month.
- Increasing APR. We all get lots of mail from our credit company. Most of it is considered rubbish, but often it contains a little note saying they have raised your interest rate. They can do this whenever they want. Pay attention and switch to another card if they raise your rate.
- Balance transfer fees. These are some of the worst credit card pitfalls. An introductory zero percent can save you a lot of money but it will not be fee. The transfer fee is usually two or three percent so be aware of that added cost.
- Negative payment hierarchy. This is a big one. Not all charges incur the same interest rate and your payments go to the cheapest debt first. This means that your zero percent balance transfer will have to be paid in full before you can begin to pay on the purchase that you are paying a higher rate in interest.
- Foreign charges. It is easy to use a credit card on holiday just be aware of the extra fees that you will incur. Look into cards that are specific to overseas spending which might offer you a better deal.
- Cash advances. The credit card pitfall here is the excessive interest charged on cash advances. This should only be used as a last resort in an emergency.
- Interest-free period. Some cards have no interest-free period at all. You begin paying interest as soon as you purchase something. If you have a card like this, get rid of it as soon as possible.
- Default charges. If you miss even one payment you will be charged and get a negative blip on your credit file. In some cases your interest rate may also rise do to a late payment.
- Payment protection insurance. This is a scam. You can find cheaper insurance with less exclusions somewhere other then your credit carrier.
- Other Charges. A final credit card trap is not paying attention to any other charges. The company will find ways to make money from you, so be vigilant about checking your statements for any and all charges.
Everyone should face the fact that credit card companies only purpose is to make profit. The best way for them to do that is through what is described here as credit card pitfalls that many of us fall into.