How to know if you are paying too much credit card interest
Posted June 27th, 2010 and last modified November 21st, 2011Signing up for a credit card with a bank or a financial company is quite similar to getting a financial loan. When you use your card for a purchase or to pay for a service, you are using the company or bank’s money. They then earn revenue from the fees and interest rates they charge.
It sounds like a decent exchange right? Indeed it is, because it gives clients purchasing power when they don’t have the cash needed on hand. However, it becomes a problem when the spending goes out of hand, or when the credit card interest become too much.
Switch today to a low interest credit card
Why wait any longer to switch credit cards to a card that you know is going to have one of the best interest rates on purchases and balance transfers in the market? To top it off, the St.George Vertigo has more than just a low interest offer, it also features a very low annual fee, making it a great value credit card for many Australians.
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- Cash Advance Rate of 21.49% p.a.
- 55 days interest free
- Minimum Income Requirement of $15,000 p.a.
Paying More Than You Know
A few banks and credit card institutions have recently raised their credit card rates. Among these include Commonwealth Bank and Westpac, coinciding with the interest rate increase of the Reserve Bank. Despite the protests of advocacy groups fighting for people who have trouble paying minimum charges brought about by high credit card interest, other banks and other financial providers are expected to follow suit.
What is more alarming is that a huge number of Australians are not aware of the exact rates they are getting from their credit card provider. Worse, many are barely able to make the minimum payment of their cards.
How Will You Know?
Take a closer look at your credit card statement. A breakdown of the charges and interest should be available. If you have an outstanding balance and are paying only the minimum but there doesn’t seem to be any progress, watch out. The amount of interest you were charged on your account was added to the outstanding balance. This means you’re being charged not just for the interest, but also for the interest of it. This is definitely a sign that you’re paying more than enough.
Start Paying Less
If we can’t stop credit card companies from increasing their rates and if we don’t want to cancel our cards, what can we do to help lessen the amount of interest that we pay? Here are a few steps that can help you minimize credit card interest and charges.
Know your credit card limit. A lot of the people who pay high amounts of credit card interest often are not aware of how high their credit limit is. So long as they are able to use the card, they don’t really mind. Contact your credit card provider and ask. If it’s too high or if it’s beyond your usual means, ask them to lower it down to a more reasonable amount.
Make it your business to know how much are the charges. Sometimes, when a credit card bill arrives, people just gasp at the amount that’s due but do not bother to question why it’s such. Ask your credit card provider what are the fees they implement for each transaction. Among the charges you should be aware of are:
- Annual card and account fees – these are fees that you pay on a yearly basis. Not all cards have an annual fee.
- Late payment fees – these are fees added to your bill when you are unable to make the payment for that billing cycle. It varies per credit card provider.
- Exceeding the credit limit fees – Most providers immediately block a card when it’s already gone beyond the credit limit. However, some users apply for an over the limit use. Note that there is a corresponding charge when this is availed.
- Reward program fees – Reward programs are meant to give back something to customers for the use of the card. However, some credit card providers do tack a fee for such programs, so it’s best to know if your card has one.
Budget your card use. Just because you have a credit card doesn’t mean you have to go out and spend, spend, spend. It’s prudent that your credit card use does not exceed the income that you receive. List your monthly expenses and identify which of these can be paid for with your card. Set aside the cash you’d normally spend it for and when the bill arrives, use that cash. This is a good way to earn points on your card if you’re using the rewards program.
Consider a different card. A balance transfer credit card may be a good option for you if you want a lower interest rate. Transferring your card balance from a high interest card to a low interest one makes it easier for you to make payments. Take note, however, that most of these rates are only introductory, so be sure to ask about the rates after the promotional period.
Credit cards are a useful tool that give you extra purchasing power. Contrary to popular belief, owning one won’t put you into debt. Rather, misuse and improper education will. Take time to get to know your card, the services and fees that come with it and you’ll find that high interest rates won’t be a problem for you.
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