Credit Cards: the Good, the Bad and the Scary
Many people are bombarded with credit card offers every day. From solicitations in the mailbox to telemarketing calls, credit card offers abound whether we want them to or not. If you are truly interested in obtaining a new account, it can be confusing to know which credit company offers the best credit cards. By understanding the basics of how credit cards work, you will be able to know what the best credit cards are and avoid becoming a victim of a company that is less than scrupulous.
How Credit Card Companies Try to Hook You
The credit card industry is fiercely competitive, and companies or banks do what they can to attract and keep new customers. One of the ways they do this is by offering a very low introductory interest rate and encourage you to transfer your balance from other credit cards to theirs. While this can be a legitimate way to save money, it is important to read all of the fine print before you rush into something that costs more than you thought it would.
For example, there may be a fee to transfer a balance from another credit card. The low introductory interest rate may be taken away if you are even one day late with a payment. If you are not transferring a balance, you may still be charged an annual fee that would offset any savings you would realize. Before assuming that you have found a great deal, make sure you understand exactly what you are signing up for by taking this credit card.
Understand All Fees
The federal Truth in Lending law makes it mandatory for all creditors to list their true annual percentage rate (APR) and to list a corresponding dollar amount of how much the consumer will pay in interest over the life of the loan. With a credit card, this becomes a bit more complicated because it is a revolving account that often doesn’t get paid in full each month. Some credit card companies will show you how much interest you will pay in a year if you only make the minimum payment, but not all do this. You can figure it out for yourself by finding the corresponding daily interest rate and multiplying it by your average daily balance.
Although credit card companies try to compete with one another by having the lowest interest rates, they can easily change the rate once you have become a customer. As previously mentioned, customers are often punished with higher interest rates when they are late with a payment, even if it was just a matter of days and the rate hike can be significant.
Some credit cards charge an annual fee just to have the account and it will appear on your first statement. Other common fees are an overlimit fee and late fees. The overlimit fee is imposed if you charge more than the dollar limit the credit card company gave you, and the late fee is a fine for payments posting after your due date. The fees are in addition to the increased interest or loan rate you may be charged for being late.
Credit Card Perks
Besides looking for the lowest interest rate or no annual fee, find out what other benefits each card has before applying for it. Typical perks include free airline mileage, rental car coverage, cash back shopping and more. To remain competitive, many credit cards offer such benefits, although most tend to focus on one main advantage to stand out from the competition.
How to Avoid Credit Card Debt
Credit cards can make life more convenient when an unplanned expense comes your way, to make reservations and to shop online. The problems begin when you start blurring the line between legitimate needs and things you simply want to have without waiting to save the money for them. A good rule of thumb is to never use credit cards for items that are quickly disposed of, such as going out to eat or a vacation, unless you have the funds available to pay the account in full the following month. If you resolve to use credit cards for emergencies only or just when it is most convenient, you can avoid the credit card debt trap that ensnares so many.