Credit Cards

Credit Card Pitfalls to Avoid

The banks and credit card companies are always looking for ways to make more money, and their favorite place to take it from is your pocket!  The following points will help you avoid the costly traps they set for you:

  1. Look out for annual fees.  Unless you have a rewards card and you are spending a lot of money on it, avoid cards with an annual fee.  For most people, the rewards won’t be high enough to justify the annual fee.
  2. Read the fine print.  Card issuers are required to notify you 45 days in advance of any changes to your account.  Unfortunately, they are still permitted to bury these notices in fine print, either bundled with your statement or hidden in an inconspicuous envelope.  Make sure to read your mail carefully so you’re not caught off guard.
  3. Don’t co-sign on a card.  If your child or relative or friend doesn’t qualify for a credit card (or a car loan or any other type of credit) on his/her own, there’s a reason for that and you should never put your own credit in jeopardy by enabling them.  Let that person work through their own credit struggles and you’ll both be better off.  It’s never a good surprise to get a collections notice in the mail because the person you co-signed for is delinquent.
  4. Don’t be tricked by introductory or special rate switches.  It’s a common practice to get you to transfer a balance to a card with a great rate, then try and get you to spend more money on that same card.  Why?  Because the balance transfer may be at 2% for 6 months, but your other charges could be costing you as much as 30%.
  5. No the balance transfer rules.  If transferring a balance means paying a hefty transaction fee, do the math to make sure you’re not better off just leaving your balances alone.  Also be sure that you pay the balance off or transfer them again if the introductory period requires you to do so.  If the balance is accruing interest unless you pay it off before the designated time period, make sure you pay it off to avoid costly fees and back interest.
  6. Don’t be late!  If you’re late on a credit card payment you are charged a late fee, and your interest rate will automatically increase to the highest possible rate.  Even worse, if you’re in a low introductory rate, you’ll lose the low or deferred interest rate.  Mark your calendar and be sure to pay on time.
  7. Don’t go over the limit!  This is just as bad as being late.  You’ll be assessed fines and your rates will increase.  It might even trigger your card issuer to start lowering your limit as you pay down your balance, which can lead to more inadvertent over-limit charges.
  8. Don’t overspend.  This might seem obvious, but studies show that our propensity to spend increases when paying on credit.  Don’t spend money on your credit card that you don’t have, and your financial life will be much, much healthier.

When used wisely, your credit cards can be a financial tool that provides you more flexibility and increased safety over cash or checks.  But be sure to use caution and avoid these costly credit card pitfalls.

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