Have you ever looked at your credit card statement?
Im not talking about just making sure that all the
transactions are correct. Im talking about looking at the
finance charges.
I daresay that sometimes that figure is almost as great as
the minimum monthly payment youre making. After all, as
long as you can keep the creditors at bay by paying the
minimum, thats all you care about, right?
If you agreed, I urge you to reconsider.
Im sure that by now, many of you realize that you lose
money by buying on credit. Still, I dont think many of you
appreciate just how much your credit cards are costing you.
Id like to really drive that point home.
Lets say that Joe decides he needs new patio furniture. He
doesnt have the $2,000 cash, so he slaps down his plastic
card knowing that he can make the minimum monthly payment,
no sweat.
And so thats what he does, month in, month out, year in,
year out, and pretty soon hes been doing this for one full
decade. Surely its paid off by now!
No, not even close. In fact, if Joe continues to make the
minimum monthly payment, he will be paying for that
furniture for the next 38 years!
And once he has made the final payment on his original
$2,000 purchase, he will have paid an additional $5,300
in interest! Pretty disgusting, isnt it? And this is at
14% APR. Many cards run higher.
Some of you more savvy credit card users out there might
be thinking that you already know this, so you dont fall for
that trap anymore. You only get credit cards with a much
lower interest rate, right?
But do you notice that its only for a few months? And do
you pay attention to what the interest rate jumps to after
that short introductory period? You kind of have to hunt
around for this figure since they dont put it in plain view.
Believe me, credit card companies are not losing money on
these lower introductory rate offers.
Watch Out for Those Tempting Balance Transfer Offers!
Credit card promotions are becoming even more devious. Now
the credit card companies are offering 0% interest on all
balance transfers for up to 18 months! Wow, well, youve
GOT to take advantage of that, right? Ill show you three
reasons why you shouldnt.
First, even though you might be pre-approved, it is in no
way certain that you will actually get this low rate. The
credit card companies reserve the right to reconsider their
original offer based on your qualifications.
They will often go ahead and issue you a credit card, but it
could be at a substantially higher rate. Dont assume that what
you applied for is what you are getting.
Second, there are often balance transfer fees that are
substantial enough to gobble up any savings you might make
on a lower interest rate. Transfer rates run anywhere from
3% to a hefty 5%, with a single transaction costing as much
as $65.
Third, and this is the sneakiest part of all, in order to
secure the 0% rate on your transfers, you are required to
purchase a minimum amount on your card for several
consecutive months.
At first, this doesnt sound so bad. However, the fine
print tells you that the interest rate applied to these new
purchases is NOT the same 0% rate, but a different, much
higher rate.
Whats more, all your payments will always be allocated to
the balance that will earn the credit card company the most
money. This means that the balances with the lowest rates
will be targeted first, while the balance with the much
higher rate keeps accruing and compounding interest month
after month.
So, if you transfer a large sum in order to take advantage
of this seemingly generous offer, you will likely be paying
on it for a very long time before you ever get around to
paying down the mandatory purchases, which are racking up
some pretty serious charges in the meantime.
And weve only looked at interest rates here. There are
also default penalties, late charges, over-the-limit fees,
transaction fees, ATM fees, stop-payment fees, cash advance
fees and annual fees, all of which are on the increase.
Over half the states in the union have no limit on what
credit card issuers can charge for annual fees and yearly
interest rates. These companies are gouging their customers
with charges that are downright outrageous, and
unfortunately for us, legal.
So how DO you avoid falling into these sneaky traps that
the credit card companies set?
If you are lucky enough to not be playing the losing game of
credit card roulette, for heavens sake, dont start!
If you are already involved, get out as fast as you can. Here
are a few basic steps.
– Dont carry a credit card. Its amazing how easy it is to
ignore this obvious first step.
– Apply any extra money to your debts first. If youre
saving a little nest egg earning at a rate of 5%, but you
have debts gnawing away to the tune of 12%, its not
difficult to see that this is a losing proposition.
– Target one debt for elimination at a time. Pick the one
that can be wiped out the most quickly first.
– Take all the extra money from the first debt and apply it
to your second target.
– Continue in like fashion until you have dug yourself out
of this miserable pit.
And finally, breathe a major sigh of relief and vow never to
pass that way again.