In modern life many of us rely on credit cards on a regular basis – to cover expenses, to pay off bills or simply to support ourselves until the next pay day. When using credit cards there are, however, a number of pitfalls that people often fall into and can mean that your credit cards become more of a nightmare than a useful utility for helping out with monthly expenses. With that in mind we decided to look at the pitfalls of credit cards and how we can avoid them.
Understanding Credit Card Interest Rates
The biggest pitfall with credit cards is often, not understanding the interest rates and how they apply. Credit card interest rates are most commonly referred to as the annual percentage rate and can vary between cards from 0% right up and beyond 20%. Most cards will charge this fee monthly based on the amount of money you have outstanding. If you pay your debts off before this monthly date then you shouldn’t have to pay any fees but some cards will charge you a smaller percentage. Paying attention to this detail can help you avoid the pitfall of finding you haven’t paid enough or have interest that you didn’t realise. The best thing you can do is set up a direct payment to your credit card from your bank account every month to ensure that your credit card is paid off.
Avoiding Annual Fees
Secondly many people either forget, or are unaware, that credit cards often have annual fees. These annual fees can be quite high and, if you forget to pay for them, they can quickly accumulate interest. It is not unheard of for people to accumulate large debts simply on the interest of an annual fee card that they have stopped using. To avoid this pitfall you can either opt for a card without annual fees or again make sure you have direct payments set up to avoid these problems.
Understanding Balance Transfer Fees
Balance transfer fees are charges mad whenever you use your credit card to deposit money into your bank; and sometimes if you pay off other bills using your card as well. These fees can mean that transferring money can be very expensive and if you intend to use your card in this way you need to be very wary of them. Some cards offer 0% interest on balance transfers but you’ll want to check and make sure that this isn’t just an introductory offer – as many credit card companies will change your policy after a certain period of time has elapsed.
General Credit and Debt Control
Whilst the pitfalls above will help you avoid many credit card problems one of the biggest issue credit card users face is spiralling debts. It is al too easy to miss payments and find yourself faced with a bill you simply can’t pay. If this happens do not under any circumstances bury your head in the sand as things will just get worse. Instead talk to your credit card company directly and see if they will freeze the interest and create a payment pln for you to pay off the debt. This way you can keep afloat and return to financial normality. If the company refuses then consider seeking a small, lower interest loan that you can afford to repay and use this money to pay off your larger interest rate debt.
Mike Tamber is a financial expert sharing his expertise in business, low interest credit cards, loans and debt management