Credit cards are great for spreading the cost of purchases and earning rewards, but have you read the fine print?
To begin, let me say that credit card companies are not evil, regardless of how they try and get your money.
Credit cards are convenient, they are good for online purchases, and some people actually believe their standard of life will improve if they have access to them.
They can even be great for rewards and cashback if you’re a diligent spender and, in the case of an emergency, your flexible friend can be quite handy.
Unfortunately, many of us are not diligent spenders and end up getting into debt for all the wrong reasons.
Let’s face it; every business has a job to do, and credit card companies, like your business, have a primary function: making money. So we really can't blame them, can we?
I think the most realistic approach to credit cards is to learn all the facts, pay attention to interest rates and take note of when the eye-catching offers end.
Low interest rates can change
These offers seldom last long. I’m sure you’ve received attractive offers lately but did you take a good look at them before you signed up? Often you will find a disclosure box towards the bottom of the document. Hidden amongst other jargon you will find expiry dates as to when the offer ends and the penalty you will incur if you fail to keep up with your payments. Remember, the low introductory offer may be void if you make a late payment.
An important thing to note is that when companies try to increase your rate, you have the right to refuse the price hike, so know your rights as a consumer.
Keep an eye out for what the rate will be. Often, after companies lure you in, rates will revert to unappetising figures.
Minimum payments can cost you more
I'm sure you've all heard the importance of paying off your debt at the end of every month and being able to achieve this takes planning. Basically, the idea is that you only buy what you can afford.
The issue is that not many people adhere to this rule and the credit card companies know this, which is why they are willing to increase your spending limit.
Skipping payments all together may seem like a minor transgression, however, it could be a costly credit card blunder.
Along with penalties, the payments you miss will most likely be recorded and damage your rating, making it difficult to get a card in the future.
It’s not in the credit card companies’ best interest for you to pay off your card at the end of the month because if you do, they don’t receive any money.
This is part of the reason rewards cards work for them ­­– they may offer cashback and airmiles but if you don’t pay off the balance you could be paying a high level of interest. You may as well have bought your plane ticket for full price as it would have cost you less in the long run.
Making the minimum payment is exactly what credit card companies want form you, this way they get interest on your debt and set you up for a long repayment schedule.
Withdrawing cash can be expensive
Unless you are in a serious financial bind, it is not advisable to withdraw cash on your credit card. Most credit card companies will charge you much higher rates for cash withdrawals rather than purchases.
Using a credit card to withdraw money tends to incur higher interest rates, which often kick in immediately.
You won't outsmart them
Each year credit card companies spend millions studying customers' habits and analysing their spending in order to separate them from their hard-earned cash. They believe that you will spend more on a credit card than when you pay cash because you don't feel the loss as quickly.
You may think that you are being wise by signing up to rewards schemes but in reality, you may be adding an unnecessary risk to your life.
**This material is for information purposes only and should not be considered financial advice. We strongly encourage our readers not to rely solely on this content, but to seek independent advice when making financial decisions.**
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