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Have you ever looked at your credit
card statement? I’m not talking about just making sure
that all the transactions are correct. I’m talking about
looking at the finance charges. I daresay that sometimes
that figure is almost as great as the minimum monthly
payment you’re making. After all, as long as you can
keep the creditors at bay by paying the minimum, that’s
all you care about, right? If you agreed, I urge you to
reconsider.
I’m sure that by now, many of you realize that you lose
money by buying on credit. Still, I don’t think many of
you appreciate just how much your credit cards are costing
you. I’d like to really drive that point home.
Let’s say that Joe decides he needs new patio furniture.
He doesn’t 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 that’s what he does, month in,
month, out, year in, year out, and pretty soon he’s been
doing this for one full decade. Surely it’s 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, isn’t 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 don’t
fall for that trap anymore. You only get credit cards with
a much lower interest rate, right? But do you notice that
it’s 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 don’t put it in plain view.
Believe me, credit card companies are not losing money on
these lower introductory rate 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, you’ve
GOT to take advantage of that, right? I’ll show you
three reasons why you shouldn’t.
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. Don’t assume that what you applied for is what you
are getting.
Secondly, 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.
Thirdly, 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 doesn’t 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.
What’s 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 we’ve 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 heaven’s sake, don’t start! If you are already
involved, get out as fast as you can. Here are a few basic
steps.
-Don’t carry a credit card. It’s amazing how easy it
is to ignore this obvious first step.
-Apply any extra money to your debts first. If you’re
saving a little nest egg earning at a rate of 5%, but you
have debts gnawing away to the tune of 12%, it’s 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.
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