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Credit Card Shocker
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.
About The Author
Rosella Aranda, international marketer, writer and business
mentor, collaborates with a team of experienced professionals to
help people achieve financial health and peace of mind. To learn
how to reduce your debt, view: http://www.FreeFreedomSeminar.com. For further
information on how you can become financially independent, please
visit http://www.FinancialFreedomWorld.com or write to
rosella_aranda@yahoo.com.
MORE RESOURCES:
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