How to Avoid Credit Card Traps

You open your credit card bill, knowing that all you have to pay off is that $60 dinner, which was expensive, but so very, very delicious. You're not even feeling guilty about its cost because you budgeted for it. You look at the bill, and your balance is $88.62. Another credit card trap has nailed its prey. Drawn by the lure of a carrot, you've been had.

Difficulty: Moderate

Instructions

1. Be on the lookout. Assume that every benefit offered by a credit card company is in truth designed to pad fees and interest payments because in truth--they are. No "perks" ever come free.

2. Avoid the credit card offers if you have a crummy credit rating. For example, if you're staggering out of a bankruptcy, they know you can't declare bankruptcy again for six years.

3. Watch for the sleight of hand teaser rates. Some cards prohibit transferring balances for a year after opening an account. Your plan to use one low interest card to pay off a higher card is then a disaster because you must carry your new card at grossly higher rate after the teaser rate expires.

4. Beware the "you're kidding!" fees. Some credit cards claim that there are no "finance fees" for cash advances but charge "Transaction Fees" of up to 2% of the cash advance--minimum of $10.00.

5. Be careful of fees on activities as innocuous as calling the "Toll Free" number to check your balance.

6. Watch for the vanishing grace period. If you are a good citizen, paying your bill every month, you may find your grace period suddenly gone--interest then accrues from the moment you make a purchase. Then, to avoid a finance charge, all you need do is pay your bill before it's sent to you.

7. Avoid like the plague retroactive rate changes, rate changes related to late payments on other cards, penalty fees for closing your account, surprise annual fees, and sliding credit lines.

Tips & Warnings

• There are a number of websites that do an ongoing survey of the best credit cards. Trashing what comes in the mail and checking these sites is perhaps the best way of finding a trapless piece of plastic.
• Any card that comes out of South Dakota or Delaware should be inspected with great caution. These two states allow credit card companies to apply financial pressures that are illegal in other states.

Resources

• Great review of credit card land mines and finding a good credit card.
• Description of credit card traps.

Who Can Help Sponsored

• A Bad Credit Score is 598 or Below. Checking your own Credit Report won't affect your score! See instantly for $0 by Experian® www.FreeCreditReport.com

[alexeh]

on 5/27/2009 Thanks for great article! Seem simly but many still prey to hackers.

[jenniferclaerr]

on 5/25/2009 This article just isn't clear. If the charge for the dinner was $60, where did the additional $28.62 come from? I can't think of any way the additional charges could have been added, other than by interest, cash advance fees or late fees. And you mention a lot of fees to avoid but HOW do you avoid them? Thanks, but I think you've left your readers out in the cold.

[johnrapp]

on 5/22/2009 i saw this credit card trap one time, and i avoided it. you know how? using tips and strategies outlined in this very ehow, the one called How to Avoid Credit Card Traps. 5 stars!

[tegab]

on 5/19/2009 ...fee amount (3%) on the FIRST billing of your new balance transfer, then it will clear that amount and everything should be at 0%. Read EVERYTHING!

[tegab]

on 5/19/2009 Regarding step 4: Currently balance transfers fees are at 3% or 4% (not 2% as stated) of the amount your transferring. It used to have a maximum, say $75 or $100, but not anymore. **ALSO** The fee is not at the "teaser" rate, but at the "purchase rate" on your card. According to Chase bank, if you make the minimum payment and the balance transfer fee is more, then you will be being charged that higher rate for the fee dollar amount every month. Money will not be going against it, as your payments will be going toward the balance transfer amount at the teaser rate. For example: if it's 0% for 12 months, you will be pay your purchase rate, maybe 16-21% on the 3% fee for at least 12 months, maybe longer if it takes you longer to pay off the balance transfer. Don't forget your regular rates will kick in after those 12 months. Chase states that as long as you pay at least the fee am...