Credit Card Traps to Avoid
Credit cards leave some consumers walking a fine line between responsible use and becoming overwhelmed with debt. The common credit card traps end up costing you more money in fees and interest. In some cases, the pitfalls raise your credit card balance and make it difficult to stay current on your account.
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Fees
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Credit cards vary in their terms, including the type of fees and the amount charged for those fees. When looking for a credit card, inquire about all of the possible fees on the account. Charges for being over the limit or making a late payment are fees you can avoid, but many cards also charge an annual fee just to have the card. Look for a credit card that doesn't charge a fee, or call the company to see if it will waive the fee for you. The annual fee might not seem like much, but it adds to your balance, costing you more on top of the interest you already pay.
Introductory Benefits
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Credit card companies sometimes offer introductory rates or benefits to attract new users. While the initial benefits are appealing, keep in mind the effects of those benefits coming to an end. For example, if you charge a large amount in the beginning when the interest rate is lower, you may not have it paid of by the time the period ends. You'll end up with a big jump in your payments and the amount you owe.
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Balance Transfers
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Balance transfers seem appealing if you can get a drop in interest rate on your balance, but you do pay for that lower rate. A balance transfer comes with a fee that may be a standard rate or a percentage of the amount transferred. Consider how much you'll actually save with the lower interest compared to the amount of money you spend in transfer fees. If your budget allows, a better bet is to pay the balance of faster to avoid fees and interest.
Cash Advances
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A cash advance is another convenient option on a credit card that sends your account balance soaring. A fee to take the cash advance increase the cost of the transaction. Your credit card company may also charge you more interest on the cash advance amount. This means you'll pay more money and may take longer to pay off the debt since you're paying more interest.
Rewards
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While a reward program connected to your credit card can be beneficial, read the fine print to understand the program fully. Restrictions on the use of the rewards can make it less valuable to you. Avoid spending more than you normally would on your credit card just to get the rewards. When you consider the interest you will pay on the amount, the reward may not be worth it.
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