These days, almost everybody has a credit card.
It’s a great convivence, but as with most modern amenities, there’s also a steep trade-off.
This is especially true with credit cards, considering the fact that your finances are tied so closely to this little piece of plastic. And these little pieces of plastic are all tied by an invisible string to a company that doesn’t always have your best interests in mind.
Credit card companies have a number of ways to make your life hard, so, because knowledge is power, let’s throw a spotlight on their strategies. This way, you’ll be prepared.
Keep an Eye Out for Hidden Fees
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Companies will be companies, which means their bottom-line is to make as much money as possible, without losing the trust of the consumer.
Thus, if they’re going to squeeze a bit more cash out of you than usual, they’re going to have to be sneaky about it. This is where hidden fees come into play.
One such hidden fee is the reward redemption fee, which, as the same suggests, is stuffed into the Trojan Horse of a reward. Usually, there’s not a fee attached to a reward, which sort of defeats the entire purpose of a reward, but companies are not beyond this sort of behavior.
Imagine if someone handed you a birthday present and demanded twenty dollars to open it. That’s who we’re dealing with here.
If that’s not bad enough, some companies are charging a monthly fee simply for sending out a paper statement for checking accounts. This is probably to encourage card holders to switch over to a fully online service, but it’s still something of an insidious practice.
On the other hand, some companies even have a “maintenance fee” for online statements, as well, although they’re not as expensive as their paper alternatives, which can get as high as nine dollars a month.
Surely it doesn’t cost nine dollars to print a piece of paper and mail it, right?
Another of the most common hidden fees are foreign transaction fees, which are warned against by Credit Karma’s Kim Porter.
These occur when card holders purchase items from outside of the country, even if there’s not a conversion to be made between currencies. Not only does this occur when purchasing items online, but in person, as well, should you be on vacation in a different country.
These can cost between 1% and 3% of the purchase.
REVENGE OF THE RESIDUAL INTEREST
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If having a credit card proves to be more trouble than it’s worth, then you might decide to toss it in a drawer and never use it again. But if you have any outstanding purchases that went unpaid, then you might become a victim of residual interest.
Residual interest is what happens when a balance that went unpaid and unnoticed begins to stack up interest. In other words, a pebble hits the bigger rocks of interest and late fees, eventually becoming a rockslide of financial burden.
The only real way to guard against this happening to remain vigilant.
Always double check your statements to seek out any outstanding balances, or they’ll come back to haunt you. Even if you have canceled your credit card, double-check to makes sure everything is paid off.
Should there be even the smallest of remaining payments - just because the account is canceled doesn’t mean the companies are through with you. In this spirit, it’s immensely important that you save your final statement, so you can prove that you paid everything off.
CREDIT CARD COMPANIES WANT YOU TO EXCEED YOUR LIMIT
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Contrary to popular opinion, credit card companies want you to over-spend and exceed your limit.
That way, they can charge you the fee for doing so, as Forbes’ Harlan Landes points out.
Even the most diligent card holders may find themselves over-spending, due to monthly fees for insurance or entertainment services that may arise unexpectedly. With so many different subscription-based services these days, it’s easy to forget one or two of them.
But it’s not always so innocent as this. In the past, companies have lowered limits without warning. This can occur if they deem you a risky proposition, assuming you have a history of debt or not paying on time.
Therefore, even if you think you’re being responsible and spending under the limit, you might all of a sudden find yourself stacked with over-spending fees.
There are two ways to avoid these issues.
First, make sure your credit history is clean by always settling payments on time and not accumulating too much debt.
If it’s too late for that and you know you don’t have the best credit history, then make sure your spending isn’t remotely close to your limit. Give yourself plenty of breathing room, so even if the company lowers your limited unexpectedly, you’ll still be in the green.
DON’T FALL FOR CREDIT CARD PROTECTION INSURANCE
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On the surface, credit card protection insurance may seem like a good deal. However, it’s not quite as helpful as advertised. For starters, it’s somewhat costly, coming in at about one dollar for every 100 dollars you bring in. Obviously, this adds up.
With that price in mind, you’d expect some rock-solid insurance policy. The policy claims to continue making your monthly payments if you’re unable to, whether it’s because of health reasons or if you lose your job.
First of all, the policy only covers the minimum monthly payments, which are a tiny sliver of what you actually owe, so you’re better off putting the money that you would spend on the insurance policy into a savings account designed to cushion any unexpected blows.
But that’s not all. There are several exclusions that might void the insurance policy altogether, such as the specifics of the health crisis and unemployment conditions.
For example, if you work on your feet all day, then break your legs at home going down the stairs and are unable to perform your duties for a period of time, you might find out that your policy only covers on-site injuries, or maybe even on-site head injuries.
The policies can be extremely specific, so if you do decide to bite the bullet and purchase the policy, at least make sure you know what you’re getting.
KNOW THE DOWNSIDE OF CASH ADVANCES
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Cash advances are handy if you ever need some paper money for a specific service, such as a parking garage. However, it’s important to remember that these cash advances aren’t done out of the kindness of the credit card companies’ hearts.
According to Lisa Bertagnoli from CreditCards.com, the average interest rate on a cash advance is almost 24%. On top of that, there’s around a 5% fee on whatever amount of money you’re taking. For those hoping for a grace period, there’s bad news. As soon as the cash is withdrawn, the interest is charged.
All of this comes together to make cash advances far more trouble than they’re worth.
If you absolutely need the money, experts insist that you be sure you are able to pay off the money within a month. While it might sound like common sense, make sure whatever you need the money for is an absolute necessity. Don’t take a cash advance for a new pair of slacks.
DON’T RELY TOO HEAVILY ON GRACE PERIODS
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Grace periods might sound like a kind gesture, but they certainly have their drawbacks.
They claim to offer a period of time in which the card holder does not need to pay interest on an outstanding payment. However, if you pull out the ol’ magnifying glass and read the fine print, you’ll find that while you’re not charged for the interest during the grace period, it still accumulates. What does that mean, you ask?
It means that if you have a grace period of 15 months and you wait until just one day after the grace period is over, you won’t be paying one day’s worth of interest, you’ll be paying 15 months’ worth of interest.
Also, if you don’t meet the timeline of the grace period, then the grace period privilege will be revoked going forward and interest will immediately begin accumulating. While it depends on the credit card company, most require a two-month period of full, on-time payments until the grace period privilege is reinstated.
PERSONAL RESPONSIBLY IS THE BEST DEFENSE
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With all of these conditions, exclusions, hidden fees and tricky interest rates, being a credit card holder can sometimes feel like more of a burden than a privilege.
The credit card companies are in the business of making money, so they’ll show no mercy in finding every reason to hold you up by the ankles and shake you until your pockets are empty.
Because this is all perfectly legal, there’s only one true defense, and that’s personal responsibility.
Try not to put yourself in a position that makes you dependent on a particular service that might have a thousand unknown rules attached to it.
Whenever possible, put money into a savings account and be your own source of loans. That way, you can avoid any nasty fine print or crippling interest rates, and don’t have to worry about meeting several different deadlines.