Credit Card Debt Piles Up
In 2007, Americans added more than $2 trillion to their cards through purchases and cash advances. While some can pay it off quickly, many make only minimum payments increasing the likelihood that they will face insurmountable credit card debt.
Using Credit for Splurge Purchases
One of the biggest mistakes credit card holders make is simply spending more than they can afford. It’s always best to shop with cash and leave the credit cards at home. You’ll always know exactly how much you have to spend.
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Accepting too Many Cards
For years, credit card companies filled mailboxes with special offers. Apply for a card that has no interest for the first two years or accept this offer with an interest rate that will remain at 9.9% for life.
Many people applied for these cards often accepting more than one. In fact, according to MSN, in 2007, the average American had four different cards. Fifteen percent had ten cards. The idea was that they’d take a new card planning to pay off a different card, but their plans went awry. Suddenly, they had balances on their old and new cards.
Ignoring the Fine Print of Credit Agreements
Credit card offers can be very misleading. While credit card companies send out brochures explaining their fine print, the print is tiny and often uses language that the average person doesn’t completely understand.
Before you accept any change in terms or apply for a new card, make sure you are very clear on the terms including payments, fees and interest rates.
Misunderstanding How Introductory Rates Work
The mail comes and you find an offer for zero percent interest. People are blinded by large print. They often miss the smaller, lighter print that states the offer expires after a specific period. After this, the company decides the rate based on your payment history and credit score. The interest also increases if you fail to make a payment on time. If you opt for an introductory rate, be certain you’ll agree to the terms following the introductory period.
Making Minimum Payments
Say you have a credit card with a rate of 29 percent that has an outstanding balance of $1,000. The credit card company bases payments on the interest accrued and one percent towards reducing the balance. Based on those numbers, the minimum monthly payment would be $33.93.
Every month, you are paying about $9 towards the principle and the remaining money pays the interest and any fees every month. Using this example, you will pay close to $2,000 in interest in the fourteen years and nine months it would take you to pay that $1,000 off. Paying extra is a better option for getting out of debt.
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Taking Advantage of Skip Payment Offers
Those who pay on time are often rewarded with the option to skip a payment around the holidays. This may seem ideal and the perfect way to spend money on extra presents, but the interest still accrues for that month. Even if a payment isn’t required, pay as much as you can to prevent extra interest charges.
Forgetting a Payment
The average credit card company has a standard charge of $39 for late payments. Depending on the company, if your payment comes after 5:00 p.m. EST, the fee is slapped on. Some companies call a payment late if it is not received by 1:00 p.m. EST. You can be thirty seconds late and they’ll add the late fee.
In addition, if you are near your maximum balance and the late fee puts you over, expect another charge of upwards of $50 for going over your limit. Set up automated payments or keep a close eye on when payments are due.
Accepting Rate Increases Without Argument
Many card companies are increasing rates to help keep their company afloat. You do not have to accept these rate increases. Write them a letter stating you want to opt-out of the increase. Companies must allow you to opt-out if you promise not to use the card again and continue making regular payments.
Ignoring your Statement
Always check your statement for fraudulent charges and for company billing errors. You usually have no more than sixty days to report errors.
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