Wednesday, June 9, 2010, AM | 13 Comments
There are some tricks still available to credit card issuers that can potentially send you on a downfall path to traps that you could never have imagined. Of course, if you are not careful. The new CARD Act can help you only if you help yourself and watch out for these traps. It can protect you only if you take precaution of how to use your credit card for your own benefit and not so much for the benefit of the card issuer. Most of us, unintentionally and subconsciously with our actions, fill the card issuers’ treasure chest instead of benefiting our financial life and try not getting into debt that we cannot control. Let’s try to win this battle and not lose it.
The fact of the problem is…
The next time you want to switch credit cards in order to get the lowest possible interest rate, you’d better watch out. A growing number of card issuers have been quietly adding penalties and restrictions to their accounts in an attempt to make up for lost revenues and there will be more under the new CARD Act.
What’s the solution?
When you receive a promotional letter, forget what appears on the envelope or in an advertisement. Instead, read the disclosure box that, by law, must appear on the back of all credit card applications. It’s unfortunate for at least 90% of folks who receive these letters but never read these boxes. So if you don’t, chances are that you would end up paying unexpected fees if you violate the card agreements.
Watch out for the following…
Be smart, act smart, read carefully and look out for these disclosure box red flags. Remember, even under the CARD Act, there will still be red flags. Whatever you do, make an intelligent and conscientious decision. So you better be extra careful:
Grace period is not mentioned
It has been stated that more than 90% of the card issuers offer a grace period of about 25 days. That means you have that many days to pay for your purchase before being charged interest. If you are unlucky enough that your account comes under the less than 10% of card issuers that offer no grace period, that should raise a flag. Always look for the mention of grace period on your application form.
High annual fees
Because of the new CARD Act, the card issuers might start charging fees for their cards that are fee-free at present to make up for their potential losses. However, I reckon there will always be credit cards issued with no annual fee and with a good reasonable interest rate. You just have to sift through the information online.
Too-low interest rates
If the interest rate is less than 10%, chances are it’s an introductory rate that lasts only for a short time. Make sure you know beforehand what your interest rate will be when the introductory rate expires. Also, make sure that you have all the charges paid off before the said expiration date.
If the difference between a card’s introductory rate and its long-term rate is more than 5%, look elsewhere for a better deal.
Penalty interest rates
Some disclosure boxes may state that a higher interest rate goes into effect if you fail to meet the requirements of the issuer. Because of the new law, these requirements should be clearly stated. Look for the fine prints.
Some issuers treat balance transfers as cash advances. That carries an extremely high interest rate. Also, the issuer might charge you interest immediately rather than waiting until after your first bill arrives.
A “Two-cycle” average daily balance
Even with new law, if this phrase appears in the disclosure box, throw away the application. By the way, the two-cycle method is the sum of the average daily balances for two billing cycles.
In a Nutshell
Violation of these standards usually includes making a late payment or exceeding your credit limit. Limits are most exceeded when staying at hotels, which sometimes charge you after you leave.
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