Credit Card Lowdown: ‘Interest’ing credit card tales of horror

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‘Interest’ing credit card tales of horror

Credit card jargon always seems very difficult to digest and most of us prefer to throw the contracts away or keep them for a time when we are in a better humor to read them. If you belong to either of these categories of people, then here’s a bit of a warning: This attitude may prove counterproductive.

Agreed credit cards are a boon in today’s world and that we need and use them almost daily, there are certain things that you need to know about credit cards. The knowledge that these contracts provide on the nature of your credit cards and the rules governing them, can empower you and help you know how much you’re going to pay and also, the consequences of not paying on time.

Here’s a lowdown on how to decipher credit card lingo. One of the first things you need to look out for are the interest rates. These rates are not only different; they can also jump at the drop of a hat. If you didn’t already know it, here’s another bit of news: Different interest rates apply to purchases, cash advances and balance transfers. Add to these the penalty rates that you have to pay if you are late in paying your bills and you have the ingredients for your fine balancing act. Oh, and if I forgot to mention, if you exceed your credit limit or your credit score drops, then too penalty kicks in. What fun!

And now visualize this scenario: You send a check well in advance to the credit card company, but due to insufficient funds or any other reason, your check bounces. What happens? Your interest rate soars through the roof! In some cases, this penalty rate has been known to reach an unbelievable 30% on mainstream cards.

A last bit of information on interest rates. If you thought you could pay off the highest-rate balance first, think again. According to the cardholders’ agreement issued by most credit card companies, your payments will first go toward the lowest-rate balance and will then later on be used for the higher-rate one. If you are the type of customer who carries a balance, then this is one way of keeping you in debt longer.

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March 9, 2006 in Reviews, Tips & Advice | Permalink