Possible land mines
Your sense of financial well being can be obliterated easily by any number of land mines that lie in wait for the unsavvy user of credit. Here are a few of them.
The cost of cash advances
Getting cash from your credit card is one of the most expensive ways to put money in your pocket. There is usually no grace period on cash advances. That means you're charged interest the second the ATM spits out the cash. And lenders often charge a higher interest rate for this "convenience." So on top of the fee you'll pay to get a cash advance - typically around 2% of the total - you'll pay a higher interest from the day you get it. With all of this in mind, you might want to reserve cash advances for true emergencies.
Short or non-existent grace periods
If you'll be paying your bill in full every month, you'll want a reasonable "grace period" in which to pay the bill before interest charges start accruing. Look at the disclosure information to see when interest is charged on new purchases, and make sure you pay your bill on time. If your payment is one day late it will almost certainly trigger interest charges. Also, if you carry a balance over months, chances are you'll have no grace period for new purchases.
When dealing with debt consolidation and finance companies, consider that you may end up with one monthly bill, but you might end up paying quite a bit of money for a long time for that convenience. If you use a home equity loan to consolidate, you are using your home as collateral.
Low minimum monthly payments
The minimum may only be 2% to 3% of the balance, a number that sounds low enough to some people. However, the price of any given item will be relatively steep over time and it may take years before you finally pay the bill in full.
Low APRs
If you'll be running a balance, the interest rate or APR annual percentage rate) will be an important consideration. Find a card with a low APR, but do keep in mind that the lowest APRs (around 2.9%) are "teaser rates." Teaser rates go up sharply as soon as the introductory period expires. Read the fine print to see when the rate will go up and the maximum rate that can be charged. If you're not prepared to pay your balance in full by the end of the teaser period, don't fall for the pitch. Instead, find a regular card with the lowest rate for which you qualify. Be sure to check with as many creditors as possible and shop around for the best rates.
Are you considering an advance-fee loans? These are almost always a bad deal. You pay a fee of hundreds of dollars for a company to guarantee you'll receive a credit card or personal loan. Legitimate creditors will not guarantee a loan and will not ask for payment until the consumer has received the loan.
Unauthorized use of a credit card
A dishonest person can use a consumer's name, card number and expiration date to order items over the phone, the Internet or through a catalogue. If a credit card has been lost or stolen, notify the card issuer immediately. Pre-approved card offers can be stolen from a mailbox without the knowledge of the intended recipient and redirected elsewhere. If not shredded, information containing credit card numbers and names can be taken from trash containers. In addition to fraudulent charges, identity theft - a much more severe problem - can result.
Credit report misinformation
Check your report at least once a year to make sure information is being reported correctly. While inaccuracies that affect your creditworthiness are rare, it can happen. Credit bureaus like Experian® can help you make sure everything is correct.
Mistakes on a credit card bill
Study your monthly bill carefully and compare the charges against sales receipts. If you have any doubts about a charge, call the credit card company and ask them to provide more information. Make sure the APR listed on the statement is correct, especially if you have a low APR as a promotional offer. Check to see if returned purchases were correctly credited to your account.
Impulse buying
With the power of plastic, it's certainly tempting to indulge in purchases you don't necessarily need. Such purchases can add up fast and generate a balance that takes you by surprise. When you're contemplating an impulse purchase on credit, take a second to think about the check you'll be writing to cover the cost a month down the road.
This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.
What You Will Find Here
- OJOS11
- Articles and news of general interest about investing, saving, personal finance, retirement, insurance, saving on taxes, college funding, financial literacy, estate planning, consumer education, long term care, financial services, help for seniors and business owners.
READING LIST
-
▼
2008
(74)
-
▼
September
(8)
- What Happened Last Week? from Randall Forsyth at B...
- CREDIT LAND MINES - FROM consumerinfo.com (Experian)
- Safety First (from Barrons)
- How Safe is Your Safe Deposit Box - from FDIC
- Protection for Credit Union Accounts - from Nation...
- Information from FDIC - Federal Deposit Insurance ...
- information from SIPC - Securities Investor Protec...
- from Fox News New York - Lehman Bankruptcy
-
▼
September
(8)
Blog List
-
-
Expect More Inflation No Matter Who Wins the Election - For many reasons, the Fed will struggle to contain inflation. This is part one, deficit spending and interest on the debt.
-
How Companies Dodge Tariffs - Protectionist trade policies are popular on both the left and right. But some economists say they’re likely to backfire.
-
Neom wants to build a 1,500-foot infinity pool that's almost 4 times longer than one in Dubai - The pool planned for the Treyam region of Saudi Arabia's Neom megaproject will be 1,500 feet long and suspended 220 feet above the sea if completed.
-
Everybody Else Is Reading This - Snowflakes That Stay On My Nose And Eyelashes Above The Law Trump’s New Birth Control […]
-
Maximizing Employer Stock Options - Oct 29 – On this edition of Lifetime Income, Paul Horn and Chris Preitauer discuss the benefits of employee stock options and how to best benefit from th...
-
Wayfair Needs to Prove This Isn't as Good as It Gets - Earnings were encouraging, but questions remain about the online retailer's long-term viability.
-
Hannity Promises To Expose CNN & NBC News In "EpicFail" - *"Tick tock."* In a mysterious tweet yesterday evening to his *3.19 million followers,* Fox News' Sean Hannity offered a preview of what is to come from ...
-
Don’t Forget These Important Retirement Deadlines - *Now that fall is in full swing, be sure to mark your calendar for steps that can help boost your tax-advantage retirement savings.*