The pros and cons of credit cards are constantly being weighed by consumers in the financial world today. Consumers enjoy the convenience of everyday shopping with their cards, and they may even receive rewards based on their purchases. Additionally a high credit score and good credit history are essential when purchasing a car or obtaining financing for a new home. The savvy consumer must be aware, however, of the potential fees they can be charged when using their accounts. Credit card companies are not merely benefactors offering convenience and bonuses to their accountholders. They are also businesses, and businesses want to make a profit.
Card companies have two ways of charging consumers:
Fees: There are several types of fees that can be assessed on an account. Perhaps the most common is the late fee, which is assessed when an account payment is received after the payment due date. The simplest way to avoid a late fee is to set up automatic payments on your account, preferably online. If you set up the payment online you have more control over making changes to it in the future, whereas changing an automatic payment set up by phone requires calling the card company. It is also important to make sure your payment posts on time every month. Monitor your credit card account to verify the payment has been received. If your payment is missing, contact the card company with the details of your payment amount and how you made the payment. Also, if you do ever pay late by accident call your card company as soon as possible. The faster you contact them, the more likely they’ll be to waive the late fee.
Another common credit card fee is charged for exceeding your credit line. Any accountholder carrying a balance close to their credit limit needs to be particularly aware of their purchases. One solution many companies offer is an online alert system. Sign up for specific alerts to be sent to your e-mail or phone; for instance, if you are within one hundred dollars of their credit line, you will be notified. Another option if alerts aren’t available requires self discipline. You can plan on leaving an available credit “cushion” on your account so that you don’t come to close to your limit. For instance, act as if your credit line is only $900, even if it is actually $1000. This strategy may require restraint, but it will save you many fees in the long run.
Card companies can also charge you fees for initiating balance transfers or cash advances. This amount will usually be a percentage of the overall transfer or cash advance. When initiating these transactions familiarize yourself with the terms involved in the offer. Consider calling your card company and attempting to negotiate the transfer fee. Sometimes they have additional offers available which could cost you less overall. In addition, credit cards may charge you an annual fee simply for having the card. If your account has an annual fee, consider whether the benefits of the card outweigh having to pay this fee. The credit card market is competitive enough that you may be able to find a similar card with no annual fee.
Interest: Card companies charge you interest for the transactions you make on your account. These finance charges are a certain percent of your average balance for the month. This percentage is your APR (Annual Percentage Rate). Most APRs vary based on prime rate, but they can average anywhere from the single digits all the way up to 30% based on your credit history. Most credit cards offer a grace period for purchases, however. If you pay off the full balance on your statement by the payment due date, you will not be charged interest. If you pay only a part of your balance, you will be charged interest based on your average balance for the month. Even if you pay off your full balance except for one dollar, you’ll still be assessed a finance charge on your next statement. Be careful to pay at least the statement balance due in order to avoid these finance charges.
Cash transactions on credit cards are also charged interest, but there are certain differences as compared to interest on purchases. There is no grace period for a cash advance, so you will be charged interest from the first day you borrowed cash from the card. Also, cash APRs tend to be higher than purchase APRs. It is unlikely you’ll see a cash APR for less than 20%; this can result in large finance charges on your monthly statement. To stop being charged interest on your cash balance you must pay off the whole cash balance on the card. In some cases, you may even need to bring your overall account balance to zero before the finance charges will stop. This trailing interest can result in repeated small charges every month.
The best way to avoid any of these charges is simply keeping an eye on your account. Check your account online or by phone regularly, and examine your bill each month. By utilizing these tips you can use your credit card to its full benefit and avoid unnecessary costs each month.