Credit can be a useful tool or it can spell financial ruin. Used wisely, it can provide convenience and even monetary savings to individuals, however traps can be disastrous. It is important to learn about the various traps out there so that you can take measures to avoid them.
You see a credit card that sounds great. Nothing is better than 0% APR. You may think that you cannot beat that, but be wary because it may be a trap. According to Care One Debt Relief Services, this nonexistent interest rate often only applies to balance transfers. When you charge new items on the card, you may be vulnerable to a much higher interest rate. In addition, the 0% APR deal is typically only for a small amount of time. The interest rate may then jump to something quite significant.
The trap can even go further. Just because you see 0% APR on a letter that is inviting you to apply for a credit card does not mean that you will automatically qualify for it. Oftentimes, people will not qualify for such a rate. Plus, if you are late for one payment, that 0% APR may suddenly jump to something much higher. To avoid this trap, be sure to thoroughly read through the entire offer.
You may see an advertisement for a piece of furniture or another item that says “interest-free.” It may list a certain amount of time such as six months. What you may not know is that if you do not pay the entire balance by that date, you could be liable for interest from day one.
Your credit card may have a high but somewhat reasonable APR, however they may also have something called a default APR. This may be as high as 35%! They may reserve the right to raise your rate to this APR should you make a few errors such as a few late payments. It is important to follow the instructions completely to avoid this trap.
You are very excited when you find a credit card that lists a decent APR at a fixed rate. You may assume that the term “fixed” means the rate will stay the same. Unfortunately that is not true. Even with a fixed interest rate, the credit card can easily change your APR at its discretion with a mere few weeks’ notice. Make sure to pay attention to every correspondence you get from your credit card company.
Many consumers have difficulty reading the small print that comes with credit card statements. Some companies will purposely place a variety of different APRs so that it is difficult to tell which is the right (and often higher) one.
Late fees can add up greatly and prompt the credit card company to bring you to a higher APR. In addition, some credit card companies have started the nefarious practice of posting payments late. Send in your payment very early or utilize the computer so you can have a specific posting date on file.
Many credit cards have annual fees. These can add up and make the credit card not worthwhile.
Credit traps cost people a great deal of money. Do not let yourself get caught in one of them. Carefully think through all financial decisions.