October 9, 2008

Watch Out For The Tricks Played By Credit Card Companies

With the economy in tatters and the financial crisis forcing us to watch every penny we spend, make sure your credit card issuer is not quietly ripping you off. And that means you have to look at more than just the headline annual percentage rate (APR). That handy plastic in your pocket comes with a range of sneaky charges and fees that can cost you dear if you are not careful.

Here are a few of the things to watch out for:-

Minimum Repayment

If you only repay the minmum amount each month, it could take years or even decades to clear your account. If you have a balance of £1,384 and only pay the minimum 2% of the balance each month, it will take until August 2039 to clear the debt. Additionally, you would also pay around £2,800 in interest – twice the amount of the capital borrowed.

Halifax announced it was cutting its minimum monthly repayment on its cards to 1% from 2% for some customers. This means that the customers will benefit from lower repayment bills in the short term, but it will mean that the debt will take longer to pay off.

Using The Card Overseas

Use of a VISA card or Mastercard overseas is convenient but very expensive. Most card companies charge a foreign useage loading everytime you use the card overseas, typically up to 2.75% of the spend. Withdrawing cash could add another 3%, so if you withdraw £100, you could pay anything up to 5.75% in charges.

Balance Transfer Charges

Credit cards that charge 0 per cent APR on balance transfers for an introductory period could save you hundreds of pounds in interest. But, as ever, there is a catch. In this case, it is called the balance transfer fee, typically between 2.5 per cent and 3 per cent of the balance you transfer.

Paying Off Cheapest Debt First

If you have taken out a balance transfer card, avoid using it for purchases. That’s because your monthly repayment will go towards clearing your transferred balance, which does not attract interest, rather than your purchases, which do. So the interest on your purchases builds up, month after month.

Sneakily Putting The Rates Up

Card issuers boost their profit margins at your expense by sneakily raising the headline APR on purchases. Just over a year ago, the average credit card charged 18.36 per cent but that has now jumped to 19.66 per cent.

Missed Repayment Charges

Miss a payment on your credit card and not only are you likely to incur a default penalty, typically £12, but you will also get a black mark on your credit record. It is worth setting up a direct debit to cover the minimum repayment. Better still, set up a direct debit to clear your entire balance every month.