Important Facts About Credit Cards

Late payment fees are now averaging $29.00 per month. This can add up quickly and in some cases may wipe out the small amount of your payment going to principle.

Over the limit fees are also averaging $29.00 per month. Like late payment fees, these can add up quickly and in some cases may wipe out the small amount of your payment going to principle.

If your credit card statement shows that you have an outstanding balance, but your minimum monthly payment is not required, it is strongly recommended that you still make a payment.

Many consumers think this is a consumer incentive or a bonus.  What some consumers don’t realize is that they are still paying interest on their outstanding balance. This means that the only bonus is to the credit card company. They will now earn more interest on your money, and you will ultimately owe more money. Unless your credit card company is offering an incentive for a specified period of time at no interest, don’t fall for this gimmick.

Some credit card companies will offer no interest for a period of time. This is usually in connection with new credit cards or new purchases.  Make sure you understand all the requirements in order to receive the special offer. Some offers only apply at specific retailers, while others only apply if you charge over a specific amount of money in a single transaction.  Most do not apply to cash advances. 

We can’t begin to mention all the possibilities. There are as many rules as a marketing department can come up with. Make sure you read the fine print. Also, keep in mind that credit card companies may charge you all the back interest if there is an outstanding balance at the end of the offer

The interest rate you pay on retailer charges and the interest rate you pay on cash advances may be different. In many cases cash advances can be much higher and are usually the last to be paid. This means that your minimum payment will be used first to pay down your retailer charges and if any amount from your monthly payment is left, it will be used to pay off your cash advances. Paying higher interest rates combined with cash advancement fees and possible bank convenience charges, this can end up costing you a lot of money.

Beware, if you are offered cash advances at no interest charge make sure you know the terms and conditions. Remember, when the offer ends, and if you still have an outstanding cash advancement balance, you may find your interest rate jumping higher than you expected. We can’t stress enough how important it is to understand the terms and conditions of each credit card you use.

When offering a new credit card, many companies will offer incentives to new card holders. These offers may include very low or no interest for a short period of time, no cash advance fees, no annual fees etc. When the offer period ends make sure you understand what to expect. Many cards will jump to 8% or even as high as 24%.

  Top 10 Hidden Dangers of Credit Cards 

1. The universal default penalties. Card issuers regularly check their customers' credit reports for late payments on any of their bills. Any late payment can be used as an excuse to trigger a hike in your credit card's interest rate, even if you have never made a late payment to the card issuer.

A recent study by Consumer Action, a San Francisco-based consumer advocacy group, found that 39 percent of credit cards had universal default penalties in 2003. This year the figure jumped to 44 percent.

2. Bait-and-switch card offers. Direct mail offers generally advertise the issuer's premium card at an eye-popping low interest rate, while the fine print says the company can issue a more costly non-premium card with a higher annual percentage rate if you fail to qualify for the premium card. Just because you apply for a card with a low rate doesn't mean the card that shows up in the mail actually carries that low rate.

3. Shrinking grace periods. Historically, grace periods -- the time during which your transactions don't accrue interest -- were 30 days long. They now average 23 days, and some issuers have whittled the grace period to 20 days. Some cards have no grace period at all.

4. Two-cycle billing. While most card issuers use the standard one-month method to calculate interest charges, some use a method that calculates interest on two previous months' balances. Companies compute interest charges on your average daily balance by adding each day's balance and then dividing that total by the number of days in the billing cycle. Some do it on a monthly basis but others use the average daily balance over the last two billing periods. If you carry a balance this usually means that you've lost any grace period on your new purchases. Unless you pay off your balance for two months in a row, the two-cycle method will include the prior cycle's average balance in calculating your finance costs even though you paid off that cycle's balance in full. You don't face that expense with a single-cycle card.

5. Inactivity charges. Credit card companies don't make money if you don't use your cards. Keeping your card in your wallet could incur a hefty fee, as much as $15 if you haven't swiped your card in six months, but charges may be incurred for shorter intervals.

6. Late payment fees. A recent study by Vertis, a marketing company that researches consumer credit usage and payment habits, found that 2 percent of all credit card holders occasionally miss getting their credit card payment in on time. They pay dearly. The national average is $29. MBNA (one of the largest issuers of credit cards), Bank of America and Providian are among the steepest chargers. Their late-paying customers get squeezed $39, according to Consumer Action.

And there's yet another downside to paying late: A higher interest rate. In a 2003 survey, Consumer Action found that just one or two late payments will trigger a higher interest rate.

7. Over-limit fees. Exceed your credit limit by even one cent and you'll be hit with over-limit fees of $25 to $39. And don't forget -- charges such as a $39 late fee can then trigger a $39 over-limit fee.

8. Balance transfer fees. It's the big tease: A rock-bottom introductory rate to transfer your balance, but that tantalizing low rate may come with a steep transaction fee, 3 to 5 percent, for transferring your balance to their card, which means transferring $1,000 at 4 percent will cost you $40. "It's really very tricky," says California attorney Howard Strong, author of "Credit Card Secrets." He adds, "They have all these sneaky fees. You need to be extremely cautious."

By the way, last year, the industry took in $43 billion in fee income, up from $39 billion in 2002, according to R.K. Hammer Investment Bankers. The industry's take is expected to increase again this year.

9. Mandatory arbitration. "If there's a dispute, you may have given up your right to your day in a court of law," says attorney/author Strong. "If that's the case, your only recourse is mandatory arbitration."

10. Payment allocation. If you're carrying a balance, and you use your credit card for purchases and cash advances, or you're paying off a promotional rate and then add charges beyond the promotional period, your card company will first allocate your payments to the charges that will earn it the most money. In most cases, that means it will apply your payment to the balance that has the lower rate, thereby allowing the balance with the higher rate to accumulate and compound interest.

  Tips for Choosing the Right Low Interest Credit Card

What do you look for in choosing low interest credit cards? This should be based on your lifestyle, and the way you repay your credit cards. There are also a few choices that only you can decide for yourself such as whether you prefer Visa, MasterCard, a Discover Card, or something else.

A few things which you should consider each and every time are covered below.

Introductory APR: Do you have outstanding credit card debts on other higher interest rate credit cards? Do you want to enjoy an extremely low or zero percent interest rate for a period of time? Companies these days are offering great introductory rates to convince you to swap to their low interest credit cards. Be sure to check if their introductory APR applies to balance transfers as well as purchases before assuming you'll save compared to your present credit cards.

Ongoing APR: When your introductory rate (if offered) runs out, this will become very important. Some of the very low interest rate credit cards do not offer introductory rates because their ongoing is just that low. Before deciding on a card, choose whether you want up front savings, or ongoing savings. The choice is yours.

Grace Period: How long do you get interest free to repay any purchases made on the card? Depending on your spending habits, a longer grace period may just be what you're after.

Annual Fee: If they have an annual fee associated with a card, you need to take this into consideration. If you do not use your credit cards that much, all savings from other features may be forfeited through the cost of your annual fee.

Credit Line: They may start you off with a minimal credit line, but over time you may have the need for more. Check each card to find out just what size credit limit you can build yourself up to. Then again, if you're a high roller and a big spender, starting off with a card offering a substantial credit line may be the right move for you.

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