Having a credit card is a little bit like making a deal with the devil. You can get everything you wish for by flashing that little piece of plastic around – but when it comes time to pay up for it all… well, the devil always gets his due.
Let’s be honest, credit card companies don’t care that you’re “responsible”. They can’t make as much money from you if you use your card(s) wisely.
But if you’re someone who maxes out your credit card(s), carries a huge balance and only makes the minimum payment each month – you’re EXACTLY the kind of user that credit card companies drool over.
So before you sell your “soul” to the credit card companies – make sure you keep an eye out for these credit card tricks that can cost you serious cash:
Check Your Credit Card’s Interest Rate
The interest rate is what’ll kill you. That’s how the credit card companies make money. And with the way household debt is growing in Singapore – it looks like business will be booming for quite some time.
Put simply, the more you borrow, the more the credit card companies will make. And with credit card interest rates hovering at around 24%, and that can add up to some serious cash loss over time.
To give you an example of how a credit card’s interest rate can affect your ability to repay (especially if you get into serious trouble making repayments), let’s look at a simple example:
Let’s say you have a balance to pay off of $3,000 at 24% (APR).
You promise to make minimum repayments of $100 per month till you pay it off.
If you pay $100 a month it’ll take you 47 months to pay off the debt – and by that time, you’ll end up paying $1,628 in interest alone!
So in the end – because of interest you ended up paying a total of $4,628 dollars (and I didn’t even factor in any extra monthly charges!).
What’s worse, if you happen to miss at least two consecutive payments (you can usually get away with one if you call the credit card company and plead your case), your interest rate can get raised even higher!
The easiest way to avoid this situation is to follow this simple rule – have a credit card dedicated to spending that you can fully pay off every month and buy only what you can afford to pay for. If you happen to carry plenty of credit card debt, consider this approach to destroying it or think about transferring the balance to another card with a lower interest rate.
Check Your Credit Card’s Fees
Reading the fine print is a pain in the ass – that’s just a reality you’ll have to deal with, especially when it comes to credit cards. That’s because there are plenty of devious ways credit card companies can get just a little extra cash out of you.
Here are just some of the most common credit card fees you’ll need to be aware of:
- Late Fee: Pretty self-explanatory right? Well, you’ll need to pay particular attention to the cut-off times when payments are due (ex. no later than 6pm). In Singapore, the late fees can easily reach $50+ dollars every time.
- Over Credit Limit Fee: Credit card companies can also charge you a over credit limit fee that can be a certain percentage (ex. 3%) of your balance AND the excess over the credit limit.
- Cash Advance Fee: If you want to use your credit card to withdraw cash, be prepared to a fee (ex. 6%+) for the privilege. You might also have to pay monthly finance charges on the amount withdrawn until you pay it off fully.
- Foreign Transaction Fee: This fee can get tricky to understand. Basically, you’ll get charged a currency conversion fee (ex. 1%) plus an administrative fee (ex. 2%) so you’ll end up paying 3% or more ON TOP of the prevailing exchange rate determined by the credit card issuer.
Finally, there’s the annual fee you’ll have to pay for most credit cards. Most credit cards offer a 1-year waiver on the annual fee, but come the following year, you might end up paying $100 to $300 per credit card.
Fortunately, there’s a chance you can argue the fees and win.
Beware of Advertised Deals
You’ve heard it a thousand times before – if it sounds too good to be true, it probably is.
This same concept should definitely be applied to any sort of credit card deal or promotion you come across because chances are good that there’s something hidden in the fine print that can end up costing you more than you realise.
Here are some of the advertised deals that you should definitely read the fine print on:
- High Cash Back Rates: If you see high cash back rates being advertised, beware.You might get that rate only on certain spending categories (ex. groceries, petrol, etc.) but the categories can change quarterly. Also, your cash back spending might be capped (ex. $2,000) per quarter as well!
- Ultra-high Sign-up Bonus: That introductory sign-up bonus you’ll receive for cash back, rewards points or air miles might have a minimum spend limit attached to it (ex. $10,000 in the first 3 months) or might have a time limit attached (ex. double points for the first 6 months only!).
- Low-worth Rewards Points: Most credit cards have their own rewards points system in place. However, what you might find out is that each point you earn is practically worthless. For example, it might take 60,000 points to get an iPhone 5 but if you’re only earning 1.2 points per dollar, it’ll take a total spend of $50,000 to get it!
What’s the best way to avoid the financial pain of taking a bad advertised deal? Simple – just read the fine print and make sure you compare credit cards before choosing the right one for your shopping needs.
You can compare credit cards quickly and easily right now with our Credit Cards Wizard.
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Tags: Credit Cards