Credit cards make it easy to shop and make purchases without necessarily having the funds to be able to buy the services or items you need. You then are able to make payments towards the balance over time, making the process easier and more affordable. While cards are fantastic in emergency situations, they can quickly become an issue if you’re using them regularly. Unfortunately, companies know how to bring in new customers and they often use tricks and traps to keep us in debt.
No Interest Promotional Periods
There’s nothing more exciting to a person applying for a card than being told they won’t need to pay interest for 12 to 15 months. These no-interest promotional periods are a great way to save money, since you’re completely paying towards the principal of what you owe. However, all good things come to an end and if you charge too much on the card, you’ll be left with more than you can chew once the promotional period ends.
It is important to read the details of the agreement thoroughly. There is a difference between no interest and deferred interest. Deferred interest means that if you fail to pay off the debt in the allotted time, you’ll be responsible to pay all of the back interest as well.
You might have charged $1,500 to a credit card to buy new energy-efficient appliances. You receive the bill in the mail and realize that you only need to pay $25 towards the credit card in order to stay in good standing. While it’s tempting to pay a small amount towards your bill in an attempt to save money, it’s always best to pay more than the minimum due. This helps to quickly get the amount paid off so that you’re not accumulating interest.
Debt Usage Ratio
All accounts come with a limit, which is also known as a credit line. If you use most or all of your limit, this will have a negative impact on your score. Reporting agencies like to see available lines, but not to the point of using all of it. While it might be tempting to use all of your available balance, especially during an emergency, it might be best to ask for a limit increase. Credit limit increases can positively impact your credit score because your debt usage ratio is lowered.
Late Payment Fees
Like most companies, you can expect a late payment if you are tardy with paying your bill. Unfortunately, companies not only charge a late fee, but they also increase the amount of interest, often to the highest that is available. This means that you will pay the highest percentage of interest on each bill thereafter simply because you were late paying the bill.
Interest Rate Hikes
No matter the company you’ve chosen to utilize for a credit line, they can and often will hike up the interest rate regularly. This means that you might have a low interest rate one month and a higher one another. This is where it can become problematic when trying to get out of debt. Putting more towards the minimum payment and getting the bill paid off more quickly than expected can help to prevent paying more than you should.