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Credit Card Shocker
by Rosella Aranda
Have you ever looked at your credit card statement? I'm not talking about just
making sure that all the transactions are correct. I'm talking about looking at
the finance charges. I daresay that sometimes that figure is almost as great as
the minimum monthly payment you're making. After all, as long as you can keep
the creditors at bay by paying the minimum, that's all you care about, right? If
you agreed, I urge you to reconsider.
I'm sure that by now, many of you realize that you lose money by buying on
credit. Still, I don't think many of you appreciate just how much your credit
cards are costing you. I'd like to really drive that point home.
Let's say that Joe decides he needs new patio furniture. He doesn't have the
$2,000 cash, so he slaps down his plastic card knowing that he can make the
minimum monthly payment, no sweat. And so that's what he does, month in, month,
out, year in, year out, and pretty soon he's been doing this for one full
decade. Surely it's paid off by now! No, not even close. In fact, if Joe
continues to make the minimum monthly payment, he will be paying for that
furniture for the next 38 years! And once he has made the final payment on his
original $2,000 purchase, he will have paid an additional $5,300 in interest!
Pretty disgusting, isn't it? And this is at 14% APR. Many cards run higher.
Some of you more savvy credit card users out there might be thinking that you
already know this, so you don't fall for that trap anymore. You only get credit
cards with a much lower interest rate, right? But do you notice that it's only
for a few months? And do you pay attention to what the interest rate jumps to
after that short introductory period? You kind of have to hunt around for this
figure since they don't put it in plain view. Believe me, credit card companies
are not losing money on these lower introductory rate offers.
Credit card promotions are becoming even more devious. Now the credit card
companies are offering 0% interest on all balance transfers for up to 18 months!
Wow, well, you've GOT to take advantage of that, right? I'll show you three
reasons why you shouldn't.
First, even though you might be "pre-approved", it is in no way certain that you
will actually get this low rate. The credit card companies reserve the right to
reconsider their original offer based on your qualifications. They will often go
ahead and issue you a credit card, but it could be at a substantially higher
rate. Don't assume that what you applied for is what you are getting.
Secondly, there are often balance transfer fees that are substantial enough to
gobble up any savings you might make on a lower interest rate. Transfer rates
run anywhere from 3% to a hefty 5%, with a single transaction costing as much as
$65.
Thirdly, and this is the sneakiest part of all, in order to secure the 0% rate
on your transfers, you are required to purchase a minimum amount on your card
for several consecutive months. At first, this doesn't sound so bad. However,
the fine print tells you that the interest rate applied to these new purchases
is NOT the same 0% rate, but a different, much higher rate.
What's more, all your payments will always be allocated to the balance that will
earn the credit card company the most money. This means that the balances with
the lowest rates will be targeted first, while the balance with the much higher
rate keeps accruing and compounding interest month after month. So, if you
transfer a large sum in order to take advantage of this seemingly generous
offer, you will likely be paying on it for a very long time before you ever get
around to paying down the mandatory purchases, which are racking up some pretty
serious charges in the meantime..
And we've only looked at interest rates here. There are also default penalties,
late charges, over-the-limit fees, transaction fees, ATM fees, stop-payment
fees, cash advance fees and annual fees, all of which are on the increase. Over
half the states in the union have no limit on what credit card issuers can
charge for annual fees and yearly interest rates. These companies are gouging
their customers with charges that are downright outrageous, and unfortunately
for us, legal.
So how do you avoid falling into these sneaky traps that the credit card
companies set? If you are lucky enough to not be playing the losing game of
credit card roulette, for heaven's sake, don't start! If you are already
involved, get out as fast as you can. Here are a few basic steps.
-Don't carry a credit card. It's amazing how easy it is to ignore this obvious
first step.
-Apply any extra money to your debts first. If you're saving a little nest egg
earning at a rate of 5%, but you have debts gnawing away to the tune of 12%,
it's not difficult to see that this is a losing proposition. -Target one debt
for elimination at a time. Pick the one that can be wiped out the most quickly
first.
-Take all the extra money from the first debt and apply it to your second
target.
-Continue in like fashion until you have dug yourself out of this miserable pit.
And finally, breathe a major sigh of relief and vow never to pass that way
again.
About the author:
Rosella Aranda, international marketer, writer and business mentor,
collaborates with a team of experienced professionals to help people achieve
financial health and peace of mind. To learn how to reduce your debt, view:
http://www.FreeFreedomSeminar.com. For further information on how you can become
financially independent, please visit http://www.FinancialFreedomWorld.com or
write to rosella_aranda@yahoo. com |
