Just The Facts: What You Need To Know BEFORE Paying With Plastic

By IFG Inc.

Pitfalls to Avoid When Shopping for Credit Cards

Individually, these may add up to only a few dollars each month, but collectively, they can add up to a substantial expense, especially over time or if you have numerous credit cards.

Most credit card issuers offer a 25 day grace period in which to pay for new purchases without incurring finance charges if you pay your balance in full each month. Some issuers have shortened the grace period or eliminated it altogether even if you always pay your account in full. You may be paying interest on most or all of your purchases.

Pay Monthly Credit Card Balance in Full

When you carry a balance from month to month, there is no grace period on new purchases with most cards. The grace period where no finance charges accrue only applies if you pay your balance in full each month.

Some card issuers charge two months of interest for the first month you fail to pay your balance in full. This occurs when you switch from paying in full to carrying a balance from month to month.

Most card issuers charge interest from the day a charge is posted to your account if you don't pay your account in full each month. Some, however, charge interest from the date of the purchase, often several days before they have paid the merchant on your behalf!

You may be paying $50 a year or more as an annual fee on your credit card. You may also be subject to finance charges of over 18%. Most credit card issuers will lower fees and/or interest rates for good customers in order to retain their business. It doesn't cost anything to ask!

If your credit card issuer is also a bank where you have money on deposit, you may have signed an agreement when you opened the deposit account which permits the bank to take those deposited funds if you become delinquent on your credit card account.

Beware Of Hidden Credit Card Fees

If you sign up for a credit card with a low introductory rate, when the low rate period ends your existing balance will likely be subject to the regular, substantially higher interest rate.

Many issuers offer extra benefits to encourage you to sign up for their card such as lifetime warranty on purchases made with their card, various discounts, or protection if an item purchased with their card is lost or stolen.

Credit card agreements are renewed each year. The issuer sends a "new" agreement to the cardholder and, by using the card, the cardholder agrees to the new terms. If these "extras" are important to you, review the agreement each year to be sure they are still included with your card.

Many card issuers impose both finance charges and transaction fees for cash advances. Unlike charge purchases, interest is normally charged from the day the advance is taken, and the transaction fee may be as high as 2.5% of the amount taken. Avoid cash advances if possible!

Avoid cards which only require a minimum payment of 2%-3% per month. The issuer makes (and you pay) much more money in finance charges the longer you extend repayment.

Limited Liability for Stolen Debit Cards

Many card issuers offer debit cards that deduct money directly from your checking account. These often look like a Visa or MasterCard (credit card) but you do not have the same rights under the law for purchases made with these cards. Also, if the card is lost or stolen, your maximum liability is $50, but you must report it within 60 days, or pay the whole bill.

The more desirable credit card accounts (lower fees, lower interest rates, "extras" are more easily acquired by people with better credit histories, but it's a very competitive business. Read the fine print and shop around!