Credit Card Sins

We all surely know that credit card debt is usually a very expensive form of debt, but are we fully aware of some of the tricks that the banks employ to maximise the revenue on their cards?

• First off, there's the way that they allocate your monthly payments. Let's say you have a 0% transfer deal which leaves you with $1000 at 0% on your card. You spend $200, and pay $200 back at the end of the month - you imagine that the $200 will be taken from your spending, but think again...the cheapest interest items will often get paid off first leaving the 'expensive' debt generating more income for the bank. Read the small print - many, many cards operate this way - use my philosophy: Get a 0% card for transfers for all your debt and NEVER use this card for purchases EVER....
• Cash withdrawal on a credit card will often attract far higher interest than the normal rate for purchases, add to this the cash withdrawal fee that you will be charged and Bingo, the most expensive way to borrow money ever! Charges will accrue immediately on withdrawal, leaving no breathing space, no interest free period. We have often seen interest charges in excess of 30% for cash withdrawals, and the best trick of all is that despite plummeting base rates, credit card interest rates are going up! (gotta get the money in from somewhere...).
• Beware of the current trend for offering lower minimum payments - if you're serious about paying off your debt, then having a low minimum payment is NOT an advantage. Low minimums are designed to keep you paying off your debt for decades... don't look at this as being a benefit! Also note that if you meant to clear your balance and accidentally underpay by just $1, you could be charged interest on the entire balance.

The banks will be using credit card debt earnings to shore up their cash flow after foolishly buying all those worthless sub-prime debts. Don't be the one to pay the price, shop around and pay attention to the APR, and read all the small print about how payments will be allocated. My stance remains that the best way to deal with credit cards is NOT to use them. If you must, use the 0% for transfers to pay off your debt (but don't spend on the same card). If you have a card that you spend on, pay off the balance immediately otherwise you are walking into a potential trap. The credit card is NOT your friend!

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