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Credit cards have numerous pitfalls
Your credit card is a source of numerous financial problems - watch out
Credit cards are a profitable business . If you have ever read the fine print in your bill, you will know why. Here are some things you should watch out for when you apply for or accept a major credit card. Failing to heed these warnings could cost you money.
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Credit card companies have many ways to make money off of you
Credit cards are a great convenience; it would be hard, for example, to do business on the Internet without them. You can use them when you might not have cash handy, or when you wouldn’t want to carry cash with you. They offer the flexibility of paying later for a purchase that you make now. But they do have some downsides. The interest rate that you pay to use them can be high if you don’t pay your bill in full each month. The late fees can be rather high if you pay late.
Credit cards are a financial tool that many people cannot do without, but there are some things you should know before you agree to use them. Failure to heed these warnings could mean that you will have to pay a lot more than necessary.
- The universal default clause in most credit card agreements says that the company can raise your interest rate if you pay anyone late. That’s right, anyone. If you pay your bill on time but pay the phone company a week late, you could find yourself looking at a higher interest rate on your card.
- States have interest rate caps, but the Federal government does not. That being the case, most lenders are located in states that have lax lending laws, such as South Dakota or Delaware. Your transactions are said to take place within those states, and you are subject to that state’s laws. Some states have no interest rate limits at all.
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- You may be able to negotiate your interest rate. If you have a good record of payment and your lender institutes an annual fee or an interest rate hike, it might be worthwhile to call them and ask them to lower the rate. They might or might not, but it’s worth a try.
- Failure to pay on time can trigger a late fee, and there is no limit to how much your company may charge you for a late payment. Such fees currently average $30-$39 per month, but there is nothing to prevent them from raising that rate to $500 tomorrow.
- The fine print - The fine print of your agreement also points out that the lender may raise your interest rate at any time, for any reason, provided that they give you fifteen days notice. That may not be comforting. Even if you are promised a particular fixed rate “for life”, it only means until they feel like raising your rate.
As we said earlier, credit cards are useful tools that are becoming more and more of a necessity every day. Be careful with them, however. The company that issues your card makes the rules and they are free to change those rules at any time and for any reason. For that reason, you should periodically see if you can find a better deal elsewhere.
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