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February 27, 2000
It seems like every day I receive an advertisement in the mail from a new credit card company trying to entice me to switch over with some super low interest rate. Unfortunately, because the credit industry has become so highly competitive, credit card companies have turned to tricky hidden terms that result in higher costs overall for using your credit card. Don't be persuaded to change credit cards because of the lure of low rates. Make sure you check out the fine print and understand exactly how the interest will be calculated and what type of fees you will be charged. Look out for:
- Short Introductory Interest Rates – These rates, also known as "Teaser Rates", can suck you into paying a lot more interest in the long run if you don't pay off your balance. Find out how long the Teaser Rate will last and what the regular rate will be. If the regular rate is much higher and you have an existing balance, consider either switching cards before the end of the introductory period or find a card with a lower regular rate.
- No Grace Period on Purchases – This can be a very costly item to overlook. The credit card company will start charging you interest from the time you make a purchase. Even if you pay off your balance each month or quickly pay your bill, you will still incur interest charges. Before you sign up for any credit card find out exactly how the interest will be calculated. If you can't tell from reading the terms, call customer service and ask.
- Hidden or Special Charges - Many credit card companies today do not charge an annual fee or if requested, they will waive the fee (you should always ask to have the annual fee waived). However, beware of special charges for customer service, inactive accounts, overseas transactions and high fees for cash advances. Typically, cash advances are charged either a minimum fee (like $20) or a percentage of the advance (such as 2.5% of the advance) whichever is higher. Make sure you know in advance what it will cost you for some "emergency money". Also beware of unusually high annual fees attached to specialty credit cards such as "air mileage" cards. Unless you generate large charges and pay them off each month, the huge annual fee may not be worth it because of the high mileage requirements.
- Reduced Due Date Period – The goal is to pay off your credit card balance as quickly as possible. Short due date grace periods make it much more difficult to do. Look for cards that allow you at least 25 days to pay your charges…of course the longer, the better.
Periodically, credit card issuers will change the terms of your card. Don't ignore those letters notifying you of a change. It is important to read the Change in Terms and Conditions section or you may find out too late the card you thought you had no longer exists.
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