Credit Card Traps

The following is a guest post.

Most people would agree that credit cards are a convenient way to pay for goods. They are also a good way to build a solid credit history. The key, though, is to use them responsibly and not fall into common credit card traps.

The debt trap
Credit cards are like a free loan for a certain period, usually 25 to 30 days. Pay off your bill during this time and you pay no interest. Fail to pay the whole amount you owe, however and the balance will incur interest charges of anywhere from 15 to 25 percent.

The minimum payment trap
If you do wind up carrying a balance on your card, pay it off as soon as you can. By paying only the minimum payment every month, you barely cover the finance charges and pay little toward the principal.

Cards are now required to disclose how long it will take to pay off a balance if you pay only the minimum payment. A balance of only a few hundred dollars can take a couple of years to pay off, paying just the minimum payment.

The cash advance trap
Using your credit card to get cash from an ATM may seem like a nice perk, but it’s one for which you pay handsomely.

Cash advance fees usually run from 2 to 4 percent of your cash advance and interest rates for cash advances are often higher than rates for purchases and balance transfers.

The balance transfer trap
Transferring higher-rate credit card balances to credit cards with lower interest rates is a good strategy that can save you a significant amount of money. But such a move is not without risks.

Cards often offer low teaser rates to attract balance transfers. If you take advantage of such an offer, make sure that you are going to pay the balance off before the teaser rate expires or that the regular rate is not higher than the rate you already pay.

Another thing to watch for with balance transfer offers is that the teaser rate often only applies to transfers and not purchases. If you make purchases with the card, the finance charges will be higher than the balance transfer rate, but whatever you pay will be applied to the lower-rate balance.

The store card trap
Department stores often offer deals and inducements to get you to take their credit cards, but having all those cards can be a bad thing.

Part of your credit score is based on how many open accounts you have and if you have an excessive amount, it can lower your score.

Also, it can be difficult to keep track of multiple credit card balances, increasing the likelihood of you making a late payment, which will damage your credit score even more and also lead to increased finance charges and penalty fees

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