When you get a financial product like a credit card you should be careful about the way you use it and the consequences of it. You should be aware that there are different traps and tricks that credit card issuers and the people who receive the payment can do with the card.
The card issuers may have deceptive offers to take advantage from the customer and the people or companies that receive payments with credit cards may also trick you to charge a higher amount for the use of it. Every financial product may have a trick and in this article we are going to talk about the ones in credit cards
Traps to avoid with credit cards
The first common trap is the introductory interest rate. Many cards offer 0% introductory APR for a certain period of time (around 12 months) to incentive you to make different purchases without having to pay interests. However, once that period is over the APR will be much higher because the card provider will want to take the interests that they were not charging during the first months.
That could be a problem if you carry your balance and pay the minimum. But, if you pay the debt before the introductory period ends you will not have to pay more interests. They may put a higher APR but if you don`t have any debt you should not be worried about it.
The second common trap is paying the minimum. The minimum amount of debt that you can pay every month can be around 2% of the total and that may seem helpful because you will not have to pay large amounts.
However, the trap is that you will have to pay more interests if you carry the balance for a long period of time. That means that you will spend more money on debt than if you pay it as soon as you can.
The third common trap is paying different fees for the use of the card. Some credit cards compete by offering low or 0$ fees but there are different types of fees and you should consult every fee of your card before using it.
Usually there are: annual fee (the one that you pay once a year for the use of the card); foreign transaction fee (the one that you pay when you use your credit card outside of the US); balance transfer fee (a fix amount or a percentage of the amount that you are transferring); cash advance fee (percentage or a fix amount of the total); late payment fee which can be a penalty APR or a fee for a late payment.
There are different fees and make sure to know each one of your card before using it.
The fourth common trap is the naming of the card because some card providers use “silver”, “gold” or “platinum” to identify different card. You may think that a “gold” credit card is better than the “silver” because you may need a higher income o better credit score to have the “gold” one.
However, that can be a trap to charge you higher fees for a “gold” credit card and many people do it. You should never apply for a credit card for the naming of it instead you should pick the one with the best set of characteristics that fits in your needs.
The fifth common trap is the use of store credit cards which are credit cards that you can use only in a specific store. Those cards usually offer good discounts and rewards for the use of it.
However, one of the problems of those cards is a higher interest rate compared to other credit cards which makes your purchases more expensive and not compensate the rewards that you obtain. So, you should never use those cards unless you are going to pay the full balance before it starts generating interests.
How to avoid most traps when you have a credit card?
There are some recommendations for people that use credit cards and they can be resumed as a good manage of your finances (having good financial education). The first recommendation is to pay the full balance every month to avoid paying interest.
That will reduce the cost of using a credit card which means that you are saving money. It is also a good habit that will help you to manage your finances.
The second thing that is recommended is to avoid overspending. Overspending means that you spend (with your credit card) more than you can pay.
That puts you in a hard financial situation because you will need extra money to pay the debt. A high debt/credit limit ratio is also bad for your credit score and that means that you are having troubles to manage your finances.
The third thing (maybe the most important) is tracking every dollar that you borrow (with a credit card or any other financial instrument). That means that you should know where is going every dollar (including fees) and it will help you to manage your finances correctly. Make sure to know when you have to pay the balance to prevent paying fees or carrying a penalty APR
In summary, there are different traps that you may face when using a credit card. However, you can avoid them if you use your credit card correctly and pick the right credit card for you. It is important to see all the alternatives in the market and even if you have a good credit card you can upgrade for a better one. You can find more information about it online so feel free to make your own research