fully understand and compare because of the amount of small print
hidden away in the credit agreement. Let's be honest - how many people
even take the time to read it, let alone understand it and see how it
will apply to the cost of using their cards? Not many do, and the
credit card companies know this. By hiding away some 'features' in the
small print, they can often squeeze a little more profit from their
customers, usually without the cardholder knowing or caring.
However, once you know about some of the tricks they use, you'll be
ahead of the game and will be able to make more efficient use of your
card, with lower monthly bills and smaller charges to your account.
The first trick, the balance transfer fee, is now very well known,
mainly because advertising regulations mean that if it's present it
must feature prominently in marketing material. This fee is charged as
a small percentage of any balance transfer you make onto the card,
usually after being attracted by a 0% introductory deal or a low rate
for life offer. Unfortunately, balance transfer fees are pretty much a
fact of life for credit card users these days, and it's all but
impossible to get a balance transfer card with no fee. The best you
can aim for is to get the lowest percentage fee possible.
As well as being used for purchases, credit cards can also be used to
obtain money from cash dispensers, a feature known as a cash advance.
This area is a real money spinner for card issuers. Not only do they
charge a higher rate of interest for money borrowed in this way,
sometimes twice as high, they usually charge a fee of two to three per
cent of the money you withdraw as well. Furthermore, there's usually
no interest free grace period, and so you'll be paying interest on
whatever you withdraw, even if you settle the balance in full at the
next statement. In a final, somewhat sneaky move, card companies have
started to widen their definitions of a cash advance. Some usages of
your card such as paying for online gambling are now regarded as cash
advances by some issuers, and charged accordingly.
Perhaps the most insidious form of 'hidden' charge comes under the
slightly obscure name of Allocation of Payments. This system means
that any repayments you make go towards repaying the lowest interest
kind of debt on your account first, leaving the more expensive parts
of your debt untouched. For an example, if you transfer a balance of
$5000 onto a card at a lifetime rate of 5%, and then make a cash
advance of $200 charged at 25%, then that $200 will sit in your
account attracting the higher rate until you've completely cleared the
$5000 balance transfer. None of your repayments will reduce the amount
of your debt being charged at 25%. This means that the only effective
way to use a balance transfer facility is to transfer the balance, and
then never use the card again for any reason until you've cleared the
debt.
The last trick that we'll look at is the reduction of minimum
repayments. Once, the normal repayment you had to make each month was
around 5% of your balance. Over the years, this has fallen to an
average of 2.5%, meaning that a higher proportion of each repayment
goes towards paying interest, and less towards reducing your debt. A
minimum repayment of 2.5% is only marginally higher than that needed
to service the interest charges, and will mean your debt will take
years longer to clear than it should, costing much more in interest.
Even if it's only by a small amount, you should always try to pay more
than the minimum required each month.
Article Source: Free Articles - http://www.articlesworldonline.com
Michael writes for credit cards comparison site Card Sense, where you
can get up to date information on products including the Egg Card,
Barclaycard, MBNA Rewards and many more.
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