This article was last updated on February 5
Using credit cards has become a way of life for many of us. For the most part, credit cards do offer a convenient way to make purchases, and they enable us to walk around without mounds of cash in our pockets. In return for this and other conveniences like reward programs, however, there can also be some pretty hefty charges for using credit cards, especially if you’re not careful when it comes to repaying the funds you borrowed on credit.
Watching How Much You Spend and How Soon You Repay
There are several ways to avoid paying high credit card interest and fees. The first and probably best way is to simply pay off your balance in full every month. In today’s economy, though, this tactic is getting harder as more and more people struggle to make ends meet due to job losses, health care costs and/or much lower equity in their homes.
If you are simply unable to pay off your credit card balance each month, there are still ways that you can go around the high fees and interest rates. One way is to look for 0% interest cards. Many credit card companies offer a 0% option whereby you can make purchases and/or transfer balances for a certain period of time at no interest.
If you go with this option, there are a few things you must be aware of. First, is important to know that these 0% interest deals do not last forever. Therefore, you need to know for how long you are able to purchase or transfer another balance at that rate.
In addition, most credit card companies use a payment system where the debt with the lowest interest rate is paid off first. So for example, if you have a card that offered you 6 months of purchases at no interest and the rate then jumped to 15% afterward, any payments you make after that six month period will go towards paying off the 0% amount first and allowing the purchases made at 15% to continue to accrue interest charges.
In you are not able to obtain or qualify for a credit card at 0%, you can also contact your current credit card company and request a lower interest rate. Oftentimes card companies would rather keep you as a customer at a lower interest rate than see you transfer your balance to another card company.
Regardless of your interest rate, always make your payments on time – or better yet, slightly early. This will ensure you do not pay late fees, which can be as high as $39 – and the card company will tack on this amount even if your payment arrives just hours after the due date. Similar fees are charged for going over your credit limit on your card. So always be aware of what your credit limit amount is, and stay well below that amount if possible.
While credit card companies will try and wring every dime from you via fees and interest, you should always be aware of your rights – particularity with the passing of the CARD act which requires credit companies to be more transparent. This includes new provisions like:
* Giving you 45 days notice when they [card companies] plan to increase or change your interest rate or other fees (such as annual or late fees).
* Giving you the option to cancel the card before certain fee increases take effect. If you take that option, however, your credit card company may close your account and increase your monthly payment, subject to certain limitations.
* Providing your monthly credit card bill in the new format which includes information on how long it will take you to pay off your balance if you only make minimum payments. It will also tell you how much you would need to pay each month in order to pay off your balance in three years.
* Unless stated as introductory or indexed rate, a credit card company cannot increase your rate for the first 12 months after you open a new credit card account in good standing.
* Explicitly telling your credit card company that you want it to allow transactions that will take you over your credit limit. Otherwise they cannot process charges (and charge you an over the limit fee) that take you above your allowed credit limit
* Having an adult cosigner for anyone under 21 that wants a credit card or an increase in credit limits and who cannot show proof of income
Source : Federal Reserve
Using Your Credit Card to Obtain Cash
Credit cards also give you the ability to withdraw cash from ATM machines, similar to what you can do with a debit card. If you can avoid using your credit card to obtain cash, do! Otherwise it could cost you a great deal more than what you take out of the ATM machine.
Typically, interest rates charged for cash withdrawals are higher than rates used for purchases and balance transfers. And, on top of the higher interest rate, you will also be charged a withdrawal fee from your credit card company. So only ever use credit cards to obtain cash in true emergency situations. Otherwise it is simply not worth it.
What If Your Credit Card Is Lost or Stolen?
If you lose your credit card or it becomes stolen, report it immediately to your credit card company. While federal law does limit your liability with regard to fraudulent charges, the amount you will have to pay will depend upon how quickly you report the loss. If the card is reported stolen before any fraudulent charges are made, then you likely will have no liability at all. But, the longer you wait the more liable you may be to pay a certain amount.
Credit Card Reward Points
Credit card companies use reward programs and cash back rewards as a way to attract new customers and you can find a reward program for pretty much any type of need (Flying, groceries and gas rewards just to name a few). However be mindful that you need to spend a decent amount to leverage these rewards and when you factor in interest rates and fees on outstanding balances, it really only makes sense to get credit cards and the associated reward program benefits if you pay your bill in full and on time every month.