Credit cards can be convenient, but they can also cost you if you aren’t careful — and sometimes even if you are. The government has taken steps — namely, the Credit Card Accountability, Responsibility and Disclosure Act (CARD Act) — to protect consumers from the potentially predatory practices of credit card issuers.
The government’s actions, while positive, are not completely comprehensive or failsafe. The best way to avoid credit card rate hikes is to educate yourself on the details of your contract. Here are three ways credit card companies can charge you more:
Cash Advance Rate Differences
Sure, your APR on purchases might be stellar. Chances are, your APR on cash advances isn’t as appealing. Issuers often offer a lower APR on purchases and a higher rate on cash advances. Some cards are set up to charge a high cash advance APR when you use an ATM but a lower rate if you use company-issued convenience checks. Be sure to check the fine print for all of the APRs your card carries.
Minimum Payment Trickery
If you make the minimum monthly payment on your balance and have more than one account, the card company is allowed to put your payments toward the card with a lower APR before your higher-APR card. If your minimum monthly payments go toward paying off the lower-APR card, you won’t pay off your balance as quickly. If you make more than the minimum balance, banks aren’t allowed to choose where your payments go. In fact, the CARD Act dictates that higher-than-minimum payments must go to the balance with the highest interest rate.
Balance Transfer Fees
Say you need to transfer your balance from one card to another. Sounds easy, right? It is easy, as long as you have some money to cough up. A normal “balance transfer fee” runs about 3%. That doesn’t seem like much, but a $10,000 transfer would lead to a $300 fee at a 3% rate.
To check out our credit card rates table, click here.
We headed out to the streets of Brooklyn, NY, to see how everyday Americans spend with their credit cards. Take a look at the video below: