September 19, 2017
 
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Credit Card Tricks

Credit cards... It's a love-hate relationship. As you know, there are advantages and disadvantages to using credit. However, with the way card issuers have been behaving, the disadvantages are far outweighing the advantages for consumers. In their pursuit of the mighty dollar, credit card companies have developed complicated policies and procedures, as well as convenient services that are costing unwary consumers hundreds of dollars every year. If you're not careful, you can be the victim of some sneaky, but legal, practices. One way they get more of your money is by charging fees.

Many customers are willing to pay a small fee for using a certain service offered by their credit card company. It's the cost of doing business. But the problem is when they don't tell their customers about it, hide the details in the fine print, or go far beyond reason and sock you with outrageous fees. Balance transfer fees are charged when you transfer a balance from another credit card. Typically, the credit card company will send you "checks" to pay off the other card, therefore, "transferring" the balance to the new card. Don't get the "fee" mixed up with the APR because they are separate charges. Fees can range anywhere between 3% and 5%, or even higher. Transferring $1,000 at 5% will cost you $50 in addition to the APR. Typically, credit card companies’ offer a low APR for balance transfers but it may only last for a short period of time and then be subject to a very high rate. At the same time, if you make one mistake, such as a late payment, and your low APR will be replaced with a much higher one.

Here are three other things to look out for regarding balance transfers:
· If a credit card offers a "low rate for life" for balance transfers, be aware that new purchases will be subject to a different, higher APR. Also, the card issuer decides how to allocate your payments-typically, your payments will go towards paying off the lower rate balance first.
· Banks used to have caps on balance transfer fees-typically no more than $75-but recently they've been eliminating them. This can really add up. A $5,000 balance transfer at 5% generates a fee of $250.
· Responding to that pre-approved offer you received in the mail? After all, it's a great rate for a balance transfer. After signing on the dotted line and completing the transfer, you get your first bill and WHAM! The APR isn't as great as what you thought you were getting. Come to find out, you didn't actually qualify for that low APR, so they sent you a more costly non-premium card. Although hidden in the fine print, it's all legal.

What you can do

Before you transfer a balance, find out the fee and the APR. Depending on your transfer amount, the fee may outweigh the benefit of a low interest rate. Make sure the interest savings will be more than the additional charge. Plus, other factors, such as a grace period will come into play. If there isn't one, you may need to reconsider because interest will begin accruing the moment the balance transfer is complete. Find out the APR for new purchases and compare it with what you currently have. Bouncing a balance from one card to another isn't always the best solution and can actually hurt your credit report and credit score. The best solution is to try to pay off your balance on a regular basis because the only way for consumers to win the credit card game is to opt out of the game.

 

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