Depending on how you use a credit card, they can be helpful or a hindrance. Guest poster, Mark A. Laws, shares with us 5 common credit card traps and how to avoid them. Molly

 
As many Americans continue to struggle with a high unemployment rate, paying their bills on time and maintaining the lifestyle they have become accustomed to, the average American’s credit card debt has continued to rise. Many credit card companies have tried to lure new customers to use their services through a number of different enticing promotions and offers. Before you sign up for one of these seemingly amazing offers, you need to read the fine print and avoid falling into one of these common credit card traps. Here are some of Mark’s tips for consumers:

Paying only the monthly minimum: Many Americans make the mistake of paying only the minimum amount owed on their credit card on a monthly basis. Paying only the monthly minimums can add years to the amount of time it takes to pay down your debt completely. A majority of your minimum monthly payment goes towards paying down the monthly finance charge on your card, leaving little towards actually paying down the actual balance of the card. Paying even only double the monthly minimum can cut down on the time it takes to pay off a debt by a substantial amount.

Late Fees: Missing even one credit card payment can be extremely detrimental to paying down your debt. Many credit card companies charge a fee if your payment is made only one day after the due date. A tardy payment can also lead to an increase in your annual APR. A recent article on Forbes.com warns that “each time you are late the card issuer can reset your APR to the default APR or ceiling APR.” If you have signed up for a zero percent APR card, missing a payment can nullify your zero percent APR for the remainder of the deal.

Zero Percent Intro APR: These offers are often very attractive at first glance, but beware to read the fine print before signing up for one of these deals. According to the aforementioned article on Forbes.com, “most
0 percent APR offers are for balance transfers only. Any new purchases or cash advances will be subject to a much higher interest rate.” Often times the fact that new purchases or cash advances are subject to higher interest rates is not made highly visible unless you read through the entire disclaimer. Additionally, balance transfers to new credit cards often come with a transaction fee (usually 4%) which is automatically added to any transfer amounts. This means that the consumer is paying 4% just to move the money around – you might be getting 0% APR for six months, but you pay 4% upfront to get it. Making new purchases or using the card for cash advances can nullify any chance of utilizing the zero percent APR to more quickly pay down your debt. Remember to always read the fine print on any credit card offers.

Fixed Rates: A fixed rate credit card, as opposed to a variable rate credit card, is enticing to a credit card holder because it ensures you that you will be notified in advance if there is a change in your annual APR. However, this does not mean that your rates cannot be changed. The credit card company can still change the interest rate at any time, and for any reason they see fit. Most cards are attached to the “Prime Rate” (currently at 3.25%). This means that banks and credit card issuers will charge a “fixed rate plus prime”. If the prime rate goes up, so does your interest rate.

Inactivity/Annual Fees: Inactivity and annual fees (also known as membership fees) are fees that the credit card companies charge simply for holding the card. These fees can be a set amount determined for a yearly
basis, or a set percentage of the total credit limit on the card. Many times companies will offer a “No Annual Fees” promotion to bring in new customers. This offer is usually only for a set period of time, not for the entire period you hold the card. In addition, if you do not spend enough on a card over a specific period of time, card companies can also charge inactivity fees, which vary from company to company.