Like most Americans, you probably don’t thoroughly read through the credit card terms and conditions when you open a credit card account or when you receive updates regarding the terms in the mail. However, you’re doing yourself a serious disservice by ignoring them.
Often, these “updates” to your credit card’s terms indicate ways your card issuer can charge you more money. In other words, if you aren’t aware of these changes, you could unknowingly rack up additional fees, or even damage your credit.
1. Your Due Date Changes
Your credit card company can change your due date at its discretion, as long as your are notified in advance. But if you don’t read the notification, you might not realize the change. Missing a payment by even just one day can cause you to incur heavy late fees, and could increase your interest rate or void a promotional APR.
If you do notice a change and your bill is paid automatically through your online banking service, make sure to update the “pay by” section on your account to reflect the new due date.
2. Your Interest Rate Increases
Credit card companies can adjust your interest rate at their discretion, and in some instances, the interest rate can go as high as 30%. If you read about an upcoming rate hike that is significant, consider carefully before canceling the card. If you take this route, your minimum monthly credit card payment could increase. Plus, closing a credit card could hurt your credit score, especially if it’s one with a high spending limit.
Expect most of your banking and credit card fees to increase – if they haven’t already – as banks struggle to maintain profits in light of the CARD Act. Fees subject to increase include annual fees, cash advance fees, late fees, paper statement fees, and replacement card fees. Though you may assume that fee hikes would be minimal, this isn’t necessarily the case.
What You Can Do
If you notice an upcoming rate hike but can’t pay off your balance in full, consider transferring the balance to one of the low APR credit cards with a more attractive rates. If your credit is decent, you should be eligible for one with an introductory 0% APR for anywhere between 6 and 21 months.
Just be sure to fully review the terms of the agreement: Understand what the APR will adjust to once the promotional period ends, and how much the balance transfer fee is. Alternatively, and after careful consideration, you could close the account before the rate increase takes effect and continue to pay off your balance at the original interest rate.
To avoid paying excessive fees, make on-time payments a priority and switch to paperless billing. If an issuer tries to slap an annual fee on you, call customer service to see if you can get it waived – it never hurts to ask. Credit card issuers are now banned from charging an over-the-limit fee, unless you provide your written consent. In other words, thoroughly review all documents before you sign. And don’t sign anything you don’t feel good about.
One way to minimize the effect of rate hikes and fee increases is to simply commit to getting and staying out of credit card debt. All it takes is a little sacrifice, some common sense, and a careful reassessment of your spending habits.
The three golden rules to eliminate credit card debt are to spend less than you make, to create and stick to a budget, and to eliminate unnecessary purchases. Let the banks fend for themselves when it comes to staying profitable. You’ve got better things to do with your money!
Have you had an interest rate hike in the past? What did you do about it?
Author Bio: David Bakke discusses smart money management and responsible credit card use on Money Crashers Personal Finance. Additionally, he enjoys playing with his young son, eating good food, and reselling electronics online.
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