Using a credit card for purchases is a great way to build a positive credit history, while at the same time earning rewards on what you spend.
1. Introductory Rates
One of the biggest risks you need to avoid regarding hidden credit card costs is introductory rates.
These rates are usually offered as promotional interest rates on a new credit card. For example, you might receive an offer in the mail for a balance transfer card with a 0% interest rate.
While these offers may look good, you should remember that these rates do not last forever. Introductory rates typically last for six to 18 months, depending on the card.
Before signing up for any card with a low rate, read the terms carefully to know what the standard rate will be once the introductory rate period ends. These offers often do not clearly disclose the standard rate, and this is done intentionally, so you may have to dig into the fine print to find out.
If the standard annual percentage rate for purchases or balance transfers is much higher and you think you will carry a balance at some point, you will have to consider whether getting a low introductory rate is worth it in the long run.
2. Balance Transfer Fees
Taking advantage of a 0% balance transfer can help you pay off your credit card debt faster while saving on interest. However, the dirty game is that the credit card issuer may not charge interest on the transfer, but you may have to pay a fee when transferring balances from one card to another.
Balance transfer fees can be as much as 3% of the amount you are transferring, which can add up significantly to the balance due if you are transferring a large amount. If you can pay off the balance before the rates adjust and don’t make any new purchases, a balance transfer may be a good idea, but you have to consider the additional cost of the fees involved.
3. Late Fees and Increased Interest Rates
It is important to make monthly payments on time to maintain your credit history. At the same time, timely payments can help you avoid hefty late fees.
A single late payment can cost you up to $39 in a late fee, and the interest rate may increase to over 30%. Not only does that affect your financial situation, but it can also damage your credit history and make obtaining future loans more difficult and expensive.
Setting up alerts is an easy way to keep track of your credit card due dates. You can take an additional step and schedule automatic payments from your checking account each month so that you don’t have to worry about making a late payment.
A hidden cost that is almost out of your control is the widespread increase in interest rates. Depending on interest rates and lending markets, banks may raise standard interest rates suddenly or without warning.
You can call your credit card company and request a reduction in your interest rate. You may be surprised that if you have a good payment history, you could be offered a lower interest rate.
4. Annual Membership Fees
Finally, there are membership fees that you should pay attention to.
Although some of your credit card options may come with an annual fee, such as when you have a poor credit history for the company to evaluate, membership fees can be costly. Make sure to check if there is an annual fee on the card you are considering.
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Some cards that offer exclusive membership benefits such as travel rewards or cash back cover some of the costs of those features with an annual fee. You might do some quick calculations and decide that the benefits still outweigh the cost of the annual fee, but there are many credit cards out there with no fees that may be worth considering first.
Source: https://www.thebalancemoney.com/how-to-watch-out-for-hidden-credit-card-fees-1289638
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