Avoid those sneaky credit card charges

October 6, 2006

Take this scenario, your sitting back, quite proud of yourself for getting a credit card with a fantastic 0% offer for the next 9 months or even if you are lucky 12, however, lurking underneath this new credit card are numerous traps designed to swallow up your hard earned cash.

If you are unaware of these traps, or should they be called fees and charges, then they could end up changing the great deal you have just got to save money to actually costing more.

It always pays to read the small print and never more so than with a credit card. By reading the summary box that is supplied by the credit card supplier could open your eyes to learn just how your credit card works. Credit card companies and banks are required to supply a summary box in their information pages, whether it is online or print.

Here are a few traps that credit card companies have set for the naïve cardholder.

Penalty fees

Earlier this year the Office of Fair Trading (OFT) “decided” that credit card companies and banks were being unfair with the penalty fees they charged their customers. These fees were on average £25 per transaction and were charged against accounts that had an unauthorised overdraft, late payments being made or a bounced cheque. The banks and credit card companies wilted under the pressure applied by the OFT and reduced their penalty fees to the maximum recommended of £12. Now even though the fees have been reduced by over 50% they cause the cardholder to pay over the odds for something as little as going as little £10 over their overdraft limit.

These fees can eat into any money that has been saved with the 0% deal and the utmost care must be taken to ensure payments are made on time. To save any heartache set a direct debit for your monthly payments, your bank or credit card company will be happy to do this for you. Make sure your spending is under control and that you do not cross over your credit limit.

Paying off cheapest debts first

This is another sneaky method that credit card companies use to squeeze every penny out of you. Any payments you make can be allocated to the cheapest debt first. Let us look at this example, you transfer a balance £1000 to your new card at 0% and you make purchases worth £500 with a standard rate of 15.9%. It is more likely that any monthly payments you make will be allocated to the £1000 at 0% rather than the purchases you made. So while you think you are making payments to your purchases and your £1000 balance at 0% remains the same, the opposite is in fact true. That £500 is being charged a whopping 15.9% APR and it is growing.

The easiest way to avoid this scenario and one that should always be followed is to split your finances into two sections. Whenever you transfer a balance to a new card to take advantage of a 0% deal then you should not use this same credit card for any purchases you wish to make. For purchases use a second credit card and you will know for certain that any payments you make on the second card will go directly against the purchases you have made.

Sudden removal of benefits

This can be a nasty surprise for many cardholders. The credit card you have just received with the offer of 0% on balance transfers for the next 9 or 12 months is not set in stone and should not be taken for granted. If you are late with your monthly payment or you have an unauthorised overdraft, your 0% deal can be taken away and replaced with a much higher APR. It should be noted that not every credit card supplier will act like this, however, it would be prudent to read the small print on your credit card contract.