Your credit card may currently include several different
interest rates. You may have one rate for new purchases, one for
balance transfers, one for cash advances and still another
introductory rate.
It is very important to know what rates you currently have,
because the credit card companies will pay off the lowest
interest rate first! This is not in the consumer's best
interest. Assume you have a $10,000 balance transfer on a card
at 0% and make one $9.99 charge at 14%. That $9.99 will stay on
your card compounding interest every month, until you pay off
the $10,000 balance transfer. The $9.99 purchase now costs you
hundreds of dollars.
Of course it may not even be that simple. Again we are assuming
a $10,000 balance transfer at 0% and we do not make any
purchases, but the card has a $69 annual fee. Guess what that
fee is just like make a purchase and will continue to compound
until the 0% balance is paid off. Then payments will go towards
the next lowest interest rate. Any fees, such as late fees, over
the limit fees, etc. will all charged to your card as a purchase.
How can this be avoided? You should have one card for balance
transfers and another for purchases. If you card has a low
introductory or balance transfer rate, make sure you determine
what other fees are associated with the card. Finally, if you
must make a purchase on a card that has a balance at a low rate,
it may be in your interest to balance transfer to another card.
The purchase plus current balance transfer will all go to the
new card at the same rate. Be careful not to continually roll
balances from one card to another as this can affect your credit
score.
Choose your credit cards wisely and monitor the rate you are
being charged.
You can find other helpful credit and debt related articles,
news and resources at
http://www.debtmedic.net.
About the author:
Michael is a former financial planner. He has now turned his
attention to the growing personal debt problem in this country.
He is teaching people how to get out of debt and live a debt
free lifestyle. Visit his website.
