If you already own a rewards credit card then you know how exciting it can be, especially if the rewards you are getting are really valuable. Every year thousands of people apply for different types of rewards credit cards, so they can get more back from what they spend.
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As thrilling as it is to be rewarded for spending money on your credit card there are a few hidden dangers you need to know about.
Yup, and if you don’t pay attention to the fine print of your reward credit card details it can lead you down the path of getting into some financial trouble.
So, you’re probably wondering about what kind of risks there are and even better, how to avoid them?
Or even better yet, what is the best way to use your card that will benefit you the most?
Here is a list of some of the hidden dangers associated with types of cards and what you can do to protect yourself:
Leaving the Balance Unpaid.
It is common knowledge that reward type credit cards are notorious for having much higher interest rates than typical non-reward cards. This means, that if you carry a balance on your account you will be liable to pay all of the additional interest rate in full.
These APR’s can range anywhere from 17% to 20% depending on the credit card company rate policies. What generally happens is the more rewards that you are able to get means the higher the interest rate you’ll have to pay.
So if you are usually carrying a balance, these extra charges you’ll be paying in fees and interest will offset the value that you’re getting from your rewards credit card.
The bottom line here is simple, if you are going to use a rewards card, don’t carry a balance on it or the perks and benefits won’t be worth it.
Letting yourself become penalized.
The credit card companies are always more exacting when it comes to penalizing you. For example, the over the limit and late fees will generally be much higher than non-reward cards. To make things worse, you run the risk of losing the ability to redeem your rewards if you are usually late making your payments.
You have got to spend more to get rewarded. There are many reward card holders that get a little excited and have the tendency to binge spend, so they can earn more rewards.
This is a bad habit and will set you back quite a few dollars. And when you try and earn more points by buying things that cost more and that you really don’t need in the first place, you’ll find yourself swamped with a bunch of bad credit that you defiantly don’t want or need.
Not reading the fine print.
There are many people that make the mistake of applying for a rewards card and don’t read the fine print. This is a bad idea because you run the risk of ending up with a high interest rate on your card and losing money in the long run. Make sure you take the extra time to read all of the terms and conditions before you go to town with your new card.
Now that the economy is on the upswing and the lending environment is getting better, credit card companies are making a comeback with their balance transfer deals. While balance transfer deals are making a comeback they are not as attractive as they were in the past. It’s really worth doing the math to make sure you’re getting a good deal. Here are the top 5 ways to make sure you’re getting the best deal.
Calculate the APR by including the balance transfer fee
Nowadays, almost all balance transfer cards come with a transfer fee of 2 to 5 percent. In essence, this makes a card advertising 0% APR for a year mean that the APR is between 2 to 5 percent.
The better way to look for these cards is by finding ones with a longer promo period like 18 months to two years. If your credit score is excellent, don’t accept anything less than a one year 0% APR promo period.
Look out for the “up to” offers
This means be wary any balance transfer offers that promise 0% APR “up to” anything. When you see an offer like this, it means that only the consumers that have superstar credit can expect to receive all of the advertised benefits.
If you are not located in the top tier you’ll end up getting a shorter promo period as well as a higher APR after the promo period expires. A better way is to only apply to these offers that have upfront and predictable terms.
Make sure you know what the long term card APR is
If your plan is to pay off your balance transfer inside of the promo period than you have no need to worry about the higher interest rate that follows the introductory 0% APR.
When you are searching for the best balance transfer card you’ll need to estimate how long it will take to pay off the initial balance transfer with payments you can make and afford.
You will also want to calculate the amount of interest that will accrue on your balance after the promo period expires. Only then will you really get a true 0% APR balance transfer deal.
Is there 0% APR on purchases as well?
This is a great added benefit, especially if you find a 0% balance transfer card with no fees and a long term intro period. On most cards the 0% purchase APR will expire well before the 0% balance transfer rate. This means that if you make a lot of purchases on your card and the purchase promo period expires, you will have a lot more to pay.
Look for a balance transfer card that offers a 0%APR on both purchases and balance transfers where the promo period ends at the same time.
Monitor the effect on your credit score
When your credit debts tie up a significant percentage of your available credit, this will affect your credit to debt ratio and that is nearly 35% of your overall credit score. You’ll want to keep your debt to credit ratio around 10 to 15% and always well below 35%.