1.
You only need
to pay the minimum each month. Your credit-card bill will show the total
amount you owe and
a minimum payment, typically about
4% of your bill.
Paying at least
the minimum payment
by
the due date keeps you
current
and helps your credit
score, a key way lenders grade your
financial behavior.
However,
if you
pay
only the minimum, you'll still pay interest on the whole balance that you owe, at
interest rates that
are among the highest
in the financial world.
Your bill must show how long it will take to pay off your
debt if you make only the minimum
payment
each
month—and that's usually a frightening amount of time.
In reality, the minimum payment
is something of a ruse,
essentially an enticement to
get you
to pay just enough
to keep current
while also running up high interest charges.
As you accumulate interest
charges, your
interest will actually
begin
to compound not just on what you
owe,
but also
on your
interest payments. In other words, you
will be paying interest
on interest.
If you cannot
pay the entire bill
each
month, pay as much as you possibly can.
2.
Your
credit
limit
reflects what
you can
afford. In reality, your credit
limit has no relation to what you can afford—or
how much you should spend.
The credit-card company has looked
at
your record of paying
your
bills and your other accounts
and decided how much
it is willing to loan you at
one
time. It doesn't have a
clue if you really can pay off that much
debt because it doesn't know how much income you have right
now or your net worth.
You may be tempted
to see a credit
limit of $10,000 or more as
a license to spend. But likely, that
decision will put you
in a financial hole—and maxing out your debt will hurt your credit score.
3.
The interest rate will stay
the
same over time. This isn't likely.
The Credit Card Act of 2009 restricted how
credit-card companies can raise fixed interest
rates. In response,
most companies that offered fixed
interest rates changed
them to variable rates; those variable
rates will go
up when other interest
rates go up.
In addition, you
will pay different interest rates
on different kinds of borrowing. If you use your
card
to get cash— something you should do only in
a true emergency—you may pay an
annual interest rate above 20%, probably far
more than what you
pay for regular purchases.
If you
are late making a payment or if
your check bounces, your interest rate for new purchases
can spike up to around
30%, and that rate can continue indefinitely.
4.
The interest rate is
the
only charge that I'll see. No such chance.
Credit-card
companies will
hit you
up with all kinds of additional charges when you
make a mistake. Did you
make
a payment after the due date or miss
one altogether? You'll
be assessed a late fee of as much as
$35.
Transferring a balance
from one card to another?
You'll pay a fee of
up to 5% of the balance. Using your credit
card instead of your debit card
to get
cash? You'll pay another
fee of up to 5% of the amount, or a minimum of $5 or $10.
Using your card overseas? Foreign transaction fees of up to 3% of the transaction may be assessed.
In short,
the more you rely on the
credit card, the more you will pay for the
privilege. Using a card
that
way
may make sense in
a real pinch,
but it's a terrible
habit to get
into because the interest rates and
fees are so high
that it can be hard
to dig out once you're in the
hole. You'll pay more and more just
to keep your debt
from growing.
On the other hand, if you pay your
bill in full every month, the credit card
works for you,
rather than the other way around.
0 comments:
Post a Comment