The sneaky credit card charges that cost you big time
Filed under: Credit Cards
We round up the biggest culprits when it comes to credit card fees, so you can avoid lining your provider's pockets and start filling your own.
You should make the minimum payment on your statement once a month, even if you have almost paid off your debt. In fact, it is usually compulsory to make this monthly payment of around 2.5% of the balance.
If you miss your minimum payment, or make it too late, you are likely to be subject to late payment fees or charges. This could be a flat fee, or you could lose a 0% interest perk and be lumped with a much higher rate of interest on your balance, which would be costly in the long run.
It's easy to miss a payment when you are busy, so make it impossible to forget by setting up a direct debit that will always ensure that at least your minimum payment is met. Then you can (and should) top up your repayments as and when you have the money.
Crippling cashpoint charges
It is great to be able to borrow money on tap at a cashpoint, particularly at the end of the month when funds may be running low in your current account.
But beware, this is one of the most expensive ways to use your credit card, so providers love those borrowers who regularly rack up debt from ATMs.
They will not only charge you a higher rate of interest for funds withdrawn from a cashpoint on your credit card, but will also start to charge you that interest from the day you withdraw it, possibly before you have even spent the money.
Because of this, your credit card should only enter a cashpoint as an absolute last resort, and you should try to repay the money as soon as possible.
Be accurate, or be sorry
If you are one of the 62% of borrowers who chooses to fully repay their credit card each month to make sure they are not charged interest (according to the UK Cards Association), then you are being very savvy indeed.
However, just make sure you are always completely accurate when you pay off your debt each month. Because if you underpay, by even a few pennies, you could be charged interest on the whole amount as though the payment wasn't made, not just on what is still owing.
Remember, if you don't want to pay interest, pay on time and pay it all off, not a penny less.
Order of payments con
The order of payments issue was supposed to have been put to bed over a year ago, when it was ruled that providers had to put your payments against the most expensive portion of your debt first – it had been common practice to put them against the cheapest debt so they could rack up maximum interest charges.
However, there are some providers that are still using sneaky tactics to get around the new rule. These include putting your repayments against your oldest debt for the first month (which is often a 0% balance transfer), or putting them against the most expensive reversionary rate first (which may not be the most expensive rate you are currently being charged).
These are quite technical points but they will cost you money, so it can pay to check your small print, or contact your provider to ask them exactly how they apply your payments and to what portion of your debt first.
Holiday charges from hell
Credit cards are notoriously expensive to use abroad. Not only are you sometimes charged a foreign transaction fee just for the privilege of using your card in a shop or restaurant for example, you may also be subject to higher interest rates charged from the day you make the purchase.
The double whammy is withdrawing cash from an ATM when overseas, which can end up being very expensive.
If you travel frequently it is worth looking for a specialist card that is designed for overseas use and comes without the nasty charges.
No free lunch
Cards that offer 0% interest on balance transfers for up to 22 months are extremely popular. After all, this interest-free borrowing gives you valuable breathing space to steadily pay back your debt without it growing further.
But of course, the providers need to make a bit of money somewhere, so they usually impose a one-off balance transfer fee on whatever debt you shift over to the card.
This averages around 3% which is a £120 charge if you transfer a £4,000 debt. When comparing 0% balance transfer cards, factor in this fee.
Minimum payment misery
Making the minimum payment is the absolute least you should do, but it is a very expensive way to borrow. If you know are only going to be able to make the minimum payment you should consider use a different method of borrowing - such as a loan.
This is because you will be barely chipping away at your debt if you only make the minimum payment each month. It could take you years to pay off your balance and cost a fortune in interest.
According to Moneysupermarket.com, someone with a balance of £1,500 on a card with an average APR of 17.31% would take a massive 19 years and three months to clear the debt if they made a typical minimum repayment of 2.5% each month.
If you do have a chunky balance and you can only meet the minimum payment, look into transferring it to a 0% balance transfer card to give yourself a fighting chance of paying off your debt without racking up interest.
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