1) Raised APR For Late Payments

Yes, you read that right.

You can be experiencing some hardship preventing you from making your minimum payment, and creditors will have no mercy for you.

The Universal Default Clause insures creditors with people who begin posing a credit risk.

Yes, creditors have insurance themselves (as if they needed it).

You must do whatever possible to prevent making a late payment whether it’s on your house, car loan, or credit card.

If you do make a late payment, you risk creditors raising your APR.

What if your mortgage, car loan, or credit card APR’s increased by let’s say 3%? How much longer would it take to pay off your debt?

What to do about it: Avoid making late payments at all cost and stay on top of when your minimum payments are due.

2) Grace Period Not so Nice After All

You’ve received the great news: “Pay off your balance in 30 days and get charged zero interest.”

This makes it convenient for you to purchase and not worry too much about interest.

However, many creditors have now begun to decrease their grace periods to just 20 days.

It gets worse; some creditors are eliminating grace periods completely which means that you accrue interest for all purchases even if your repayment is on time.

Creditors began doing this to increase their APR profits for each of your purchases.

What to do about it: Find out the grace period for all credit cards that you apply for and stay away from creditors who have eliminated their grace periods.

3) Your Credit Card Has no Limits?

You are provided with a “no-limit” credit card and tell yourself that you’ll use $3,000.

You end up using $4,500 and get stuck with a balance of $1,500 plus interest to pay back.

How did this happen?

Your creditor told you that your credit card has no limits when in reality it’s set as a no preset limit.

This preset limit is determined by your monthly spending habits. 

What to do about it: Don’t rush and accept a no-limit credit card if offered, instead ask your creditor if the limit is predetermined. After that, make sure you ONLY spend this predetermined amount.

4) Fixed Rates Need More Fixing!

Creditors can raise your APR whenever they decide to.

This has never been a secret, but creditors do a great job at hiding it well.

Offering you a low APR is creditor’s way to motivate you to sign for a credit card or loan.

Once you have signed, they got you, and can raise your APR at any time.

Typically, you have the right to be informed within 15 days of your APR increase.

What to do about it: Keep an eye on your mail since creditors will usually send notifications in small and discreet envelope which can easily go unnoticed. 

5) Late Payment Means Twice The Punishment?

You would think that one late payment will result in one penalty fee.

However, this is not the case. Creditors may charge you two fees per late payment.

On top of that, you won’t know about it until they have charged your account.

Examples include late fees up to $35 or a penalty rate which increase your APR as high as 29.99%. Can you imagine having a balance of $3,000 with a 29.99% interest rate?

I don’t think you want to. 

What to do about it: Just as mentioned in # 1, avoid late fees at all cost because they can cause you more damage than you have been led to believe.

6) One Month, Double The Interest?

Your creditor is allowed to charge your account double the interest for a month of late payments.

Let’s say you paid on time in February, however, you noticed that you get charged double the interest in March.

How can this be?

This is referred to as double-cycling billing.

Your creditor reviews your daily balance over two consecutive months and charges your account higher interest for the month that you had a higher balance.

Isn’t that just lovely? (sarcastic tone)

How in the world can they punish you for good financial behavior? 

What to do about it: Well after reading that, you might decide to stay away from credit cards or loans all together. However, if you need them then you want to make sure to try to keep your balance within your average daily balance. 

7) Yes, Please Make Minimum Payments

Creditors get to charge you more interest the longer you stay in debt.  

They love this as they get to make great profit off you.

When you had a 5 percent minimum payment due every month, it became a problem for creditors since you were motivated to pay off your balance as soon as possible.

What did they do about this?

They went from 5 percent to 2 percent in order to get you to spend more since you had to pay back a smaller amount of your balance every month.

As a result, you accrue more debt each month.

According to financial experts, this rewards creditors with thousands of dollars in interest.  

The 5 percent to 2 percent switch creates a repayment schedule that last years, and decades in some cases.

What to do about it: Pay off as much of your debt as possible each month. Only make minimum payments if you can’t afford to pay more.

In closing, credit cards should be avoided unless you absolutely need them. If you do use them, just be on the lookout for the things discussed in this article and you should be OK. 

-Alex

P.S. – Stay out of debt!!! 🙂