Credit Card Tips / Terms

If you’re one of those people who require a weekly visit to the chiropractor just to recover from the bulk of credit cards in your wallet, you may also be suffering from an overload of credit card bills.  And, it might be time for a credit card check-up and consolidation.  Because credit scores can be negatively affected by too many balances spread across too many credit cards, it’s a good idea to take stock of all of your credit cards and their respective balances, at least once a year – or, before you apply for a major loan such as for a house or a car. 

One really great strategy for doing this is to get a copy of your credit report from each of the major credit bureaus.  You might find that they have cards listed as open and active that you assumed were closed and paid in full long ago.  Once you have an exact idea of all of your credit cards and their balances, you’ll want to identify those with the highest interest rates and transfer those balances to a low or zero interest balance transfer card.  Also, it’s important to consider this solution before your credit score is negatively affected so that you get the best rates and terms available.

Other Resources:

• Credit Card Consolidation Loans
• Consolidate Credit Card Debt
• Calculator: Should I Consolidate My Credit Cards?
  

When comparing credit cards or reviewing your credit card statement, chances are you’ve seen the term “periodic rate.”  The periodic rate is the percentage that you’ll be paying for the purchases you’ve made, based on the APR.  The acronym “APR” stands for Annual Percentage Rate but because credit cards are billed monthly, they must divide the “annual” rate by 12 (for the number of months in the annual billing cycle), to determine the monthly rate.  If your card carries an APR of 14%, for example, your monthly periodic rate or the rate you’ll pay on purchases made that month will be 14 divided by 12 or 1.17%.  These days most cards offer variable rates rather than fixed interest, which means that the rate you pay will fluctuate based on an index such as prime or the federal funds rate among others. When the index varies either up or down, so will the rate you pay.

Other Resources:

• Ever Wonder What APR Really Means
• Financial Definition of Periodic Rate
• Personal Finance: Money 101 - Glossary

Good credit card management isn’t complicated but it does require some time and attention.  Credit card companies are in the business of making money and credit cards are packed with not-so-obvious opportunities for them to do just that. One of the ways they make their money is on interest, another is on fees. Whether you’ve just gotten your very first credit card or are a veteran credit card user you’ll want to get familiar you’re your card’s “grace period.” 

The grace period is the number of days (usually 25 but sometimes less such as 20) that you’ll have to pay your balance before interest charges will apply. And, making a habit of paying off your balance within that grace period each month can translate into significant savings. 

Although any amount you can save is a worthwhile, if you tend to use your card for most purchases and have high end-of-month balances, or if yours is a business credit card that you and your employees use and the monthly charges are high, paying off the entire balance within the “grace period” can result in considerable savings.

Other Resources:

• Credit-Card Grace Time Can Save You Money
• Credit Cards: 8 Dirty Little Secrets
• Fluctuations in Credit Card Billing Dates are a Costly Nuisance

Need some quick cash and think a cash advance on your credit card sounds like a good idea?  Think again. With the exception of the default interest rate, cash advances are usually the most expensive transaction you can make on your credit card.  And, they should be avoided whenever possible.  Not only do most card issuers charge a hefty fee for cash advances (sometimes in excess of 3%), but they will usually also charge a higher interest rate than they charge on regular purchases. To make matters worse, the grace period typically won’t apply on cash advances and you’ll be charged interest on the advance from day one. In most cases, credit card companies will apply your payments to the lower-interest charges (such as purchases) first which means the higher cash advance interest will continue to build until your balance is paid in full.

 Other Resources:

• Spending It: Focus on Banking; That Layered Look In Cash Advance Fees
• Credit Card Fees Can Suck You In
• Beware Small Print, at any Rate

When it comes to technology, I’m absolutely an early adopter – especially when it comes to technology that will make my life easier.  (Two kids, a dog, a job, and attempts at having a life have made me very stingy of how I spend my time.)  So when my credit card offered me online account management for free, I signed on almost immediately. 

Once I had the account up and running and could navigate fairly easily, I enrolled in the automatic payment option.  I figured that was a good way to make certain I didn’t miss a payment and incur the dreaded default payment rate and lose my very favorable 0% interest introductory rate on my balance transfer.  As the months went by the automatic payments made me a bit lazy.  I have to admit, I didn’t review every statement (or maybe even most of them). After all, I knew that my bill was being paid on time. (I’d set it up for automatic payment of the full balance).

It wasn’t until almost four months into the easy life of automatic payments that I took a minute to sit down review my statement and realized that I had been paying a $19.95 subscription fee (that I hadn’t authorized) for nearly four months.  Clearing up that mess taught me a valuable lesson (and lucky you get to learn from my mistake).  Auto-payments can be a wonderful time saver but they are not license to put your account on auto-pilot.  You can be sure that I check my statement carefully each and every month now and, if you want to practice good credit card management, you will too.

Other Resources:

• Automatic bill payments: popular, yet there are risks
• Credit Card Payments: Why So Much?
• Oh, Those Hidden Monthlies