Hidden costs of Credit Cards!

The ubiquity of Credit Cards is such that, I’d be surprised if anyone in UAE does not have one!! Most residents in UAE have access to credit cards by way of primary credit cardholder or supplementary credit card holders. Most of us do not bother to read the terms and conditions of the credit card application and blindly sign up to the new credit card. Banks here are beware to discuss upfront about the various terms and conditions of the credit card for want of the pie of the market. We as consumers feel that terms and conditions mentioned in the application forms are no use…….until it hits us hard!

Are you paying for things you aren’t aware of? Here I will make and attempt to make you understand how credit card fees are calculated and save you some money in the process.

Credit cards have become an essential part of everyday life. About 500,000+ UAE residents use them, and for almost every kind of purchase. An estimated 40 per cent also use them as an easy form of short-term credit, carrying an unpaid balance from month to month. But while card holders may be aware of the relatively high interest rates they’re charged on their balances, they may not be aware of other ways card companies can raise the price they pay for this easy form of credit.

Universal default:

A hot topic these days, this is the card issuers’ practice of penalizing you for falling behind on your other credit accounts, even if you haven’t missed a card payment. In some cases, a single late payment to any of your other creditors can trigger the card company to impose a penalty rate, which can be 29 per cent or even higher. Reversing the charge can be difficult. This is sometimes referred to as cross default. If you fall behind on any of the other credit card payments, your other credit card providers can and in most cases will invoke this term.

Low minimum payments:

Low minimum payments may look like a blessing!! But even with new guidelines that have recently caused most credit card companies to increase the minimum amount you’re required to pay each month from around 2 to 5 per cent, it can often take a long time to pay off your debt, and you can still end up paying thousands in extra interest charges. What this does to you is that it puts you deeper into a vicious circle of debt repayment. If you pay only a minimum due on your credit cards, I am sure you would be in debt for a loooooong time!!

“Teaser” rates:

Many people choose a credit card based on its low advertised interest rate — in some cases, zero per cent!! But these rates don’t last. Many disappear after six months, and most are gone after a year, leaving you stuck paying a higher rate.

Changeable rates:

Not many of us read the fine print on our cardholder agreements, but it often gives the card issuer the right to change its interest rates and its fees for any reason — and sometimes for no reason. The credit card company or issuer bank/finance company often needs to give you only 15 days’ notice before bumping up your interest rate or raising its fees.

Varying rate levels:

If you make some purchases at a promotional rate and others at the card’s regular rate, the card company often applies your payments to the lower-rate debt first, leaving you paying off the higher-rate debt. This can also occur if you take cash advances that carry a special higher rate.

Fees, fees, fees:

Many cards carry a variety of fees you may not discover until you have to pay them. These include application and processing fees, late payment fees, transaction fees, fees for going over your credit limit, overdraft protection fees and balance transfer fees. And some even impose their late fee if your payment arrives after a designated hour on the due date.

You can avoid some of these costs by reading your card agreement, and by paying off your credit card balance every month. If you are in need of long-term credit, one strategy is to consider other, less costly kinds of loans. One option is a home equity loan, which can allow you to borrow money at a considerably better rate than a credit card. In fact, many cardholders use these loans to consolidate their credit card debt.

Have I missed any credit card costs that you are aware of?? Let me know through your comments!