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Have you checked your mailbox yet today? How many credit card companies offer do you receive from your financial institutions and other consumer credit card companies? Each one is a new opportunity to get farther into debt, hand over HUGE interest payments, and never get any closer to financial security. This also includes reward points, aeroplan points, cash-back gift cards,
Don’t be flattered whenever you’re offered a PRE-APPROVED PLATINUM card.
Here are the EVIL-ELEVEN facts that can help you avoid losing your shirt!
FATAL FACT ONE:
DEBIT IS OUT OF CONTROL!
- 1.5 million new credit cards were issued in Q1 2023. This is 22.5% higher than Q3 2021.
- Average monthly card spending is approx. $2,447 in Q3 2022. This is 17.3% higher compared to Q3 2021.
Credit card companies have been very successful in ADDICTING us to credit card debt via increasing total credit limit and meaningless credit card offers.
And just like other pushers, they make a fortune from our hardship—no wonder the credit card offers to keep piling up in our mailboxes.
The next time you’re flattered by receiving a PRE-APPROVED PLATINUM card, stop and think about who’s benefiting when you use it.
Don’t get me wrong here. Credit cards are critical to build health credit score.
For best interest rates banks like to see the minimum credit score of 670.
They also look at the credit card balances, amount you owe and if you are paying your credit card bills full each month or are making minimum payments.
To build your credit all you have to do is be aware of credit card issuers tricks, use credit wisely, pay balance on your card in full every month.
Ask yourself...
- Do you really need another way to spend money you haven’t yet earned?
- Do you really have to collect other reward points?
- Do you really need to work harder just so you can line the pockets of already rich companies?
- NO!!! The next time you’re offered a new credit card, just say NO.
- Say NO to back-breaking debt.
- Say NO to verifying personal information, social insurance number, by calling in, eventual bankruptcy, and collection agencies call. And say YES to a brighter financial future!
FATAL FACT TWO:
Fine print is small because they don’t want you to read it.!
The advertised 7.4% rate on a new credit card sounds excellent. Six months later, the rate automatically jumps up to 21%. But buried somewhere in the fine print is that this is only an introductory rate. This may not be mentioned on the credit card statements.
Oops, you missed that, right? (New rules require credit card companies to show a “summary box” on the application form and contract that clearly explains interest rates, fees, etc., but you still have to be an expert to understand it all.)
It’s called “Fine Print” because it makes credit card companies feel “fine,” and it’s like paying a “fine” for not reading the details. But who can blame you? Not only is it too small to read, but it’s also written in a foreign language called “legalese” (see FATAL FACT EIGHT).
Sounds too good to be true! Put on your magnifying glass, and you’ll usually find the painful truth in the fine print. Only sign something after reading it first!
FATAL FACT THREE:
The loan with the term stretches into infinity.
Let’s face it; a credit card is simply a loan. But unlike a car loan or a home mortgage that may have a five-year term, a credit card has NO time. With a car loan, you know you’ll own the car in five years if you make your monthly payments. But you can make the minimum monthly payment on your credit card for the rest of your life and still need to have everything paid off!
Sure, new rules require credit card companies to show on the contract how long it will take to pay off a balance with minimum payments. But once you’re addicted, do know how badly you’re getting gouged!
Your average monthly balance is $2,500, and you make minimum payments. At that rate, your card won’t be paid off for at least 30 years! And lots of people keep a much higher balance than that.
Credit cards are open-ended or revolving loans with obscene interest rates. And what’s worse, they encourage you to make minimum payments that are so low they barely cover the interest charges (see FATAL FACT SEVEN).
That’s why paying off your balance can take forever!
FATAL FACT FOUR:
Hey, where did my low interest rate go?
Even if you have on-time payments every month and spotless payment history and in good standing your interest rate could still rise (although new rules require credit card companies to give advance disclosure of rate increases, even if this information is already in the contract).
Buried deep in most contracts is wording that your interest rate can be changed at any time for any reason with 15 days’ notice. Let’s say you make a purchase thinking you have an excellent 7% rate; before your payment becomes due, the card company raises your rate to a fat 10%!
Highway robbery? Yes, but you can do nothing about it because it’s mentioned in the contract.
FATAL FACT fIVE:
tHERE'S A CATCH TO TRADING UP.
With so much money to make, dozens of credit card companies are out there, and they’re all after YOUR business. When was the last time you were offered a sweet interest rate if you transferred your balance to a new card?
It happens daily, and most people fall for it because there’s nothing to lose, right?
Let’s say the new card offers you a rate that’s half what you’re paying now. Sounds great, but maybe the new rate only applies to the portion of your transferred amount. Plus, if you don’t charge something on the new card every month, perhaps the rate may go up to its much higher regular rate. If you make one late payment, the lower promotional rate may no longer apply, and you again pay the higher standard rate.
Ultimately, the new credit card company is the only one that benefits when you transfer. All you’re doing is building more and more debt as you move it around—instead of adopting a strategy to become debt-free once and for all.
The other strategic problem you are creating for yourself is the potential to lower your credit scores. Every credit card company checks credit reports before extending any credit. Almost all of the credit card accounts get updated on your credit bureau almost monthly, if not more.
They report your outstanding balance, the total percentage of used credit, and monthly payments you make to credit bureaus. Your TransUnion and Equifax credit score depends upon all these factors.
Don’t rush to click for another cash back credit card. Be extra careful with applying online buttons.
FATAL FACT SIX:
tHE MOST EXPENSIVE TRANSACTION OF ALL.
Taking out a cash advance is the same as taking out a loan. Instead of paying ordinary loan interest rates, you pay sky-high credit card rates AND a long list of added fees. Whether you get a cash advance on your card from your bank, from a cash machine, or by writing a cheque on your credit card, you end up paying through the nose.
Most credit cards charge something called a cash advance fee of about 2-3% of the amount borrowed. Some cards have a minimum fee of $5, which on a $20 cash advance amounts to 25% of the amount borrowed!
While you’ll get a 21-day grace period on new purchases, most credit cards don’t give grace periods on cash advances. Even if you don’t have an outstanding balance, you pay interest daily until you repay the advance. And to make matters even worse, some cards charge higher interest rates on cash advances!
Example: When you take a $300 cash advance and pay it off when your bill arrives. Depending on the card, here’s what you might typically pay:
One month’s interest: $4.50 (based on 18% APR)
Cash advance fee: $6.00 (based on a 2% fee)
Total cost: $10.50
If this had been a $300 purchase on a card with a 21-day grace period, you would have paid NOTHING. Remember, cash advances are the MOST EXPENSIVE way to use a credit card and should only be used in emergencies!
Another reason why so many people can’t buy their own homes. They internalize this fact and start saying,” I like Renting. “
FATAL FACT SEVEN:
IT'S CALLED "MINIMUM" PAYMENT FOR A REASON.
Minimum payments are deliberately set so low they’re virtually the same as “interest-only” payments. That’s why it takes forever to pay off your balance because all you’re doing is servicing the interest payments.
On top of that, the interest rates you pay are ridiculously high. When you make a minimum payment of $85, your balance only comes down by something like $6.
Virtually ALL your payment goes to interest. Even with bare-bones low-rate cards, your balance is mostly the same because they lower their minimum payment and interest rates.
Let’s face it, making smaller payments isn’t get you out of debt faster. It would be best if you had a financial strategy that would free up enough cash to make bigger payments so you can get out of debt once and for all.
Let’s say you owe $2,000 on a card with 19% interest and a 2% minimum payment. Making minimum payments will take you 22+ years to pay off the debt. This will cost you nearly $4,800 in interest. But if you made 4% payments instead, you’d pay off the debt in only seven years and save about $3,700!
FATAL FACT eIGHT:
a LANGUAGE ONLY SPOKEN BY LAWYERS.
You have to read the fine print on credit card offers. Here’s your handy-dandy translation guide so you can understand what all those terms mean:
Annual percentage rate (APR): Make sure the rates you see quoted are APR. Some cards express the rate as a monthly figure to make it sound more attractive.
Monthly periodic rate: This is the rate at which interest is assessed during the billing period. Equal to one-twelfth of the APR.
Amount due: Instead of quoting the total amount you owe here, some cards quote the minimum monthly payment, which will keep you in debt forever.
New Balance: This is the total amount you owe after new charges and credits have been considered.
Due date: The date the company has to receive your payment by, or you go into arrears.
Late fee: The charge you pay if your payment is recorded after the due date.
Finance charge: The interest charged on your outstanding balance.
Grace period: New rules took effect September 1, 2010, requiring statements to be sent out 21 days before the payment due date, and fees can only be applied after that period is up.
Minimum monthly payment: The smallest amount you can pay without becoming delinquent. This is the most expensive way to manage your credit cards!
Over-credit-limit fee: On top of interest charges, you’ll pay an additional fee if you charge more than your approved credit limit. However, you can no longer be charged over-the-limit fees resulting from holds placed by merchants.
Previous (or outstanding) balance: What you owed last month after that month’s payments and charges were taken into account.
Transaction fee: You’re charged for purchase or cash advance transactions.
Cash advance: Borrowing money on your credit card.
FATAL FACT nine:
a Fee for every occasion.
When shopping for a credit card, consider the interest rate and annual fee. But if you check the “summary box” on your contract, you may find a list of EXTRA FEES that can make your low-rate, no-annual-fee card much more expensive. Here are just some of the standard fees that cards charge.
This is specially true for the credit cards you get at gas stations and other retail stores.
Fees for being over your credit limit. Most cards charge a fee when you exceed your credit limit. Still, they also charge this fee EVERY time you exceed the limit so that you can pay it several times during a single billing period. In most cases, it’s a flat fee of $10 or $15, but it’s a percentage in some cases.
So if you go $500 over your limit and the fee is 5%, you pay $25 IN ADDITION to regular interest charges.
Fee for paying late. Some credit card companies charge a fee when the payment is received after the due date. The keyword here is “receive”—it doesn’t matter when you mailed it or paid at your bank or teller machine.
Suppose the post office is slow, or your bank takes a few days to process your payment.
In that case, you’ll still be charged for being late by the credit card company because your payment was not received on time. Again, this fee can be a flat fee of $10 or $15.
But often, it’s a percentage of the minimum payment due and can be as high as 5%. Either way, if you pay late fees twice a year, you’ll likely be forking out MORE than you would have paid for an annual fee!
Fees for having a lost card replaced. Suppose you have a habit of losing (or getting stolen) a credit card, i.e., more than once or twice; some card companies charge a fee of $5-10.
Find the best credit card based on the annual interest rates, other charges and choices to redeem points where applicable. You should also look for online banking options and rules for recurring bill payments.
FATAL FACT ten:
surprise! we just increased your interest rate!
Credit card companies now have to give advance disclosure of interest rate increases, even if this information is already in the credit contract, so paying attention to the notices they send you is crucial.
Some cards will automatically raise your annual interest rates if you’re late with a payment or have too much outstanding debt on ANY of your credit cards or loans. Even though credit card companies seem willing to give cards to almost anybody, they’re cautious about the risks they take.
They monitor your credit record, including types of credit, including the line of credit and balance transfers.
Suppose they see you’ve missed a payment to anyone (phone bill, utilities, car payment, etc.) or judge that you’re amassing too much debt. In that case, they can raise your interest rate to help cover the increased risk. When you might need a break, you pay even more!
FATAL FACT ten:
Something interesting you should know about interest.
While most credit card companies use the Average Daily Balance method to calculate interest, some include your new purchases, while others don’t. Look closely at the fine print on any credit card offer to see how interest will be calculated. Calculations that exclude new purchases will cost you less.
Take steps to free yourself from debt addiction today!
So now that you know the EVIL-ELEVEN ways that credit card companies keep you indebted and addicted, what will you do about it?
Check your free credit score and any inconsistencies you may have by creating and logging into your Equifax account. In today’s time, where we are all obsessed with online banking and purchasing online, identity theft is on the rise.
Be vigilant and don’t fall into the trap of credit fraudsters and become victims of fraud, especially if you got a line of credit.
As an independent Mississauga mortgage broker, I’m an expert in how to reduce high-interest debt. By now you may already have noticed that even if you pay off credit card balance in full every month, your credit card account may not be the cheapest one.
I can show you proven, strategic ways to use your mortgage to achieve financial freedom. My services go way beyond the mortgage loan itself.
I’ll introduce you to simple debt reduction principles and enemies of good credit and help you apply them in your own life, so you can shake off the debt addiction. I can also help you implement advance level strategies that improve your credit history and teach you how to spent on all other purchases.
If you are considering buying your home and are unsure where to start, check out these 11 Home Buyer Mistakes and, most importantly, how to avoid them.
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