Credit cards can feel like a lifesaver, but they can also tie you to a never-ending debt cycle. Are you aware of what your credit card company isn’t telling you?
#1. Interest Rates Can Skyrocket Unexpectedly
Sure, that introductory rate sounds unbeatable, but credit card companies can hike up your APR after the promotional period ends. Often, this change is buried in the fine print.
#2. Minimum Payments Trap You
Paying the minimum amount each month makes it feel like you’re managing your finances wisely. In reality, it prolongs debt and accumulates interest, costing you more in the long run.
#3. Late Fees Are a Profit Center
Ever wondered why credit card companies are quick to slap on a late fee? These fees are a major revenue source for them, and they count on you being late occasionally.
#4. Your Data Is Gold
Your spending habits are invaluable data for credit card companies. They use this information to tailor ads and offers to you, often encouraging more spending.
#5. Balance Transfers Aren’t Always a Deal
Balance transfer offers come with fees and often lead to a higher interest rate after the initial low-interest period ends. It’s a short-term solution that can lead to long-term debt.
#6. Rewards Aren’t Free
Rewards cards might offer points or cash back, but they usually come with higher interest rates and annual fees. You often spend more earning the reward than the reward is worth.
#7. Closing an Account Can Hurt Your Credit Score
Think closing your credit card will help your credit? Think again. It can actually lower your credit score by affecting your credit utilization ratio.
#8. They Make Money Even If You Don’t Carry a Balance
Credit card companies charge merchants a fee every time you swipe your card, so they make money off your transactions whether you carry a balance or not.
#9. Universal Default Clauses
If you slip up on any credit account, your credit card company can hike up your interest rate. This harsh tactic is called a universal default clause.
#10. Cash Advances Come at a High Cost
Cash advances might seem like a quick fix in an emergency, but they carry high interest rates and fees. Plus, interest starts accumulating immediately.
#11. Foreign Transaction Fees Add Up
Traveling abroad? Those foreign transaction fees can add up quickly, increasing the cost of every purchase you make overseas.
#12. Payment Allocation Can Be Tricky
When you have different charges at various interest rates, your payments may not be applied where you expect. Companies often apply payments to lower-rate balances first.
#13. Terms Can Change With Little Notice
Your credit card agreement can change at almost any time, and often with minimal notice. This can include changes to fees, rates, or benefits.
#14. Your Card May Be Sold to Another Company
It’s not uncommon for credit card accounts to be sold to other banks, which can affect the terms and management of your account.
#15. They Count on Your Ignorance
Credit card companies thrive on consumers not understanding their full terms. The more confused you are, the more likely you are to make costly mistakes.
#16. There Are Hidden Perks
Some cards offer benefits like rental car insurance, extended warranties, and more, which are seldom advertised. Knowing these can save you money.
#17. Debt Protection Isn’t Always Protective
Debt protection plans promise to cover payments during hard times but come with high costs and many exclusions. Often, they benefit the lender more than the borrower.
The Bottom Line on Borrowing
Credit cards are tools that can either build or break your financial health. Staying informed and vigilant is your best defense against their pitfalls. Remember, if it seems too good to be true, it probably is.
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Featured Image Credit: Shutterstock / Jose Calsina.
The content of this article is for informational purposes only and does not constitute or replace professional financial advice.
For transparency, this content was partly developed with AI assistance and carefully curated by an experienced editor to be informative and ensure accuracy.