Wednesday, November 21, 2007

Don't Get Caught In The Credit Card Trap

It is almost Christmas and some (or should I say most?) of us are relying on our credit card to help us get through it.

Of course you already know all the tricks to avoid paying too much interest on your credit card but you may need a reminder:

1- Only put small amounts on your credit card so that you can pay the balance in full next month and not pay any interest (easier said than done).

2- If you can, switch credit card companies, transfer your outstanding balance on your new card and you will pay no interest for a specified period (typically 6 or 9 months).

3- Use your savings account to repay your outstanding balance (interest on credit card balances range from 9% to 19% whereas a savings account will only give you between 3% and 5% interest: do the maths!)

I had never paid too much attention before today at how the interest is being charged on credit card balances:

If you balance is paid in full each month, no worries, no interest is charged (I am only talking about purchases, cash withdrawals are different).

If you only pay part of your balance, interest on the full purchase amount is charged until the balance is fully paid, on top of the interest on the reduced outstanding amount. What does this mean in plain English?
If you spend €1000 in December 2007 and you decide to repay €200 each month for 5 months, you will pay interest on €1000 until May 2008!

"La morale de cette histoire": have a good Christmas but don't overspend, remember there is going to be another Christmas next year!

Who is going to have the best Christmas? Banks! Now, here is how they can afford to give away free calendars (I think I'll take a few ones for the kids!)

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1 comment:

Scratching-out-a-living said...

Don't forget to look at how your monthly billing cycle is calculated. Most credit card companies have a 20 day "month" so they still charge you interest by the time you get your bill which is sent out every 30 days. Credit card companies can be sneaky that way.