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Personal Finance -
Credit Cards
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Written by the frugal nomad
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Wednesday, 18 November 2009 01:37 |
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Page 1 of 2
There are only a few things in life you can be certain of and one of them is that banks don’t give away their money. That’s not the business they’re in and if they seem like they’re offering you a little charity, get your reading glasses out and start reading the fine print in the credit card agreement.
Take teaser rates - the initial offer to sign up for a card that charges a low interest rate - or even a zero interest rate - for a limited period of time. The most obvious question is for how long? If you do decide to go along for the ride - find out when the ride stops and what happens next. Because you might discover that after the first six months or nine months - you rate will suddenly jump to 12% or 18% or more. If you decide to do it anyhow - make sure you’ll be in a position to pay it off when that initial honeymoon period is over.
Even the initial low rate usually comes with a price - a ‘fee’ that can be as much as 4% or 5% of the amount you borrow. When you take into account the cut-off date for the teaser rate - you could be paying as much as 12% without even knowing it. Because many times the initial transfer fee is 3 to 5% of the balance transfer and you apply that rate to a six month loan with a declining balance - I think you get the picture.
Banks know their business and their clients. A lot of people are just horrid when it comes to paying their bills on time. So what if you’re check is mailed ten days late and you have to pay a $29 late fee. Well, if you have a teaser rate - that kind of attitude will burn you. Because not only will you pay the late fee, your teaser rate will go out the window and your new rate will instantly go through the roof. That’s another thing to always check on your credit card agreement - regardless of whether it’s a teaser rate or not. If you’re late, what happens to your rate? You could wake up and find that your rate went from zero to 29.99%.
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