Credit cards can be your best friend, or your worst enemy. As satisfying as it is to get 5% off at the gas pump, it’s just as painful to pay $45 because you went over your credit limit. Here are 5 credit card mistakes the banks are counting on you making to prime their coffers. Avoid them and you’re ahead of the game. Fall victim to them, and you could find yourself in serious financial trouble. We’re here to help you beat the banks and keep more money in your wallet.
1. Don’t be late. If you absolutely have to, at least pay the minimum. Canadian credit card issuers are become increasingly less lenient with late payers. In fact, if you’re 30 days late on your TD credit card, they will increase your interest rate by 5 percentage points i.e. from 19.99% to 24.99% and you will lose any promotional interest rate (introductory balance transfer or purchase rate) you may have had i.e. from 0% to 24.99%. President’s Choice Financial reserves the right to increase your interest rate 5 percentage points after reviewing your credit card account or credit history for any reason whatsoever! If you’re late on a car loan payment with another company, PC Financial can increase your credit card interest rate.
2. Many Canadian credit card issuers only require you to pay a minimum of $10 of your previous months credit card balance plus interest. While you may be thanking your bank in the short term for the convenience of only having to pay $10 of your balance, the truth is the bank is setting you up to be on a debt treadmill. If you have a $2,000 balance, a $10 monthly minimum payment plus interest will take you over 16.5 years to pay down! The lesson? Always pay more than the minimum and try to pay off your credit card debt as fast as you can. If you need some breathing room get a balance transfer credit card that offers a 0% rate for 12 months.
3. With juicy 0% interest offers for as long as 12 months, you might be enticed to get a balance transfer credit card. And while we’re a big proponent of balance transfer cards, just remember, the interest rate only applies to the balances that you transferred from your other credit cards to your balance transfer card (which are great when used properly). Any new purchases you make with your balance transfer card will have the normal interest rate applied to it, even during the introductory period. So don’t go spending thousands of dollars thinking you have no interest to pay over the next 12 months… the 0% balance transfer offer only applies to your existing credit card debt, not anything new.
4. Most of us think that our credit limit is, in fact, our spending limit. Common sense would be on your side, but reality is not. Many Canadian credit card issuers will allow you to go over your credit limit, without your required consent, and will then assess you with up to a $45 over-limit fee! So that pack of gum you bought in the store for $2.50 that brought you $1 over your credit limit, may have been a lot more expensive than advertised. Moreover, you may owe a lot more on your credit card than you budgeted for.
5. Credit card cash advances can be very convenient ways of accessing cash. However, just remember there is no interest free grace period with cash advances. Most will start charging interest from the moment the advance is completed at a rate often times more than your standard purchase interest rate. In addition, your bank will also likely charge you a fee the greater of $5 or 1% to access cash from your credit card, making it a truly expensive way of getting cash, and problematic if you forgot about the interest charges.
So, while credit card rewards, 0% balance transfers and low rate cards are all great opportunities for the savvy and responsible credit card user, used improperly and credit cards can inflict a frightening sting. That’s why we continue to recommend the Golden Rule of credit card use: set-up an automatic bill pay from your bank to your credit card that auto pays the entire monthly balance, that way you’re never late, and will never pay interest.