Master Your Card

When it comes to credit cards, interest fees can be a very mysterious thing. A number of very questionable policies relating to how interest is charged have been introduced by some card issuers that seem to be designed to keep their customers in debt as long as possible. Keep the following in mind when using your plastic friend and notice that just about all of these nasty pitfalls can be avoided if you always pay your bills off on time and in full:

* Although you may think you are paying one standard rate, on just about all credit cards there are actually several different interest rates in operation at any one time. Purchases, cash advances and balance transfers all generally attract a different rate - purchases usually attract the lowest (e.g. buying a flat screen television), cash advances the highest (e.g. withdrawing money from an ATM) and balance transfers (moving the outstanding debt from one card to another) usually rank somewhere in the middle.

* The rates you’re offered when you sign up may be for a limited time only – take careful note of when the honeymoon period expires. Rates can also change if you fail to meet certain obligations like paying your bills on time and in full or if you go over your limit.

* The ‘grace period’ – the number of days you have to repay a purchase without incurring any interest charges – is also very prone to change. On some cards you waive your grace period on future purchases if you carry any debt on the card from previous months. Note that the grace period usually dates from the day you received your last statement, NOT when you made the actual purchase.

* Despite this, if you are overdue you are generally charged interest from the date of purchase, not when your grace period expires - some cards even charge you interest on the full purchase amount, even if you only leave 1$ unpaid!

* You are charged interest on a cash advance immediately, regardless of any grace period. Paying bills with your credit card often counts as a cash advance. You should only ever use your card for cash advances as an absolute last resort.

* When you make a payment on your debts you will probably end up paying off the loans with the lowest interest rates first. For example, if you had $2000 worth of debt that broke down to $1500 worth of cash advances at an 18% rate and $500 worth of purchases at a 12% rate, the card issuer can often force you to pay the smaller debt first!

* When it comes to credit card debt, compound interest is not your friend. Interest is charged on a daily instead of a weekly or monthly basis and you get charged interest on your interest. In other words, a small debt can become a big debt in basically no time at all.

Summary: Don’t just look at the ‘publicized’ interest rate on your card – they are very misleading and can lull you into a false sense of security. Find out what percentage you are paying on all forms of transactions – cash advances, balance transfers and purchases. Make a careful note of how fairly interest is calculated and always make sure you know what rates you might be slogged with should you miss a few payments.