Credit Cards: Credit Card Pitfalls
Watch out for these tricks that credit card companies use to part you from your cash.
There's one very important thing to remember about any dealings with financial institutions and that is that you are a 'sales target'. Banks will flatter you by calling you a 'valued customer' but in reality you are simply a potential cash cow. When they increase your credit limit without asking you, send you unsolicited credit card cheques or offer you a so-called 'prestige' credit card, their sole aim is to persuade you to spend - ie: borrow - more and pay as much interest as possible.
An equally important source of income for credit card issuers is Credit Card Repayment Protection (CCRP), which they will try and flog to you every time you take out a new card. This is an entirely optional insurance policy that meets your monthly repayments if you are unable to work because of accident, sickness or unemployment. It also pays off your outstanding balance if you die.
The problem with CCRP is that is wildly over-priced and policies are packed with get-out clauses, small print and jargon. If you must have protection against accident, sickness and unemployment, shop around for a stand-alone income protection policy, which you can use to cover all your essential monthly expenses, including your mortgage repayments.
Don't be sucked in by marketing speak in credit card literature. For example, credit card cheques are usually accompanied by literature that suggests life would be so much easier if you used them to pay off other bills or that you deserve a holiday after all your hard work or that a new kitchen could increase the value of your home.
Above all, avoid turning into their favourite type of customer - known in the industry as a 'revolver'. A revolver borrows heavily and regularly, usually makes only the required minimum payments and never gets around to fully paying off their credit card. Card issuers will also charge you penalties and fees whenever possible: withdrawing cash, paying late, exceeding your credit limit, asking for duplicate receipts or statements and so on. Check carefully before doing (or asking your lender to do) anything unusual.
Published on November 15, 2006
