Your credit card may currently include several different interest rates. You may have one rate for new purchases, one for balance transfers, one for cash advances and still another introductory rate. It is very important to know what rates you currently have, because the credit card companies will pay off the lowest interest rate first! This is not in the consumers best interest. Assume you have a $10,000 balance transfer on a card at 0% and make one $9.99 charge at 14%. That $9.99 will stay on your card compounding interest every month, until you pay off the $10,000 balance transfer. The $9.99 purchase now costs you hundreds of dollars. Of course it may not even be that simple. Again we are assuming a $10,000 balance transfer at 0% and we do not make any purchases, but the card has a $69 annual fee. Guess what that fee is just like make a purchase and will continue to compound until the 0% balance is paid off. Then payments will go towards the next lowest interest rate. Any fees, such as late fees, over the limit fees, etc. will all charged to your card as a purchase. How can this be avoided? You should have one card for balance transfers and another for purchases. If you card has a low introductory or balance transfer rate, make sure you determine what other fees are associated with the card. Finally, if you must make a purchase on a card that has a balance at a low rate, it may be in your interest to balance transfer to another card. The purchase plus current balance transfer will all go to the new card at the same rate. Be careful not to continually roll balances from one card to another as this can affect your credit score. Choose your credit cards wisely and monitor the rate you are being charged. |
