Credit card companies are businesses, and businesses exist to make a profit. You’ll save yourself a lot of grief if you bear that in mind whenever you’re dealing with a card issuer. Take for example credit card introductory offers; these could just as well be called credit card introductory traps because you will run into unintended consequences if you forget the card company’s primary goal is to maximize profits.
These arrangements usually require you to spend a certain dollar amountwithin a specific time period to get the perk. If you can pay off that amount before the interest is due, you’ll make out pretty well.
However, the required expenditure can sometimes be more than you might be able to afford to pay off within the specified timeframe. What’s more, when you run the math on the dollar value of each point, you’ll usually find you could have just bought the “carrot” for much less.
Consider a scenario in which you’re required to charge $2,000 in 90 days to get 25,000 bonus points. In most cases, those points pencil out to be worth approximately 1.5 cents each. This means you just took on $2,000 in debt to get a $450 reward. If that card has an annual fee of $500, you just lost $50 plus the interest you’re about to pay on the $2,000 purchase.
These can be an outstanding opportunity when you know you have a windfall coming and can use it to pay off the balance before the introductory period ends. If you can’t, you’ll see your debt increase by a significant amount when the interest rate of as much as 25 percent gets applied to the transferred balance. Let’s say for example, you transfer $20,000 to a zero-percent card offering. If the $20,000 balance remains when the introductory period ends, you’ll see your obligation go up to $24,500.
A lot of people sign up for balance transfer deals like this in an effort to eradicate credit card debt. If you did the math above, you saw that’s a rather expensive way to go about it. You might be better off working with a debt solutions company like Freedom Debt Reliefto explore some better ways of dealing with that obligation.
Fees, Fees and More Fees
OK, so let’s say you got the deal, met the parameters and paid it off before the grace period. You’re feeling pretty smug about avoiding the additional charges. The card is tucked away someplace never to be used again. You’ve forgotten about it.
Next thing you know, a statement arrives in the mail with a balance due because you’ve incurred an inactivity fee. Yes, some cards will impose a fee if you don’t spend a certain amount of money over a specific period.
Here’s the thing, if you don’t open the statement because you think the card is paid off, you’ll miss that fee. It will then become the balance due on the card and begin to accrue interest. If things go on that way, you’ll eventually get collections calls and your credit score will take a hit because you haven’t paid the bill. Meanwhile, you’ll also rack up missed payment fees.
Again, credit cardcompanies are businesses, and businesses exist to make a profit. That doesn’t mean you shouldn’t take advantage of one of these deals though. However, you should read the agreement carefully to see exactly what’s expected of you, lest you stumble on one of these credit card introductory traps.