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4 Credit Card Traps You Won’t See Coming and How to Protect Yourself

4 Credit Card Traps You Wont See ComingThose credit cards in your wallet are really double-edged swords. While credit cards are useful, convenient tools that are capable of improving your credit and earning you rewards, they can also trap you in debt.

Credit cards are the most lucrative area of banking for many reasons. Along with millions of consumers paying interest on their balances, banks also take advantage of fees and tricks to boost their profits even more.

Even if you’re in the habit of using credit responsibly, it’s easy to fall for some of these traps you’ll never see coming.

Trap 1: 0% introductory offers

0% APR introductory offers can be a great way to save money — or rack up a lot of debt! One common trap credit card companies employ is offering 0% introductory APRs that really only apply to balance transfers, not purchases. If you don’t pay attention, you may make some big purchases, incorrectly assuming you have 6 to 12 months interest-free.

This isn’t the only reason you should be careful with 0% intro promotions. Even though a card may be advertised with a certain promotion, you won’t know if you actually get it until you get the card in the mail. That’s because the card issuer will decide if you qualify after you apply.

You may wind up getting the 0% APR for 12 months, 6 months or no time at all; it all depends on your credit!

Trap 2: Deferred interest promotions

Even worse than tricky 0% intro offers is a tactic common among store credit cards: deferred interest promotions. These promotions are common among big-name retailers, who use them to get you to buy more and put your bill on your store card by promising the purchase is “same as cash” with no interest charged if you pay off the balance before the promotion ends, usually within 6 to 12 months.

These promotions are almost never like the 0% introductory APRs from major credit cards. If you are even one day late to pay off the entire balance, you’ll be hit out of nowhere with interest charges on the entire purchase applied retroactively from the date of purchase!

To show just how damaging this trap can be, take the following example:

You buy a $1,000 laptop “same as cash” with no interest for 6 months on your store card. If you pay off the balance fully before the time runs out, you pay no interest at all. If you don’t, you will see a sudden interest charge of $108 added to your card, assuming you took an extra three months to pay the balance off and the card has a typical 25% APR.

If you used a regular credit card with a typical 14% APR, your total interest charges would have been $60 assuming the same time frame and purchase.

Trap 3: Business cards aren’t covered by the CARD Act

You’ve probably heard a good bit about the Credit CARD Act and what it’s done for personal credit cardholders. Unfortunately, none of it applies if you have a business card. This is becoming a growing concern as more people take advantage of the boosted rewards business cards offer by signing up, even if they don’t have a business.

The trap here is your interest rate and other terms can be changed for no real reason — and with no notice. Interest rate increases can even apply to existing balances. What’s more, you can be hit with a default APR of 29.99% if you miss one payment, have a payment returned or go over your limit. The CARD Act requires card issuers to let you return to your normal rate if you pay your bills on time for six months, for example, but this doesn’t apply to business cards.

Trap 4: Credit card “add-on” protection plans won’t protect you

Credit card companies have gotten themselves into a lot of trouble lately by tricking customers into signing up for “add-on” programs, including protection plans. They advertise these programs as an insurance plan to protect you if you become disabled or lose your job, but most require that you make minimum monthly payments for a minimum of 18 months to have your balance partially discharged — with a fee of $1 per $100 of your outstanding balance per month.

Make sure you haven’t unknowingly fallen into this trap by checking your credit card statements regularly for charges, and do not sign up if you’re asked by a representative.

Protect Yourself!

This doesn’t cover all of the traps that go along with credit cards, but it does go over some of the biggest tricks you won’t expect. The best way to avoid traps is reading the terms and conditions completely before applying, and checking the terms again once you receive the card in the mail to ensure you got what you think you did. Be careful with 0% promotions and always know your rights under the law.

About Christine Smith

Christine Smith is an editor and freelance writer. She covers real estate and business news for US Money Ledger.

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