Credit cards - ways they catch you out
There are many pros to having credit cards. They offer security on purchases, even if a shop goes bust and you never get the stuff you ordered. They are convenient. And they can buy you some time at the end of the month as you hang on until payday (although it’s best if you pay off everything you owe as soon as you can).
But credit cards are tricky little blighters too, and the companies who gladly give you their little pieces of plastic are experts at extracting cash from their customers. Here are a few ways that me and some of my mates have been caught out…
Trailing interest
I missed a credit card payment (it was my own fault; I’m disorganised). The next month I sent a cheque to pay off the complete balance, including my £12 non-payment fee. However, the next bill included a charge of £1.42 ‘interest’.
I phoned up the credit card company and they told me it was the ‘trailing interest’ that had been charged at a daily rate on the stuff I’d bought and not paid off in the 59 day ‘interest free’ period. And next month I’m going to have to pay another small amount of trailing interest that will be charged on my outstanding purchases between the time they sent me the bill and the time I sent them the cheque.
The really tricky thing about trailing interest is that the method used to calculate it leaves you still owing money after you presume a card’s entire balance has been paid in full. It just goes to show that even when you think you’ve got out of the clutches of the credit card companies, they can still charge you!
Charges on “cash” payments
My phone call to the credit card company was very interesting. The woman in customer services agreed that ‘trailing interest’ was sneaky, but then told me that every ‘cash’ payment was liable to it, because ‘cash transactions’ weren’t covered under the 59 day interest period.
Now, by ‘cash’ I thought I knew what she meant: using your credit card in an ATM. But there are other transactions that count as ‘cash’, for example: foreign currency, using the credit card cheques they send you, and even internet gambling.
Changes to your agreement
I had two credit cards for a while, because I was going abroad and I wanted an ‘emergency’ card. I applied for a second card and used it very infrequently for about eighteen months, until I got a letter from the credit card company telling me they were going to start charging me a ‘service fee’. Suddenly a card I rarely used was going to cost me a few quid a month.
I cancelled the card, but if I hadn’t opened the letter, I would have ended up racking up credit card fees for literally nothing.
Payment protection plans
Over to my friend Becky for this:
“Before I started university, I opened up a student account. The woman in the bank persuaded me that I would need a credit card for ‘emergencies’. She also persuaded me to take out a ‘Payment Protection Plan’ at about £5 a month. A few months into university, I realised that I would never use the card, so I tried to cancel my account. The bank didn’t make it easy and it took a number of phone calls to close it down.
“But after I closed my account, the Payment Protection plan wasn’t automatically cancelled. Unbelievably, they charged me to protect an account that no longer existed. In the end, I paid £5 a month for about 18 months for a credit card I didn’t want in the first place and never used.”
Wrongly using them as a fall back plan
It’s tempting to think of credit cards as a ‘safety net’ if things go wrong, but as we’ve seen, the safety net can turn into a snare. Your ‘flexible friend’ is in fact anything but, in times of need.
So, explore other options. Can you build up some savings? If you really need it, can you take a loan from the bank of mum and dad? Best of all, can you forego some luxuries and stay within your budget this month? The less you can spend on a credit card the better, and the faster you can pay them off the happier you will be.
Can you live without your credit card? Why not try the Cash for a Month challenge?
Written by Jon Matthias. Posted on 24th November.
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