Monday, June 26, 2006

Credit Card Fees part one

Other than high interest on outstanding card balances, credit card companies and extract dollars from the unwary in a variety of ways. Some of the common additional fees arise from the situations discussed below.

Note, if you are using your credit card at an ATM, or credit card checks to pay recurring bills such as mortgage or car payments you need to recognize that you are in dire straits! You need to seek out some type of credit counseling as a priority. This type of activity can quickly lead you down the road to ruin if not nipped in the bud!

Avoid using a credit card at an ATM
Avoid using your credit cards to get cash from an ATM. Such use will cause you to be charged a fee for use of the ATM, an additional fee from the Credit Card company, and for interest to immediately start accruing against the cash withdrawn amount (even if your initial credit card balance was zero at the beginning of the statement period. Also note, that the interest rate on cash withdrawals is typically at a higher rate than interest on merchandise purchases.

Avoid using credit card “convenience checks”
Many Credit Card Companies like to send out blank “checks” along with their monthly statements or sometimes just as a special promotion. They indicate that you can make purchases with these just like regular checks. However, unlike regular checks from your Checking Account, you will be charged a fee for each “convenience check” you write (minimum fees could be $5.00 or more), and interest will immediately start accruing against the amount of the “check” (even if your initial credit card balance was zero at the beginning of the statement period. In other words, the use of such a “check” is very similar to using your credit card for an actual cash withdrawal from an ATM. The best thing to do with these “checks” is to tear them up (don’t just throw them away as is).

If you are getting these convenience checks from your credit card company, I recommend that you in fact request that they stop sending them out. You can call the customer service number and ask that all convenience check mailings be discontinued. Also if offered, ask that a confirmation letter be sent to you. Not only are using these checks a bad idea; they are also prime targets for identity thieves! If such a letter were stolen out of your mailbox you probably wouldn’t even miss it until the fraudulent bills started to show up on your credit card billing statement. Most companies will comply with your request for canceling such checks. If yours won’t, I recommend that you start shopping for a new credit card company.

Over limit cards
You can usually exceed your card limit without getting a red flag from disapproved purchases. Often, the credit card company will not prevent you from exceeding the limit i.e. alerting the merchant not to accept your card for a given purchase. You need to get this card back below the limit as a priority since you will be subject to the “over the limit fee” on your next card statement (even if you pay the entire amount off). The card’s monthly interest rate may also be increased. Remember, it is your responsibility not to exceed your card limit. These card limits should be kept in mind whenever you make large dollar purchases, but these limits should typically be set much higher that you should normally use. If you feel that your limit is too low (e.g. $500), then contact your credit card company. If you have a good payment record, they will probably agree to raise your limit. While you never want to exceed your limit thus incurring a penalty charge on your next statement, the governing factor on card spending is that the corresponding Budget Ledger(s) has sufficient funds within to take care of each charge amount.

Stay tuned for part two


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