Five Way-Too-Common Credit Card Traps to Avoid
By: Thomas Sigsworth on February 11, 2014
As movie dialogue goes, “it’s a trap!” has become the very furniture of cliche, rivalling other mind-numbing groaners like “we’ve got company” “don’t look down” and “it’s quiet . . . too quiet.” The worn-out line should be banished from Hollywood scripts and inserted where it really belongs: at the top of way-too-many credit card contracts.
With credit cards, real-life traps really do abound. Here are five of the most common credit card traps currently ensnaring consumers.
Trap 1: Promotional Offers Masquerading as Permanent Offers. We’ve all seen those “card X has a 1% APR, so sign up today!” offers. They look great at first glance, but what if the super-low interest rate only lasts for three, six or twelve months? Many Canadians are lured into taking cards with unbelievably great teaser rates, only to be blind-sided later with sky-high interest charges when the promotional period expires.
Trap 2: Pathetically Low Cash-Back Caps. Even the savviest consumers can get snared by this trap. Enticed by high cash-back rates – usually four or five percent – unsuspecting applicants take a cash-back rewards card thinking they’ve gotten a great deal. Only after they’ve received the card and paid the annual fee do they realize that the high cash-back rate merely applies to the first few thousand dollars of purchases per year! Once cardholders hit the cap, the amazing cash-back reward rate is reduced or eliminated completely.
Trap 3: Hidden or Obfuscated Balance Transfer Fees. This is perhaps the cruelest trap of all. Canadians eager to consolidate their balances can be tempted by “0% APR on balance transfer” offers – especially if they are struggling under the weight of a big debt load. The trap here is that while some credit card providers advertise 0% interest on balance transfers, they still charge exorbitant “fees” or “surcharges” when the debt is actually moved over to the new card. These fees can be as high as three to five percent of the total balance amount transferred, so you could end up being in worse shape than if you hadn’t taken the card at all.
Trap 4: Sign-Up Rewards With Conditions Attached. Some credit cards offer a batch of rewards points just for signing up. The problem is, these enticements often come with spending minimums that have to be met within a limited period of time. Cardholders are usually lured into making unnecessary purchases just so they can get the rewards they were promised in the first place.
Trap 5: Inactivity Fees. Some credit cards make you pay if you don’t play. You’ll be charged an “inactivity” or “non-usage” fee if you don’t make enough purchases over a set period of time. Think of it as punishment for not spending enough of your own hard-earned money on the card. Inactivity fee clauses are usually buried extra deep in credit card contracts, so make sure you’re on the lookout(maybe even with a magnifying glass in hand!) as you scan the fine print.
Wrap-Up
As you can see, before you sign up for a shiny new piece of plastic, it’s a good idea to have a healthy dose of skepticism and carefully read over the terms and conditions of the card. Approach your credit card contract as if someone really has yelled “it’s a trap!” – cliche or not, it could save you hundreds of dollars per year and hours of aggravation.
