How to Avoid Unexpected Credit Card Fees and Charges
Sometimes, in the rush to transfer a balance from one credit card to another and save money, a person can leave themselves open to increased interest rates and other charges. In fact, the Consumer Financial Protection Bureau (CFPB) recently sent out a warning to credit card issuers about their deceptive offers when it comes to reduced interest or zero interest balance transfers.
The problem lies in the information, or lack thereof, given by the credit card companies to consumers, information that should inform them that by creating a monthly balance, even if it has zero interest, the interest-free grace period that they would normally get on most purchases will be lost. For people who pay off their credit card balance in full every month, that could mean the loss of significant savings.
What normally happens when a person doesn’t carry a balance on their credit card is that, as long as they pay the charges in full by the payment due date, interest on new purchases doesn’t accrue. That changes instantly when they transfer a balance from another card as, in most cases, that grace period is given up until the transfer balance is paid in full. Unfortunately, even if they continue to make payments in full on their other new purchases every month, the loss of that grace period means those purchases will start accruing interest immediately.
The CFPB has a problem with the fact that most card issuers don’t make this information clear in their promotional materials, especially those that refer to their convenience checks, balance transfers, deferred interest/promotional interest rate purchases and so forth.
The agency says that the information is missing in some cases and, in others, it’s covered by language that’s too technical for the average person or buried under volumes of legal-speak. This results in many consumers being misled into thinking that the only fee they’re going to have to pay is the transfer-related transaction, which in most cases is entirely wrong.
Richard Cordray is the director of the CFPB and, in a statement that he made announcing the agency’s warning to credit card issuers, he said that “Credit card offers that lure consumers and then hit them with surprise charges are against the law.”
What can you do to avoid paying these extra fees and interest?
Simply put, before you take advantage of any balance transfer offer, make sure you read all of the fine print so that you understand the cost and transfer fees included. If you have any questions about anything, you need to ask before you sign on the dotted line and keep in mind that, even if you pay off your balance every month, there’s a very good likelihood that you’ll be getting charged interest on purchases from the moment that you make them. Depending on how many purchases you make every month, this could actually cost more money than if you haven’t made the transfer at all.
One excellent way to avoid this problem is simply to stop using any card where you just transferred a balance until that balance is paid off. Use a different credit card or cash, and don’t forget that most promotional offers require a minimum payment that you’ll need to make in order to keep getting their promotional rate. Paying off that transfer amount during that period is in your best interest as well because, if you don’t, you’ll be facing higher interest charges on any unpaid balance.
Something else to keep in mind is that you should never make a transfer to any card that already has a balance on it. The reason is because credit card issuers are allowed by law to apply the minimum payment portion of your future payments to your promotional balance. They don’t have to apply it to the higher interest rate balance that you’re trying to pay off.
One last technique that you might want to try is simply to call your credit card issuer and ask them to voluntarily lower your interest rate so that you’ll avoid transfer fees and other costs altogether. They don’t have to do it but, in some cases, they will, and so asking won’t hurt and won’t affect your credit score either.