Credit Card Traps

Credit card issuers are hardly the most scrupulous companies. Known for preying on vulnerable customers, they create credit traps for those who can least afford it. Knowing how these companies operate can help you avoid these traps and stay out of debt. You can even turn the tables on these companies and make them work for you.

When you first took out your credit card, it probably had a great introductory rate, like 0% APR. After a while, though, the rate went up, and up, and up. Suddenly, the card doesn't look like such a great deal. It's not uncommon for the interest rate to jump from 0% to 30% at the end of the introductory period. What many people don't know, though, is that the rate can increase during that period, as well. If you miss even a single monthly payment, the card company can consider this a breach of contract and raise the rate.

Even if you missed a payment on a different card, the card issuer can use it as an excuse to charge a higher rate. Credit card companies claim that even a small drop in your credit score makes you less credit worthy. So much less so that the rate can jump by 20% in a day. If you're carrying a balance on that card, you must either settle it in full straight away or pay the new interest rate.

If you have different types of debt on your credit card, you automatically pay off the cheapest debt first. So if you have different rates for new purchases, balance transfers and cash advances, your monthly payments pay off the lowest-interest debt first, costing you more in the long run.

Avoid these traps by transferring your balance from expensive cards onto cheaper ones. You can even get cards with 0% introductory interest rates. Use these cards until the interest rate goes up, then transfer the balance onto a new 0% card. That way you can borrow money from the credit card companies without paying a penny in interest.