Around 6billion a year is lost due to credit card users not understanding how their credit card works. Too many people are dazzled by the latest deals offered by credit card companies and end up paying more than they should, simply because of a lack of any real understanding on how the introductory deal works that they took advantage of. Millions of us have taken advantage of these offers, which include low promotional rates and the favourite one for the credit card issuers (until it came back to haunt them) the 0% deals on balance transfers or on both purchases and balance transfers, but recent research has revealed that those of us who do not understand the workings of these deals, could be costing ourselves 200 extra in interest payments. Why am I getting charged interest? The main reason for this is that most credit card companies always put the payments that you make towards the cheapest debt first and with many making use of the 0% balance transfer deals, where switching your existing debt to one lender to another to save on interest repayments, the lenders will pay the balance transfer deal first, as this is the debt that is carrying the lowest interest rate and any new purchases made on the card will mount up, until the 0% balance transfer deal is over and in the meantime it has mounted up the interest payments on these new purchases, which will be the standard APR in which the balance transfer will revert to when then 0% period is over. How does this happen? Lets give you an example of this to make it a little clearer, for talking sake say you have a debt of 3,500 on your credit card and it consists of a balance you have transferred from another credit card company to the value of 2,000, you have made new purchases of 1,000, using the card in the standard way and withdrew cash from ATMs to the tune of 500, with you paying back your card the money will be put towards the balance transfer first and the new purchases and cash withdrawals will be taking on the interest charges right away, which could leave you paying 200 more in interest repayments. Earlier in the article I said that most credit card companies work this way, which means there are some that do not, most notably included in those who do not are Nationwide and the HSBC Black card, who revert to paying the most expensive debt first, leaving the lower APR debt unpaid until such a time as when the more expensive debt is cleared, which is a fairer and less sneakier way of attributing someones payments to their debts, where as the others are only taking away the goodness of the deal that they have offered you in the first place, by giving you in one hand and taking it away from the other. What can I do to stop paying excess interest? When dealing with these deals read the small print, as it always makes sense of where you stand when it comes to your finances, as knowing where you are in terms of your repayments will save you the cash that you were trying to save in the first place, though always having a clear balance at the end of each month is always the ideal scenario, but as we all know life and our finances are not always that simple. Some Contacts:
Nationwide - http://www.nationwide.co.uk
HSBC - http://www.hsbc.co.uk |
