Tuesday, July 22, 2008

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Taking on a new credit card may seem like a good way to control and handle some of your spending. However, it's vitally important that you think carefully before taking on a new credit card, otherwise you build up not just spending debts but extra charge debts too.

When you're looking at a new credit card offer, make sure to look at the small print - it may seem like a maze, but it's vitally important you pay special attention to it. With new regulations ensuring that credit card companies highlight the main credit card terms and conditions, there aren't as many excuses for ignoring the terms as there used to be. However, credit card lenders can be devious, while operating within the confines of the law, and there are plenty of things they do to 'catch you out'.

Here is what you need to be on your guard against to help you with credit card debt management.

Annual Fee Payments
Even though you are charged a yearly interest, many credit cards companies also charge you an annual fee. It's not that common anymore, but it's still around. You should be especially careful to check for high fees on special Gold and Platinum cards - even though they're not that hard to get any more, they still tend to charge much higher fees than normal cards. And one of the 'tricks' that companies use is to give you the credit card for free, for the first year, and then on the second year you suddenly see a charge on your credit card bill for a card fee payment.

Penalty Charges
You should pay special attention to what kind of fees you'll be charged for late payments, or if you take a cash advance from a bank money machine. And of course if you accidentally exceed your pre-agreed limit on the card the charges can really get out of control. Some cards have very high penalty charge fees, even if you only exceed spending limits by a few pounds.

Interest Method
This is one of the most most important and overlooked of all the small print, just because it's can be difficult to understand. You could be cynical and say the credit card companies write it like this just to make us even more confused, in the hope we will ignore some very important small print points. Essentially, each credit card company has a slightly different way of working out how much interest you should pay each month. There are three main methods:

Method 1: With the 'adjusted balance' method, you are charged interest on whatever your balance was when the company sent the bill.

Method 2: Another version of the adjusted balance is the 'previous balance'. You're charged interest on your balance as it stood at the end of the billing cycle before this one, regardless of how much you've spent or paid off since.

Method 3: The 'average daily balance'. This is the most complicated method used nowadays. Your balance is worked out from the end of each day in the card billing cycle. It's then added up, and divided by how many days for the payment period, and interest is then charged on this final amount. This method works best for you if your balance jumps around a lot, as it avoids you paying lots of interest on a balance that just happened to be large on the billing date.

Also, pay special attention ot the rate of interest you pay each month, instead of just relying on the APR. The APR is just an estimate of your total cost of borrowing; it is the monthly interest plus all the other various charges that will show you precisely how much you will end up paying.

Grace Period
Maker sure the card you're looking at using has a 'grace period' on purchases. Otherwise, you could end up being charged interest from the very moment you pay with your card. One of the things that most cards don't allow is a grace period for cash advances or credit card cheques.

Currency Conversion Fees
If you plan on uisng your credit card abroad, make sure to take a look at how much the card charges for such transactions made in other currencies. Some cards can be much more expensive than others and once again the additional charges could be a nasty surprise after an enjoyably holiday.

Conclusion
You should pay special attention to any credit card you plan to use. Although regulations are now in place to protect the consumer, you must still be prudent with your credit card debt management. Your card debts can easily get out of control and one of the hidden problems can be the un-necessary debts added to your card because you ignored most of the points raised above.
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