Josh Elledge - Chief Executive Angel
Credit card offer traps. Don’t get duped this holiday season!
During the surge in shopping for the holidays, credit card companies are hard at work to get more customers. The vast majority of people, despite sincerest and best intentions, do not pay off their balance quickly. Things come up, and card companies know it. They’ve built their business on this certainty.
During holiday shopping, people can lose track of how much they’ve actually charged in total – and be unable to meet even the minimum payment requirements later. Credit card companies bank on this credit card offer trap, as well as on people forgetting to make payments on time, and not paying off the whole balance before interest accrues.
In your eagerness to save this holiday season, don’t get duped into falling for credit card offer traps – whether a new card or even offers with an existing card – no matter how good the offer sounds. It doesn’t take much to completely wipe out any “savings” or “benefits” you originally received in the deal.
Credit card offer traps to avoid:
No interest, zero interest, deferred interest, or special financing.
No matter what they call it, these typically operate identically and can be particularly sneaky.
How it works: You’re offered the bait of zero interest, or deferred interest, for a specified amount of time, such as 3 months, 6 months, or even a year. BUT if you don’t pay off every penny within the allotted time, the interest is back-calculated to the original amount borrowed – regardless of what you already paid down and how little you may still owe – AND is calculated for the entire time period. This can result in a very hefty new balance.
Retroactive, or back-interest, can also be activated by other slip-ups, such as a late payment, any payment that doesn’t meet the minimum requirement and going over your credit limit. Tricky.
Interest rate changes.
When special financing or zero interest offers conclude, rates for interest on any retroactively calculated interest, are often higher than holiday shoppers quick to snag a deal might expect – as high as 23%. Not only is this the rate for any back-calculated interest, it is also the rate for ongoing use of the card.
Unfortunately, what many people also don’t realize is that card companies are fully within their rights to jack up interest rates if a borrower goes more than 60 days without making a payment. This can be easy to fall prey to if you borrow too much and later have a financial crisis.
Extra amount off, extra percentage off – at the register offers.
This very common practice is a huge credit card offer trap. Card issuers rely on impulse to drive these sign ups. The little bit they are giving you in savings is a pittance compared to what you’re likely to end up paying them later.
How it works: You’re checking out and the clerk asks you if you’d like to save an extra 15% off your purchase today. They might even throw in something like an additional savings pass for every purchase made that day in store. This is, perhaps, one of the absolute worst ways to get a new credit card. Not only are you making a decision on the fly, the cashier probably knows next to nothing about the credit card agreement details, and you don’t have time to read the fine print.
Other reasons this is a horrible deal…
First of all, the interest rate is likely to actually be higher than the percentage you are saving. This means that if you don’t pay the full balance off before any interest accrues, you’re actually going to pay more than if you’d just said no.
Secondly, getting an amount off like 15% off is so common, you can probably save that much just by checking for a coupon or coupon code.
And third, this impulse signup is designed to entice you to buy more than you’d planned, which is the real reason they make these kinds of credit card offer traps… I mean, offers.
Signup bonuses, points, double points, miles, double miles, and cash back.
These bread-and-butter tactics of the card companies are the most blatant credit card traps, yet people still fall for them all the time.
How it works: The card company promises you extra reward points, airline miles, cash back, a signup bonus… whatever… to get you to spend with their card. But they know two things you might not know:
One, only a percentage of people will ever redeem those points or miles, so it’s unlikely they will pay out anything to you; plus… It takes a LOT of spending to add up to much of a return via cash back, point offers, or other compensation. For example, you’d have to spend a thousand dollars to get to even 50 bucks worth of anything with a 5% cash back offer. (Take a moment to calculate what 5% of any amount you’re thinking of spending actually gets you.) The card company is happy to give you cash back because they already got it from you in the first place in interest and fees.
As if those two reasons aren’t enough to steer clear, it’s another prime example of the flawed financial logic I like to break people out of. Think of it this way…
What if I offered you an item that was marked up 23% over the regular price, with the promise of a measly 5% discount if you buy today? Would you take that deal? Come on, you know you want to… Here… I’ll tell you what… I’ll even throw in another 5% cash back after you pay. Deal?
NO DEAL. See how ridiculous that is? No matter how you figure it, you’re still paying 13% more for the same item. Doesn’t matter how I frame it. That is how credit cards work. You end up paying more than you would just paying cash.
