How to ignore shrewd credit card offers and avoid new debt
During holiday shopping, credit card companies are hard at work. They’ve built huge, successful businesses on the fact that, despite sincerest and best intentions, most people lose track of how much they’ve charged and do not pay off their balance before interest begins to accrue. Any “savings” or “benefits” you originally earned using the card are quickly wiped out. And during holiday shopping, in particular, we’re presented with offers nearly every place we shop.
So here’s how to ignore shrewd credit card offers and avoid new debt…
How no interest or zero interest really works.
You’re offered zero interest or no interest for a specified amount of time, such as 6 months or even a year. This can seem like a good idea but can set you up mentally to take on too much debt. This is because, psychologically, it can feel like “free money” but it’s not.
Please note that zero percent interest or deferred interest for cards or offers by places like furniture stores can be even more dangerous.
If you don’t pay off every penny within the allotted time, the interest can be 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 interest can even 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. Be sure to read the fine print before even considering these types of offers that look good on the surface.
How interest rates can change on you.
When any special offers conclude, interest rates are often higher than you might expect, as high as 23%. As if that isn’t bad enough, what many people also don’t realize is card companies are fully within their rights to jack up interest rates if a borrower goes more than 60 days without making a payment. Although you can ask for your rate to be reduced after making 6 months’ worth of on-time payments, the interest accrued during that time period can really set you back.
How extra amounts or extra percentages off at the register work.
Card issuers rely on impulse to drive these type of sign-ups. You’re at the register and the clerk asks you if you’d like to save an extra 15% off your purchase today by applying for a new store-branded credit card. Maybe the clerk even gives you an additional savings pass for every purchase made that day in the store. This is one of the absolute worst ways to get a new credit card. Not only are you making a decision on the fly, the cashier likely 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 almost always going to be higher than the percentage you save. This means that if you don’t pay the full balance off before interest accrues, you’ll pay more than if you’d just said, “No, thanks”.
- Secondly, getting an amount off like 15% off is so common, you can probably save that much with a coupon or coupon code.
- Finally, this impulse signup is designed to entice you to buy more than you originally planned, which is the real reason they make these kinds of shrewd offers in the first place.
How sign-up bonuses, points, double points, miles, double miles, and cash back aren’t worth it.
The card company promises you extra reward points, airline miles, cash back, a signup bonus… whatever… to get you to spend using their card.
But they know something you might not realize unless you carefully read the fine print and details: It generally takes a lot of spending to add up to much of a return via cash back, point offers, or other compensation. Take 1% cash back offers: you have to spend $1000 to get just $10 worth of anything. That’s why the card company is happy to give you cash back. They probably already got the money from you in the first place in interest and fees.
Think of it like this: Would you buy if I offered to sell you something marked up 23% over the regular price, with the promise of a pitiful 1% discount on the purchase? What if I throw in another 1% cash back after you’d paid me? Not interested? Me either. But that is how credit cards work.
I'm not anti-credit card if you safely have the means to pay your balance immediately All I ask is that you remain skeptical when agreeing to credit terms.
But what if you already have credit card debt or you find it impossible to avoid this holiday season?
If you are unable to pay your debt before interest accumulates, I'd highly recommend you consider a balance transfer to a card with a zero-percent promotional period. Alternately, you might consider shopping for a low-interest loan through a comparison site like Credible.com. If you can move your debt from a 23% interest credit card to a 6% loan, you may be able to save hundreds of dollars in interest.