Owning a credit card is something of a milestone for people today. While millions of people across the world own credit cards, only a much smaller percentage understand the impact of credit card interest and fees on their bottom line. Skeptical about that fact? Here are some statistics that might surprise you:
In 2019, of the $23.6 billion fees charged by credit card companies, $14 billion amounted to just late fees! And in 2020, overdraft fees cost Americans $12.4 billion. Despite having the knowledge of what late and overdraft fees are, consumers tend to avoid analyzing them and sink into debt before they realize it.
Here’s what you need to know to become an informed credit card user, and leverage its benefits with minimal risk.
Managing Your Credit Card
It’s important to get savvy about all the terms and conditions accompanying your credit card. Here’s why:
- Credit card owners end up paying much more in late fees and interest than the principal amount due on their cards. The lack of knowledge and awareness results in credit card debt that compounds quickly. This slows down your wealth creation journey.
- Another consequence of mounting credit card debt is that it reduces your credit score. A low credit score means that you may be denied other credit products such as home or car loans. Alternatively, you may be charged higher interest on these credit products.
Be Aware of All Credit Card Fees
The current market is flooded with attractive credit card options, but before taking on a new credit card, it’s important that you learn about all the fees being charged. Unnecessary fees on credit cards have come to be known as junk fees, as they collectively drain your pocket. Here’s a run-down of the various types of fees usually charged by credit card companies today:
- Late fee: This is a penalty for paying your bill later than the due date. Often, consumers forget to pay on time. As a consumer, you’d do well to automate payments or put a reminder in your calendar, so you always pay on time.
- Interest: If you do not pay back your balance in full every month, you incur interest on the outstanding amount. Ensure that you learn all the interest rates of a particular card advance, and make sure to pay off your bills in time. The outstanding amount can compound very quickly, so it’s crucial that you prevent your interest from spiraling out of control.
- Cash advance fee: Credit cards typically allow you to also withdraw physical cash from ATMs. This functions as a loan; however, the fee is high, and there is no interest-free period. Hence, you are charged interest from the moment you withdraw the cash.
- Foreign currency mark-up: When using your credit card overseas, you may be charged a mark-up on transactions.
- Annual fees: Some cards charge an annual fee on top of other fees. Ideally, it’s wise to pick a card with no annual fees unless it also comes with significant benefits.
Want to improve your financial literacy and engage with your finances better? At Briteside Solutions, that’s what we do best. Get in touch and ask us about our financial and credit education services today.