Credit Card Confidential

Most of us have one. Many of us could own several — dozens even — if we said yes every time we were offered one. Credit cards are a ubiquitous part of our consumer culture, yet we may not know all the dark little secrets these plastic cards hold.

In Canada, there are about 72 million credit cards in circulation and we spend about $267 billion on them annually. But, we’ve not paid off $78 billion on our cards. That number is on the rise, as is the 90-day delinquency rate on cards.

One way to reduce your credit card debt, and extra fees and interest, is to fully understand your card. Here’s some interesting facts on credit cards and tips that can help you save money:

• You are not charged interest on purchases right away. You have until the due date of your credit card statement. However, the same does not apply for cash advances (which includes using so-called convenience cheques) and balance transfers. You are charged interest on these from the day you use them.

• The minimum payment should not be your goal. If you do not make your minimum payment each month (usually about 2% of your outstanding balance), your credit score could be lowered. This is not good as this could impact your ability to get loans in the future. As well, your credit card company might hike your rate. The remanding balance will be charged interest, so merely making that payment just keeps you out of trouble with your card company, it does not get you out of debt or protect you from interest.

• Interest can pile up quickly. Here’s why. You are not charged interest from the day you make a new purchase, but instead have a minimum of a 21-day grace period. (But check your card’s fine print on this one; some cards have eliminated the grace period!) However, if you don’t pay your balance off in full, the credit card company will start charging interest on purchases dating back to the day you bought them. That interest charge will only stop when you make a payment to cover that item.

• Your interest rates vary. Read your credit card agreement and statements carefully. You are probably being charge different interest rates, depending how you use your card. Purchases are often charged at the lowest rate, but many companies ding you more on cash advances and balance transfers.

• Watch for deals. If you get a brand new card, it may come with a tantalizingly low interest rate. Read the fine print: that may be an introductory offer and your rate could leap significantly after a few months.

• Beware of fees. You can get dinged with a fee if you go over your credit limit, use a card you’ve not used for over a year, purchase something overseas, pay your credit card with a cheque that bounces or get a statement reprinted.

• Scrutinize your annual fee. If your card has an annual fee in exchange for a low rate or a points system, make sure it’s worth it. If you never carry a balance or those points add up to little, you might be tossing $50 or more away every year to get benefits you don’t use.

• Use your perks. Some cards offer insurance against your purchases and also offer automobile rental insurance.  These features can end up saving you a lot of money.  You’ll never know if you have them unless you ask: call your company and find out if there are programs that you’re not using.

• Avoid multiple cards. Retailers are constantly hawking their cards, offering you 10% off your purchase if you sign up. Well, that 10% is probably only for that first shop. Then what? It’s another card to manage, another annual fee to pay or more junk to fill up your mailbox. If you struggle to control your credit card spending, best stick to just one card with a rate and fees you can deal with.

• Ask for better. If you don’t like your interest rate or other terms, call your credit card company and demand better. You’d be surprised what can be changed on the spot. Remember: if your credit rating is half decent, you can compare rates and apply for a card with lower fees and better rates and terms.

But above all, remember that credit card companies do not operate to help you live better. They want to make a profit and compete with other companies. To stay out of debt and avoid sky-high interest rates, you’ve got to advocate for yourself and know what kind of credit really works for you.

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