Avoiding Credit Card Cashing Traps

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Credit cards can be an excellent financial tool, especially if you use them wisely. However, many people are unaware of how a few simple card traps can quickly add up to debt.카드깡 매크로

The trick is to avoid swiping plastic and instead save up for big ticket items in cash. This will prevent you from getting into trouble with those credit card debt cycles.
1. Cash Advances

If you're in a pinch and need cash, it might seem tempting to use your credit card for a cash advance. After all, it can be a quick and convenient way to get money, especially in places where cards aren't widely accepted or you don't have enough cash in your bank account.

However, credit card cash advances are generally more expensive than purchases and should be avoided if possible. That's because, unlike regular credit card purchases, which usually come with a grace period before interest is charged, most credit card cash advance transactions don't have this benefit and will start accruing interest right away.

Moreover, many card issuers will charge you a cash advance fee, which can be either a flat rate or a percentage of the amount advanced. And if you're withdrawing your cash advance from an ATM, you'll likely also be hit with additional ATM and/or bank fees on top of the credit card company's charges.

Another downside of credit card cash advances is that they increase your overall credit utilization ratio, which can cause your credit score to take a hit. Lastly, most card issuers restrict the maximum amount you can take as a cash advance, which may not be much if your need for cash is urgent.

Given these pitfalls, a credit card cash advance is typically only a good idea in extreme situations, such as an unexpected emergency or when your paycheck isn't arriving soon enough. Otherwise, it's best to avoid this type of transaction and consider other financing options that might be available to you, such as a personal loan. Or you might want to seek advice from a trusted financial counselor or expert.
2. Balance Transfers

Many credit card issuers offer balance transfer cards with a special 0% or low interest rate for a limited amount of time. This can help you pay off debt more quickly and save on interest charges if you can make payments consistently until the balance is paid off.

However, if you don’t address the underlying spending habits that caused your debt problems in the first place, a balance transfer can end up costing you more than it helps. The key to successfully using a balance transfer is to carefully analyze the terms and conditions, including the fee structure, of the card you’re considering before committing.

A major drawback of most balance transfer cards is that any new purchases you make will be charged at the regular card’s interest rate, not the 0% or low interest rate offered on your transferred balance. This may increase your total debt load faster than you expect and cause you to lose out on the opportunity to save on interest payments.

In addition, the process of applying for a balance transfer credit card often triggers a hard inquiry on your credit report, which can cause your credit score to drop temporarily. While this shouldn’t be a dealbreaker, it should factor into your decision if you plan to apply for multiple balance transfer credit cards in a short period of time.

Lastly, most balance transfer cards charge a transfer fee of between 3% and 5% of the amount you’re transferring. While this isn’t a dealbreaker, it should be taken into account when determining how much you can afford to pay toward the balance in order to avoid putting yourself back into debt in the future.
3. 0% Introductory APR Periods

Many credit cards come with 0% interest on purchases or balance transfers for an introductory period. While this enticing perk sounds great, you’ll want to make sure you understand the terms before making any charges. If you aren’t careful, you could end up paying more in the long run.

0% APR periods typically last for a set number of months or billing cycles after you open the account. They also may apply to only certain types of transactions, such as balance transfers or purchases but not cash advances.

The key is to pay off the debt before your 0% interest period ends. Once it does, any lingering balances will be charged at regular purchase APR rates. This means you’ll likely owe more in the long run than you would if you had paid off the debt during the 0% period.

If you do have a balance left over when the 0% period ends, your credit card company may apply deferred interest to the outstanding debt, meaning you’ll owe back any interest that accrued during the introductory period. This is most common with store credit cards, but it’s important to check the fine print before taking on any 0% balance transfer or purchase credit card debt.

Another big concern is losing the 0% interest rate. You may lose the 0% interest rate if you make late payments or carry a balance past your introductory period, which is often 6 months. This is because credit card companies reserve the right to change a card’s interest rate, which can be much higher than your original 0% offer. It’s best to avoid carrying a balance after the introductory period is over and only use the card for emergencies to prevent interest-rate traps.
4. Sign-Up Bonuses

Credit card perks can be a great way to earn rewards without having to spend your own money. However, not all perks are created equal. Credit card issuers often offer lucrative sign-up bonuses to entice consumers to apply for their credit cards. Sign-up bonuses can be worth hundreds of dollars in cash or travel miles, but they often come with spending requirements and high interest rates that can quickly add up.

To get a sign-up bonus, you must meet a minimum spending threshold within a certain timeframe. Oftentimes, these purchases are made on your first few months of using the card, so it's important to plan ahead and choose a card with a bonus that fits your spending habits.

Additionally, make sure you understand how to redeem the rewards you earn on your new card. Different cards offer various redemption options, and some are even able to be redeemed for cash back or a credit on your next statement. Once you've found a card that meets your needs, it's important to create a plan to achieve the bonus before the promotional period ends.

Be aware that most credit card issuers have rules about when you're eligible to receive a sign-up bonus. American Express, for example, restricts the number of times you can earn a welcome offer in your lifetime and doesn't allow credit card churning — opening and closing cards in an attempt to receive the same bonus — to be eligible for its bonuses. It's also important to remember that most of these restrictions can be found in the fine print of each card's terms and conditions. For these reasons, it's always best to read the fine print before making any applications for a credit card.
5. Emergency Purchases

Credit cards are easy to use, and they can be a great tool for reducing debt. Unfortunately, if people aren’t careful, they can also be a financial trap. Credit card companies can be tempting with cash back offers and low interest rates, but the most important thing is that you pay off your balance each month.

Many credit card users fall into the debt trap due to a lack of discipline or poor spending habits. They’re often “swipe-happy,” and before they know it, their credit card balance is up to or more than their monthly salary. Once this happens, they may decide to only make the minimum payment, hoping their income will improve enough to get out of the debt cycle one day.

However, some purchases are legitimate emergencies. During the COVID-19 pandemic, for example, emergency purchases were necessary to ensure medical practitioners had access to masks and sanitation stations. In these cases, departments should contact the Director or Associate Director of Purchasing and Central Services verbally (ext. 5100) and then follow up with a purchase requisition and written memorandum signed by the Department Head. These requests will be processed under "emergency" procedures to expedite the process.

By following these tips, you can avoid falling into the credit card debt trap. However, the key to escaping the trap is fundamentally changing your approach to using credit cards. You can do this by creating an emergency fund, getting creative with extra income generation, and avoiding unnecessary purchases. If you’re ready to change your money mindset and escape the trap, check out Financial Peace University (FPU), a nine-lesson course that teaches you how to save, spend wisely, and invest for your future without all the financial jargon.