5 Tips to Limit the Finance Charges You Pay on Credit Card Accounts

Finance charges make the expense of purchasing on credit much higher than paying in cash. This is particularly true for borrowers with irresponsible credit habits. You can significantly reduce the cost of using a credit card by following these tips.

#1 Make Monthly Payments

All credit cards charge a minimum monthly fee. You must pay this fee in order to protect yourself from a number of unfavorable consequences. These consequences include an interest rate hike, negative credit report and late fees. When a monthly credit card bill arrives, pay the minimum fee required in order to save dollars down the line. 

#2 Pay Down Debt

Whenever possible, it is important to pay down the balance on a credit card. Allowing a balance to revolve causes two problems. First, it can lower your credit score. Second, you will be charged compounded interest. This means interest will be assessed against the principal every single payment term. Unpaid interest will be added to the principal sum, so interest will be charged on interest. It only takes a short time for your debt to double. In fact, it takes less than 5 years for debt to double on a 14% credit card.

#3 Dispute Charges

You need to track your credit card statement each month and verify it against your receipts. Identity theft does occur. Even without identity theft, though, there are a number of other problems that can result in higher charges. Many credit card companies incidentally charge more than they should on a single transaction. Sometimes, it is not the credit card company's fault. A restaurant, retailer or bar can tack on additional charges to your bill. Without checking, you will never be certain if your statement is accurate to the purchases you made during a given period of time.

#4 Refute Interest Increases

Your credit card company has a legal obligation to notify you in writing if it intends to raise your interest rate. When you receive a letter from the company, sit down and read it. Call the company or respond in writing if a rate increase has been planned. Consumers who do not refute a rate increase will find themselves victim to more increases over the coming years. Credit card companies bet on the fact borrowers will not dispute the increases, and this often leads to obscenely high finance charges down the line.

#5 Watch Credit Score

Credit card interest rates are variable in nearly all cases. This means your company can raise your rate in response to a number of different factors, some large-scale and some personal. For example, rates will go up if inflation increases or the national prime interest rate goes up. There is little you can do about this problem. On a more personal level, rates will also go up if your credit score goes down due to missed payments on this card or on other debts. You should watch your credit score to assure it stays at a high level throughout the time you make use of a credit card to avoid rate increases.


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