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  • 22Dec

    What are the most common hidden costs of a credit card?

    With the advent and proliferation of Information and Computing Technologies (ICT), debit and credit cards have now gained huge popularity across the world. Carrying cash can be troublesome, and prone to theft or mugging. In comparison, credit cards can be deactivated by promptly notifying the issuing agency or bank in case of loss or theft. It is also much easier to keep track of purchases made by a credit card. On the other hand there is no such thing as a free lunch. With all the benefits that a credit card provides, there comes along a hefty price tag – both publicized costs and the not-so-well-publicized, hidden costs.

    Why are there hidden costs associated with a credit card?

    It is necessary to understand all the costs associated with a credit card before plunging into a spending spree during your next hard-earned vacation. The credit card issuer also has to make a living. Naturally, they must make a living by extracting fees. What you need to be careful about is greedy issuers making a living by extracting exorbitant amounts of money from unsuspecting customers through a variety of fancy fees and surcharges. Herein lies the solution.

     Every credit card issuer wants to maximize his profits, and one common resort of choice for the issuer is to hide the nitty-gritty of fines, fees, surcharges and other costs within a pile of legal jargon in the contract. Usually the card issuer is legally bound to inform the customer of every possible fee that he has to pay. If you read the fine print well, you should be able to note all the associated fees, and avoid the slippery slope of incurring a ridiculously high payment for gaining some ‘readily available’ credit.

    What are the most common hidden costs?

    Although hidden costs come in all shapes and sizes, some of them appear all too frequently to be ignored. Every credit card user should pay extra attention to the following fees.

    To avoid the pitfalls of having to pay an arm and a leg later and for securing some convenient credit now, you must read the fine print.

    To avoid the pitfalls of having to pay an arm and a leg later and for securing some convenient credit now, you must read the fine print.

    Late fee: Every time a user fails to clear his dues on time, he incurs a ‘late fee’. That sounds straightforward, unless you happen to be the user who has to incur the fee. If you are charged with a late fee, the card issuer can raise the interest rate (APR, or Annual Percentage Rate) you pay. However, in most countries, the card issuer must notify you in writing, in advance, before your APR is raised. The duration of that intervening period is often 60 days, by law.

    Cash Advance fee: Every receipt of cash advance is coupled with a Cash Advance fee. The fee can be a flat fee, or it can be a fixed percentage of the withdrawn amount, like 2% or 3%. Moreover, the interest on Cash Advances is very often higher than for purchases. A user must always be wary of Cash Advance fees, and had better avoid Cash Advances altogether, if possible, by opting for purchases instead.

    Foreign exchange conversion/transaction fee: Any payment that you make to a foreign seller, either when you are abroad or when you are paying a foreign vendor through the internet, usually incurs a foreign exchange conversion fee. This fee is levied to account for the conversion of currency required to pay the foreign vendor.

    Inactivity fee: To lure customers into paying high fees, many card issuers charge an inactivity fee when the card remains unused for a certain period of time. This is just another way of making a quick buck for the issuer, and users had better beware of it.

    Closure fee: Some insatiable issuers are so addicted to their money-grubbing ways that they levy a fee when you want to close your account!

    What is the easy way out?

    There is no easy way out! If you want to use a credit card, you must be responsible and prudent. The ‘hidden costs’ are only hidden because they are tucked away in the fine print of your contract. Read them well, make note of all the costs, fees, surcharges and such, and then pick the best card that suits your purpose.

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