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Credit Card Introductory Rates Can Bite You
The credit card industry is a competitive one; all you have to do to see that is open your mailbox. For many consumers, pre-approved credit card applications can be found every week in the mail, often accompanied by offers to let you transfer an existing balance from another credit card at a low interest rate. Sometimes these rates, known as "teaser" rates, can run as low as 0%, which can make applying for one of these cards rather tempting. Be careful, though. The fine print in the terms of agreement on those cards could hide some very expensive surprises.
Here are some things to watch out for in the fine print when you apply for a card with a low-interest introductory offer:
Default rate - How high can the interest rate go if you fail to make a payment on time? This is known as the "default rate." If you pay late, your 0% or 3% interest rate could rise to 30%. Make sure you know.
Duration of the low rate - How long does this "teaser" rate apply? Six months? Until you pay off the transferred balance? Make sure you find out, as these rates often rise to the regular rate that applies to the card after some limited period of time.
Other debts - Does this card agreement have a universal default clause? Many credit card companies will now raise your interest rate if you make a late payment on any bill, such as a telephone bill. Credit card companies claim that paying any bill late makes you a higher risk customer. You don't want your interest rate to rise because you forgot to pay the cable TV bill, so read your terms carefully.
Other charges - These "teaser" rates apply only to transferred balances; they do not apply to new charges. If you use the card to make purchases, those purchases will accrue interest at a higher rate. When you make payments, the payments will be applied to the portion of the balance with the lowest rate first, meaning that these purchases could be accruing interest at the higher rate until you pay off your balance completely.
Any reason, or none - Most card agreements permit the company to raise your interest rate at any time, for any reason. All that is required is two weeks' notice. Keep this in mind if you are transferring a large balance that may take you several years to pay off. Sometimes, "until you pay off the transferred balance " only means until someone at the corporate office changes their mind.
As long as you are aware of the terms, these teaser rates can be quite helpful. If you pay late or fail to read the fine print, you could find yourself paying a lot more in interest. Read the agreement before you apply for the card.
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