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The 5 Costliest Credit Card Moves

April 07, 2010

By Barbara Marquand | Money Rates Columnist

Managed wisely, credit cards provide convenience and help with cash flow when you need to make big purchases, but they also come with expensive pitfalls. Here are the five credit card habits to avoid, and the reasons why they could cost you big bucks.

1. Paying Only the Credit Card's Minimum Due

With average credit card rates running around 16% today, paying only the minimum due racks up a bundle in finance charges. If you paid only the minimum due on a $3,000 credit card bill at 16% interest, for instance, it would take an estimated 21 years to pay off the balance, and you'd fork over a whopping $4,659 in interest in the process, according to the Federal Reserve's credit card payment calculator.

Under new credit card regulations, issuers must include information in each monthly statement about how long it would take to pay off your balance if you paid only the minimum due, and they must tell you how much to pay to clear the balance in three years. Refer to that information for a reality check.

2. Relying on Credit Card Cash Advances

Getting cash with your credit card has three strikes against it. First, you usually have to pay a fee to get cash. Second, you pay a higher interest rate on cash advances, sometimes double the rate you pay on purchases. Third, there is no grace period for cash advances, so interest starts accruing as soon as the ATM machine spits out the bills. Get credit counseling help if you're using cash advances to make ends meet.

3. Using So-Called Convenience Checks

The "convenience" checks that credit card companies send in the mail are really not so convenient after all. Unless you're using them to transfer another low interest credit card offers  under a special low-interest offer, convenience checks have all the disadvantages of cash advances--high fees, higher interest rates, and no grace period. They also are prized by identity thieves. Make sure you destroy the checks before tossing them.

4. Saying Yes to Over-Limit Credit Card Fees

Before new credit card regulations went into effect this year, credit card companies were letting customers exceed their credit limits and then charging them fat fees for the privilege. Now they can't charge you over-limit fees unless you give them permission. Just say no to that idea. Watch your credit card balances and you shouldn't need to go over the limits.

5. Paying Credit Card Bills Late

Paying your credit card bill late hurts you now and later. In the short run, you'll get slapped with a penalty fee for a late payment--a typical late fee is $39--and if you're more than 60 days late, your credit card company can boost your interest rate on your current balance.

Late payments also ding your credit score. The lower your score, the harder it is to get credit at the best rates, whether you're applying for another credit card 2012 or a mortgage.

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