Understanding Promotional Credit Cards
These days, just about every store has credit card advertising … some kind of low interest promotion. How often have you seen sales advertising “0% financing for 18 months” or “Pay no interest until next year”? These deals are hard to pass up, but they can end up costing you if you aren’t careful.
Understanding the terms of the promotion can help keep you stay out of trouble. In most cases, if you don’t pay off the balance within the promotional term you will be back-charged interest from the day of your purchase. You could end up paying thousands more and see your monthly payments spike in the long run.
Speaking of payments, if you are on a promotional plan and miss or are late on a single payment you may lose the reduced APR. Your purchase would then start being charged the account’s regular APR, which is usually over 20%.
So how do you take advantage of the perks of a promotion without falling victim to the back-charged interest and high monthly payments?
When deciding to make a purchase using “special financing”, check to make sure you can afford the monthly payment required to pay the purchase off before the plan expiration. This means you will need to pay more than the minimum monthly payment listed on your credit card statement. To find out how much you will need to pay on that credit card monthly divide the total purchase (balance) by the number of months included in the promotion. For example, a purchase of $2000 with a 0% interest promotion for 18 months will require a monthly payment of approximately $112.
If you or someone you know is having trouble making payments, have them call the creditor. They want to keep you as a customer and may be able to offer you different payment options.
If you feel like you are in over your head, call one of our certified credit counselors for a free debt analysis. We have relationships will all the major creditors and can help educate you about credit and debt.
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