Cost of Ignorance

Nine out of 10 people that I know as of late do not exactly know how interest and other financial charges of credit cards are computed. How and to what extent these charges will eat them alive by taking the bait of paying the minimum amount.

There is a legal maxim which states that "ignorance of the law excuses no one." This maxim holds true to these rules that are made and implemented by banks or financial institutions issuing the plastic money called credit cards.

Majority of these ignorant holders of this plastic money, especially the defaulters always complain of hidden charges. Are there really hidden charges? I do not think so. You may just refer these as hidden as these were not elaborately explain, in case there was an explanation by the credit card agent. All they present are the supposed benefits and convenience they have to offer.

But, truth is all the finance charges and the mode of computing interest are all written on the application form, the package that goes with the credit card, and on the statement of accounts. They are just there, but we consumers failed to read them. Agents do not discuss this elaborately either, for more reasons than one.

For the sake of the readers of this article, here are some of the salient information regarding the interest and other finance charges that goes with your credit cards, especially when you are paying only the minimum amount.

• Interest rate charged is from 2% to 3% per month. As long as you are not paying the full amount due, interest will be compounded monthly. To illustrate, suppose you have an outstanding balance of $1000, but you pay only the minimum of say $100, you will be charged interest based on the $1000. The following month, if you are doing the same pattern of paying the minimum, and suppose your balance increased to $1200 after interest and usage of your card, the interest will be computed based on the $1200 balance. It will go on and on until you pay off your balance.

• There is also what you call as over the limit charge, usually a fixed amount. This amount will be charged once your bill exceeds the maximum limit of your credit card. How could that be? It may happen if by continues interest charges are being piled up, chances are the billed amount will exceed the limit. Mind you, this fixed amount will be added to your balance, and again computed with the interest.

• Another charge is called late payment charged, also a fixed amount pegged by the financial institution. As the name suggest, if the cardholder failed to pay on or before the maturity date as indicated in the statement of account a fixed amount is charged as penalty. Even a day late, the amount is charged. Again, if full balance and this late payment charge is not paid, interest will be computed on the full balance including all interest and other charges.

Onerous? yes, it is. But, this is the fact of the matter about credit cards.

If you can not keep up the payment of the full amount due to your credit card bills, it is advisable to stop using this plastic money. If you do not want to be eaten alive by the onerous interest and charges, think twice on continuing with a lifestyle dependent on that plastic cards.