The busier our lives become the more we appreciate conveniences that save time and eliminate mundane, everyday tasks. Who isn’t grateful when there’s no line at the ATM for a quick withdrawal or when a bill can be deferred or paid online at the last minute? Credit card companies understand their customers desire to simplify their lives and provide helpful services to meet these needs. But before you accept their offer of ‘convenience’, be aware that there are strings attached to these credit card services and they’re far from free.
Nearly every convenience comes at a cost, including those advertised by your credit card company. Once you know the fee charged for using one of these services, you’ll be prepared to decide if it’s worth the price. These services include cash advances, ATM withdrawals, deferred payments and credit card insurance policies. The cost associated with each can be found in your credit card agreement or in the terms and conditions included with every credit card application.
Cash Advances / ATM Withdrawals
When you call to activate a new credit card, the agent will ask you to provide a personal identification number (PIN) that will allow you access to ATM’s nationwide. Whenever you draw money, it’s known as a cash advance. These are just some of the reasons to avoid cash advances whenever possible:
- Cash Advance Fees – Most credit cards charge a flat cash advance fee, regardless of the transaction amount. Expect to pay $5 or 2-4% of the total withdrawal – whichever is greater. For example, at 3%, a withdrawal of $200 will result in a $6 fee.
- ATM Fees – In addition, the institution that operates the ATM is likely to charge you for using their machine. If you withdraw $20 from an ATM using your credit card, you could easily be charged half of that amount just for the ‘convenience.’
- High Interest Rates – On top of all the fees, in most cases, cash advance rates are much higher that standard credit card interest rates. Rather than paying 10-15%, you could pay 25% or more just for the privilege of borrowing cash.
- More Debt – Money that you withdraw will be applied to your credit card, and unlike a debit card withdrawal from your checking account, a credit card withdrawal will increase your debt.
Credit card companies’ regularly send out convenience checks touting the benefit of cash on demand. When you write one of these checks, the amount gets applied to the balance of your account. But be aware, a fee of 2 to 4 percent of the check amount will be tacked on the total. Interest charges begin to accumulate as soon as the transaction has been completed (unless there’s an introductory rate), offering no grace period to pay off the balance before charges are incurred. Use with caution, many of these offers charge an extremely high interest rate of 25% or more.
Major retail chains advertise deferred payments as a way to entice you to apply for their credit card and make new purchases. You’ll either be offered zero interest or no payments for a specific number of months. For no payment offers, the interest compounds without any money to reduce the principle, which means higher interest charges and bigger minimum payments at the end of the promotion. With many of these promotional offers, if the balance isn’t paid off before the promotion ends, the total interest that would have accumulated will be added to the balance.
Credit Card Payment Insurance
One service that requires a monthly premium is credit card payment insurance, which provides a safety net in the event of job loss, disability, critical illness or accidental death or dismemberment. File a claim for one of these tragic events and your monthly credit card payments will be paid until you’re able to get back on your feet. The fee is based on your credit card’s outstanding balance; the more you owe the more you’ll pay for the protection.
Be sure to read the fine print concerning your credit card insurance coverage, which may include a number of conditions that need to be taken into account. In most cases, credit card payment insurance only covers the minimum monthly payment. Is this coverage really worth the cost of a minimum payment of $20 or 2-3% of your balance?
These Perks are FREE!
Besides all of the ‘conveniences’ you can pay for, don’t forget the host of free credit card services provided by most issuers such as extended warranties and purchase protection. Some credit cards also provide travel perks and other reward opportunities, that when used wisely, can earn rather than cost the cardholder. The key is to know which services will benefit you the most, while costing the least. Read the terms and conditions in detail before considering any of these options.