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Friday, October 13, 2006

0 Interest Rate Credit Cards

This article aims to tell you the awful truth about how credit card suppliers designate the month's repayment in their own favor by creating various levels of "cash importance" predicated on the various interest rates that the banks charge, so that users of 0 interest rate credit cards will inevitably be punished for borrowing, no matter what they do. This article shows the reason it is crucial to replace your credit card as soon as the opening 0 interest rate credit card term comes to an end.

A major card provider recently mounted a television advertising campaign that zooms in on the awful truth that most suppliers designate peoples' usage of their cards into particular categories then associated a particular interest rate to each one. These different levels were calculated upon the spending of typical credit card users. These include users of 0 interest rate credit cards.

According to the advert, most credit card companies expect that the card holder will start use of the new credit card by transferring a balance for an average period of nine months (though of course this will vary). The deal will be at 0 per cent interest for that introductory period. The credit card holder will often make a new purchase using his or her credit card that will typically attract a rate of approximately 15 per cent.

The card user may typically then use their 0 interest rate credit card for getting out some cash. your interest rate for cash is higher than the rate charged purchases, and this is typically between 15 and 19 per cent but may be as much as 23 per cent.

Now here is where the sleight of hand comes into play. As the monthly payment comes around, the 0 interest rate credit card supplier will ensure the less costly purchase items are at the head of the list when the time comes to pay the minimum, or whichever proportion of repayment has been decided by the card user.

Thus the costlier parts of your credit card account - normally the cash borrowing - is put right at the back where it will rack up compounding more interest charges, and where that interest is compounded and carried forward when interest is charged to existing interest (we all know how it works, don't we?)

your 0 interest rate credit card user may think that they are paying off everything in a uniform manner, because everything will balance out in the end. But of course that is not what is happening. Because the credit card company will tend to put the least costly portion to be paid off first, while the costlier items just sit there burning a hole in your pocket.

The more expensive components will always be the last to be paid. In an average situation, for the nine month usage of this 0 interest rate credit card all the monthly payments will be used to pay the interest-free segment while the more expensive purchase (or cash) borrowing clocks up the interest.

Crucially, the interest-attracting component is treated by how much interest it attracts, and the more expensive parts will always be at the back, paid off last, if at all. Last to go will be the cash borrowing component, with its own huge rate of interest. It is ironic to think that the longer the 0 interest period, the longer the interest will clock up! Then when you add on the charge that most 0 interest rate credit cards charge nowadays for making that balance transfer, you begin to see why the credit card companies are making so much money.

The only answer to this is to get rid of the 0 interest rate credit card when the time comes and transfer the entire balance to a new card. The entire balance. Based on what we know the banks will do, that is the only way out. No exceptions.

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