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Yahoo
5 days ago
- Business
- Yahoo
4 ways you might be making your credit card debt more expensive
Using a credit card is simple in theory: You borrow money, then you pay it back. If you don't pay all the charges in full when your bill is due, interest starts to accrue. If you miss a payment, you're hit with extra fees. But as many Americans know all too painfully well, there's more to effective credit card usage than just paying on time. In fact, you might inadvertently make your credit card debt more expensive without even realizing it. Here are some common credit card habits that can have a more damaging effect on your finances than you realize. 1. Making only minimum payments When you receive your credit card statement, it shows the minimum payment, or the least amount you need to pay for your account to stay current. Usually, it's a flat percentage of the balance (although your card issuer may add new interest, past-due amounts or fees). Since it's a much smaller amount than what you owe in total, it's tempting to pay just that. But if you consistently make only minimum payments, you might be putting yourself in expensive debt — for a long time. For example, let's say you owe $2,000 on your credit card that charges an APR of 20 percent, and the minimum payment is 2 percent. If you only pay that, it will take you close to 34 years to pay off the debt, and you'll pay $7,125 in interest, according to Bankrate's minimum payment calculator. As you can see, only paying the minimum is rather costly, to say the least. Of course, if that's all you can pay, a minimum payment is better than nothing. Otherwise, it's best to put as much as you can toward your card balance. Ideally, you want to pay it off in full every month to avoid interest altogether. That's the healthiest credit card habit you can develop. 2. Taking out cash advances You can take out cash from your credit card. That's an appealing feature when you're short on money and need a quick solution. However, you don't want to start relying on borrowing cash from your credit card issuer. In fact, a cash advance should be your last-resort option. This is because card issuers have a separate set of fees for this type of transaction. To start, a cash advance has its own interest rate that's different from the card's regular APR, and it's typically higher. It also kicks in immediately as cash advances don't have a grace period (or a period between the end of a billing cycle and the payment due date during which the issuer may not charge you interest.) Finally, you'll pay additional fees: a 3 to 5 percent transaction fee and ATM fees if you use an out-of-network ATM. Let's say you have a financial emergency and take out a $500 cash advance. You pay a 5 percent cash advance fee ($25), so now you have a $525 balance at 30 percent APR. Credit card interest typically accrues daily, and in just a month, your balance would grow to $539. As you deal with the emergency, you only pay $15 on the card per month. After five months of this, your balance is $533. That's higher than you started with, and that's after making $60 in total payments. To avoid such high-cost credit card transactions, it's best to find alternative solutions when you're short on cash — and only use your credit card for regular purchases. 3. Repeatedly transferring balances A balance transfer can be a smart debt consolidation strategy when you're dealing with card debt. A 0 percent APR period on balance transfers allows you to pay down the debt you move from one card to another without interest charges. However, this method is no cheap trick. It's an approach that requires discipline and a solid debt payoff plan. And if you find yourself in a cycle of balance transfers trying to escape paying interest, you might accidentally be putting yourself in a debt trap. Once you transfer a balance, the key is to stop making new charges on your credit cards until you're out of debt. That includes both the card you moved the debt from and the balance transfer card. Otherwise, adding to your existing debt defeats the purpose of this strategy. Instead of reducing debt, you end up with two balances, one of which once again accrues interest charges. Another balance transfer won't fix the issue. Only commitment to full debt payoff will. 4. Chasing rewards A rewards credit card can be an excellent tool. Cash back lets you put a bit of money back in your pocket every time you make a purchase. Points and miles help you save on travel. But getting carried away with earning rewards can quickly backfire if: You're spending more in certain categories just to earn more rewards. For example, if your card offers bonus points for dining, so you go out to eat more than usual, you might be overspending only to get those extra points. You're pursuing rewards while in card debt. This is a common credit card habit. More than 7 in 10 credit cardholders (72 percent) who carry a balance from month to month are chasing rewards, according to Bankrate's Credit Card Rewards Survey. Considering the average credit card interest is around 20 percent, it doesn't make sense to focus on rewards that rarely exceed 5 percent on certain purchases. If card rewards are your end goal, make sure you're paying off your card balance in full each month. This way, interest charges won't negate your rewards earnings. Further, be careful not to overspend for the sake of extra cash back or points. Get a credit card that rewards your natural spending and avoid changing your habits to get the most out of the card. Remember, you don't really save anything when you spend more. The bottom line Responsible credit card usage is relatively simple — but there are quite a few caveats. From making only minimum payments to taking out cash advances, you might have habits that make your card debt more expensive. Even seemingly smart strategies, like prioritizing card rewards or using balance transfers, can backfire without the correct strategy. Always pay attention to the terms on your credit card and do the math. Don't let your credit card turn into a sneaky financial burden instead of the helpful tool it should be.
Yahoo
01-08-2025
- Business
- Yahoo
What is a credit card retention offer — and how do you ask for one?
It makes sense to apply for credit cards if they'll provide value to you with their rewards and benefits, especially if you're able to earn a generous credit card sign-up bonus. However, you might find you aren't getting as much value from a new card as you hoped, particularly if a high annual fee has just posted to your account after the first year. Before canceling or downgrading to a no-annual-fee credit card, consider whether your card issuer might extend a retention offer to keep you as a cardholder. This could result in opportunities to earn rewards or statement credits, even if you weren't thinking of canceling, for simply asking for a retention offer. What is a credit card retention offer? A credit card retention offer is an offer a card issuer makes to entice a current cardholder not to cancel their card membership. You might want to cancel for various reasons, but credit card companies want to keep you on as a customer, especially if your card has an annual fee. For example, here's a retention offer I once received from an online chat agent for The Platinum Card® from American Express: 'As you are such a valued Card Member, you can earn 45,000 Membership Rewards points after you spend $4,000 or more on purchases on your Platinum Card account within 3 months of accepting this offer. The 45,000 Membership Rewards points will be credited to your account 8 to 12 weeks after the purchase requirement has been met. This is our way of saying thank you for keeping your Platinum Card account open today.' To receive the above retention offer of 45,000 bonus points, I would have had to spend $4,000 on my Amex Platinum card in three months. Related: Does closing a credit card hurt your credit? How credit card retention offers work A retention offer is designed to entice you away from closing your credit card account, so it must offer something worthwhile. That often means you're able to earn points, miles, or cash back for spending a certain amount on your card within a specified timeframe, similar to how new cardmember welcome bonuses work. You might also receive retention offers that don't require any spending at all. In these cases, the card issuer might simply give you a statement credit or an annual fee reduction to keep your account open. You might also receive a completely waived annual fee. Whether a retention offer is worth it depends on the potential value of the continued card membership, including the value of the offer. Types of retention offers These are common types of retention offers people have received from different card issuers: Rewards: You can earn points or miles for meeting a spending requirement on your card over the course of a few months or more. This is the same format as welcome bonuses for new cardmembers. Statement credit: You receive a flat statement credit, which may cover some or all of your annual fee. Waived or reduced annual fee: Your annual fee is reduced, or you receive an annual fee waiver for the upcoming membership year. Related: Best rewards credit cards How to ask for a retention offer If you don't think your card is providing enough value, you can call the number on the back of your card and ask to be transferred to the retention department. Some card issuers, like American Express, also have online chat agents who are authorized to extend retention offers. You can log in to your Amex account to chat with an agent. It's common to receive retention offers if you're asking to close your card, and many people call in to close their card after an annual fee posts to their account. However, there's no official guideline stating that you can only ask for a retention offer after a year or more; that's just a common time for people to ask for one. Here are some things to keep in mind when asking for a retention offer: You might have to call: I prefer speaking with chat agents, but not all card issuers have chat options. If that's the case, you'll have to call in. You typically want to ask specifically about retention offers: Depending on the agent, calling in and saying you want to cancel might get you exactly what you're asking for. Rather than talking about canceling, specifically ask for available retention offers associated with your account. You might have to explain why you're considering canceling: An agent will know you're considering canceling if you mention 'retention offers,' so you might get a few questions about why you want to cancel. In most cases, talking about the annual fee will move the conversation along, especially if you say you 'aren't getting enough value' from any card benefits or perks the agent might mention, like travel credits or airport lounge access. You want to keep records: If you receive a retention offer you're happy with, make sure you have some sort of record of the conversation in case the offer doesn't post later. For phone calls, get a reference number or ask if they can email you something about the offer. For chat conversations, you can ask for a reference number and take screenshots of the conversation (send them to yourself in an email). Related: How to safely cancel a credit card in 7 steps Credit card retention offer FAQs How often can you ask for a retention offer? There's no official time frame for asking for retention offers, but it likely doesn't make sense to continuously ask for offers week after week or month after month. A few times per year might make more sense. Should you take a retention offer? You should only accept a credit card retention offer if you're willing to keep your card account open and you think you'll get enough value from the card's benefits and the retention offer to more than offset the annual fee. What is an example of a credit card retention offer? An example of a credit card retention offer is your card issuer offering you a $150 statement credit to help offset your card's annual fee. Another example would be an offer to receive 20,000 points after spending $2,000 in three months on your card. Can you negotiate credit card retention offers? You can always ask an agent about any additional or better offers, even if they've just presented you with an offer. There's no harm in asking, and you might end up with a superior offer than previously extended. How do I get an Amex retention offer? If you have an American Express credit card with an annual fee, consider calling the number on the back of your card or using your online account's chat function to ask an agent about Amex retention offers. There's no guarantee that you'll have any offers available, but it doesn't hurt to check. Which credit card issuers provide retention offers? Many credit card issuers, including American Express, Bank of America, Chase, and Citi, have been known to provide retention bonuses to existing cardholders. Capital One isn't known for frequently providing retention offers. Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. All opinions belong solely to the Yahoo Finance and are not those of any other entity. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank's website for the most current information. This site doesn't include all currently available offers. Credit score alone does not guarantee or imply approval for any financial product.
