Three credit card rip-offs to watch out for

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StatementAround a third of credit card holders rely on their plastic to cover day-to-day living costs.

If you're being forced to lean heavily on your flexible friend, it's particularly important you recognise the pitfalls to avoid. Keep your eyes peeled for these three credit card traps...

1. Negative order of payment
This is a complicated phrase to describe a sneaky trick pulled by many card providers.

In a nutshell, negative order of payment means the cheapest debts (those with the lowest rates of interest) are cleared from your card first.

For example, with you have purchase debts on the card (charging 16% APR) and cash withdrawal debts (charging 30% APR) your repayments will go towards clearing your purchase debt first.

And all the time, the cash withdrawal debt will remain on the card, racking up huge amounts of interest.

So, always check which order of payment a card operates, and choose one that has a positive order of payment - in other words, one that clears your most expensive debts first.


2. Cash withdrawals
This brings us to the second pitfall: Never, ever use your credit card to withdraw cash from an ATM. If you do, you'll be hit with several different charges.

First, you'll probably be charged a one-off fee for that withdrawal (typically 2-3% of the withdrawal made, with a £2 minimum payment).

Second, the interest rate you're charged on that withdrawal is likely to be enormous - as high as 30% APR or even more.

Third, you'll start being charged that rate of interest the second the cash is in your hand. This differs from most credit card transactions, when you'll be given well over a month to clear your debt before any interest is charged.

Don't do it!

3. Minimum monthly repayments
Your minimum monthly repayment (MMR) is the percentage of your overall card debt - set by the provider - that you need to pay every month to prevent you defaulting on your agreement.

In recent years, the MMRs set by many card providers have dropped, to just 2-3% of the total debt on the card. In some cases, providers have lowered MMRs without even letting customers know.

In theory, being asked to pay less every month sounds like an attractive concept. However, the less you pay, the longer it will take you to clear your debt, and the more it will end up costing you in interest.

Don't just sit back and make the MMR every month. Pay back as much as you can afford, as quickly as possible - and don't let your provider fill its coffers with interest at your expense.

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