Did you know today there are 336.6 million credit cards in the US? Yes, Americans are notorious for carrying a credit card burden and hefty bills during traveling or the holiday season. From sending gifts to their loved ones to a Black Friday sale, the majority is using a credit card, even if their finances are not so great.
According to 2015 Harris Poll EquiTrend® Rankings, 65 percent of Americans typically use credit cards for their holiday purchases, considering only the benefits it provides when compared using cash and ignoring a number of drawbacks.
There is a little-known trap majority credit card users really need to know otherwise it can really disturb their finances this season. It is known as ‘deferred interest trap,’ you definitely want to avoid it same as the Wall-Mart parking lot, on world’s biggest Black Friday sale.
Deferred Interest Trap- A simple concept
Buy now, but pay in future! The concept implies that you can make purchases now and pay no interest for a specified time period, but if you fail to repay your loan 100% by the given time period and after the end of grace days, you will be subject to markup charges which can be higher than an average interest. The deferred program is beneficial for people who want to buy costly items and can easily pay in a few month’s time.
For example, you are in need of purchasing a new appliance for your home, which costs $1000 and you don’t have sufficient funds to get it now, but expecting a job bonus in a month or a couple of months that will pay for your new appliance. You have two options: purchase your appliance with a credit card that charges 14 percent interest, or choose a deferred program which offers three month grace period with an interest of 24 percent thereafter.
If you are confident to choose the second option, think what will happen if your company fail to pay you a bonus. It’s better not to rely on happening of a single event and prepare something else besides.
According to recent WalletHub report, some retailers are transparent in their financing agreements with banks or other credit card networks, when it comes to informing about their deferred programs. The two subsidiaries of Williams-Sonoma (WSM) West Elm and Pottery Barn are the biggest offenders whereas, J.C. Penney (JCP) and Apple (AAPL, Tech30) are the most transparent retailers.
In reality, all retailers aim to make millions of profits from their consumers by sucking their peace of mind. It is the consumer who needs to be very cautious when paying with their credit cards because if you are not careful, an end will be unbearable.
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