12 ways your credit card rips you off

The modern credit card comes with a dozen devious and costly tricks. Read this to avoid them!

You wouldn't believe how many ways credit-card companies take money off you. Even sensible card users can find themselves being stung. Here are 12 booby traps to watch out for:

1. The £5 credit card trick

Some credit cards now set the minimum monthly repayment at the monthly interest, plus £5. The upshot is that a debt of £2,000 will take over 33 years to clear, and with a typical APR of 15.9% you'll pay a horrendous £4,976 in interest along the way!

So don't pay the minimum. Instead, set a payment of perhaps 4% a month, or £40 per £1,000 of debt, to clear it at a sensible rate.

Rachel Robson explains how negative order of payment works and how to avoid it.

2. Negative order of payment hoax

As Rachel explains in our video: Don't get caught out by negative order of payment, under this system (which most credit card providers operate), the least expensive debt is paid off first, meaning that the more expensive ones continue to accrue more debt interest for longer.

The best way to avoid this is to never use your credit card for more than one purpose, i.e, don't use it for both balance transfers and purchases.

Alternatively, choose the best all-round credit card!, the Sainsbury’s Finance Nectar Card Credit Card, which offers 0% on balance transfers and purchases for 12 months, neatly sidestepping negative order of payment.

3. Balance-transfer con

Watch out for lenders that class balance-transfer fees (typically 2-3%) as a purchase on 0% balance-transfer deals. This means the fee will not come under the 0% deal, but will instead be subject to interest at the purchase rate, which is usually about 15.9%.

4. Too-good-to-be-true typical APRs

Only the most creditworthy applicants will ever get the lowest advertised interest rates. Although current rules state that two out of three borrowers must be offered the typical APR, this only applies to approved borrowers, not the number of people who apply.

5. Congratulations! We've upped your credit limit

The greater your access to credit, the greater may be the temptation to spend. But you mustn't see your credit limit as a target!

6. The insurance maze

Insurance comes in various guises, not just the high profile dodgy ones. Steer clear of rip-off payment protection insurance (PPI) and credit card repayment protection (CCRP).

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7. Late-payment sting

Late payers not only face penalty fees but banks can also rescind any 0% deals you may have signed up to, costing you a fortune in interest. So don't pay late! Set up a direct debit.

8. Monthly interest-rates ruse

Don't be fooled by monthly rates: a monthly rate of 1.5% might not sound high, but it compounds up to a whopping 19.6% APR.

9. Annual-fee manoeuvre

Credit card fees are making a comeback, with fees from £10 to £275, usually in exchange for extra benefits, e.g. travel insurance. But it's very rare that a credit card is worth the cost of these fees.

If you like some of the extra features, you're probably better off buying them separately, so shop around.

10. Cash-withdrawals wheeze

A typical charge is 2.5% of the withdrawal amount and a minimum charge of £2.50. So, if you withdraw a tenner, you'll be charged £2.50, which is equivalent to a 25% charge. Withdrawals also attract interest at even higher than standard rates for purchases, with no interest-free period.

Do not use your credit card for cash withdrawals!

11. Credit-card cheques trap

Cheques sent to you by credit-card companies attract interest at the standard rate for cash withdrawals, plus a handling fee of up to £50. Also, like cash withdrawals, you don't get an interest-free period.

So don't use credit-card cheques either!

Serena Cowdy looks at the perils of withdrawing cash with your credit card

12. Gambling-fee fleece

Card firms are increasingly cracking down on punters who use their plastic to make online wagers. Previously, credit-card issuers treated these transactions as purchases, but you're likely to find that they're now treated as cash withdrawals.

The odds are against you being a successful gambler as it is, without deducting these extra charges!

> Compare credit cards through lovemoney.com, but watch out for the above tricks.
More: The ultimate guide to stoozing | Hey big spender! Get the right plastic

This article has been updated from an earlier version published in 2007.