Many people get in over their heads with credit cards. If you look closely at how credit cards are setup, you'll realize just how easy this is to do. Being irresponsible with credit cards can have disastrous results and literally wreck your credit—and in many cases this can happen even for responsible card holders. Before you start charging, you need to know what you are getting yourself into!

There are several things that make it very easy to "mess up" with credit cards. Here is a list of common "gotchas" that lead to many people falling into the "credit card trap".

• No Fixed Term – When you put a large balance on a credit card, it is not a "60 month loan" like you would have for a car, or even a "30 year loan" like what you'd have for a house. There is literally no fixed term. You are allowed to add charges at will, and if you continue to charge on a card, you could literally be in debt forever. To put this in the context of the indentured servant illustration at the beginning of the course, this would be like your creditor saying that "The only way you will EVER earn your freedom is if you can work faster than we can add tasks for you to do."
• Small Minimum Payments – Some people think having a nice low monthly payment is a good thing. NOT SO! Remember, it's all about "principal". The low monthly payment works to the credit card company's advantage by causing you to pay MORE interest and be in debt LONGER.
• Variable minimum payments – The "minimum monthly payment" on your credit card fluctuates with the balance. If your balance goes down a little, so does your required payment amount. Paying only the minimum payment means you'll be in debt as long as you can possibly be for the balance you have. At the very least, you should pay a flat monthly payment ($50 a month for example—usually starting with a number that is a little higher than the current minimum payment) and leave it at that—regardless of what "minimum monthly payment" your credit card statement gives you. The minimum payment will go down over time but you should keep your payment the same.
• Tricky interest rules – Credit card companies know the power of compound interest. Because of this, they do everything they possibly can to charge you interest—even a tiny amount more—whenever they can. They may backdate your interest to the date of purchase rather than the date in posts to your account. They will charge you interest when they haven't even paid the merchant yet! Remember that it's all about the principal. They know this, and by charging you interest from day one, and not paying the merchant until later, they are maximizing their OWN earning potential by maximizing their principal. Good for them, bad for you. Introductory rates serve the same purpose. With a low (or even 0%) introductory rate, the credit card company is COUNTING ON the likelihood that you are not going to pay off your debt within the introductory period. Often the rate after this period is higher than what you might normally qualify for. If you use these introductory offers—use them to your advantage by either using a similar method to what we described above (the "Dave" story) or by bouncing from 0% offer to 0% offer (keeping your interest at zero percent for as long as you possibly can). BUT BE CAREFUL! Remember the credit card companies are NOT on your side!!!
• Easy to spend, hard to pay down – The marketing departments of credit card companies have one goal: to make it "easier and more attractive for the consumer to spend."
• Not only do they offer the enticing 0% offer rates (which some smart cardholders use to their advantage), but many companies will literally offer you "rewards" for spending more money on your card! "Get 5% Cash Back!" "Exclusive Cardholder Benefits!" –They will offer you anything from cash, to airline miles, to travel insurance—just to spend money on their card. What is REALLY sneaky about many of these offers is that you don't get the reward if you pay your balance in full every month. Remember, it is to the credit card company's benefit to keep you in debt!
• Changing Benefits – Many of the offers that you get for credit cards are virtually the same as "bait and switch" when you read the fine print. You'll get an offer saying that you are "PRE-APPROVED", and it will have a nice LOW interest rate pasted all over the envelope and letter (even 0%). When you read the fine print, you'll discover that you may not get the advertised rate (but weren't you pre-approved?), and that if ANYTHING goes even the slightest bit wrong with your account (or in some cases, your life—see next bullet)—even a single late payment, you could end up paying all kinds of extra fees and get stuck with an interest rate as high as 29%!! Credit card companies can change their terms and conditions at will. You could literally sign up for a card at 8.9% and 3 weeks later they can raise the rate to 28.9%!
• Large Late Fees and Over The Limit Fees – If you pay your bill late, or if you go over the limit, your credit card company will charge you a fee that will be added to the amount of your credit card balance. In other words, when you are struggling financially and can't make a payment on time, or accidentally bump up against your limit, your bank will hit you with large fees that will add to your problems and increase the likelihood that you will be unable to pay next month's bill.

As you can probably see from the above, the system the credit card companies have set up is definitely working in their favor. There is no incentive for paying off your debt whatsoever—because let's face it, if you pay off your debt the credit card companies stop making money! They actually do the opposite, and work hard to entice you to "spend, spend, spend". If you do "spend, spend, spend" and go over your limit, you get smacked with multiple fees. The whole goal of advertising and "complimentary" offers for credit cards (discount programs, etc) is to get you the consumer to spend and amass large amounts of debt without considering the consequences.

When you see an advertisement for a tobacco product in the United States, it is accompanied by a surgeon general's warning telling you the risks of using tobacco. There are no warnings that tell you about the risks of using your credit card! It's up to you to be financially smart—and find out ahead of time exactly what you're getting yourself into.