Credit cards

Tips to avoid the “snowball effect”

The Central Bank of the Argentine Republic (BCRA) raised the benchmark interest rate (28-day lelic) on Thursday, bringing it to 69.5%, or 950 basis points more than that applicable until then. It is a measure that aims to follow the growth of inflation and keep rates in positive territory. A nominal annual rate (TNA) of 69.5% implies an effective annual rate (TEA) of 96.5%.

But in the same movement, he increased the interest rate applicable on credit cards. Banking establishments will apply the rate of 71.5% per year for purchases in several installments or for the refinancing of the unpaid monthly balance of the card, according to the rates published by the Central Bank. This translates into an effective annual rate (ATE) of 100.2%.

These levels of taxation can cause a veritable “snowball” for consumers, a vicious circle from which it becomes increasingly difficult to escape.

To avoid falling into this situation, here are some useful tips for dealing with plastics:

Always pay the full amount. A common mistake is to make the minimum payment before summing up a card with too much consumption. The outstanding balance can generate what is called “Snowball effect”does this generate outstanding balances Interest, Penalties and Additional Charges, which are capitalized the following month and generate new interest. If the total is never paid, over time it becomes a unpaid loan.

, Avoid holding multiple cards. Some people have several credit cards, even of the same brand but from different banks, in order to benefit from advantages and promotions. It can be a good resource for certain consumptions but its disadvantage is that it runs out. lose control of spending and the amount to be paid each month. In this case, it is recommended have only one or two cards And in any case add benefits for additional consumption with or near it.

, Beware of renewal costsRenewal fees, although staggered, represent a extra charge, which is usually ignored at the time of use. It is recommended to treat bonus credit card As part of the salary account package by banks, if possible. The same goes for pass-through premium cards, with higher balances but also higher maintenance costs.

, Pay attention to interest rates. you have to follow total financial cost) when deciding to finance part of the consumption. This CFT includes taxes and administrative fees in addition to the prevailing interest rate.

, Always check the monthly summary. This is a relevant fact especially to avoid surprises and unforeseen expenses. The summary may contain errors, before which it would be important to possibility to claimIn this sense, it is not advisable to treat the card payment as an automatic debit.

, Pay attention to consumption. Don’t buy just to take advantage of discounts or benefits (another product with a discount, 2×1 or whatever). With this, one should always bear in mind that All expenditure or consumption is a debt And will have to deal with it in a few days.

Source: LB24/MdZ01.