Slowly but surely, you are paying those cards off. But as you dig
yourself out of debt, the cards seem stacked against you. It's appalling
enough that the average annual percentage rate, or APR, on a
standard credit card these days hovers around 13%, according to
Bankrate.com. But worse, many people are still stuck paying rates of
25% or higher. And penalty fees can run as high as $39 a pop.
Does it seem as if you can trigger those penalties just by breathing
these days? You aren't far off: Over the past few years, credit-card
companies have become increasingly dependent on the fees they
charge users. In 2004, Americans paid a whopping $24 billion in credit
card fees, according to CardWeb.com. That's an increase of 18% over
the previous year. So while it used to be that fees were applied to
keep you on the straight and narrow, credit-card companies are now
financially dependent on your breaking their rules — and paying the
price. "It's a fact that they are tacking on new fees and more
expensive fees," says Travis Plunkett, legislative director for the
Consumer Federation of America. "Income from fees has become
much more important for profitability."
Credit-card companies are now required to disclose all their various
penalties, including their penalty APR for late payments. They also
need to state clearly (and in decent-sized print) the permanent rate on
a card that comes with an introductory teaser rate. Most of this
information is included in what's known as the "Schumer" box (named
after New York Democratic Sen. Charles Schumer), typically located
on the back of an application.
But some consumer advocates say these rules don't go nearly far
enough. "It's a bunch of baloney," says attorney Howard Strong,
author of "What Every Credit Card User Needs to Know." "You can say
in big letters, 'I'm going to rip you off!' or you can say it in small letters.
It doesn't make a difference." Part of the problem, says Strong, is that
credit-card companies are lightly regulated. Federal laws don't control
things like over-the-limit fees and late charges, he says, and the
majority of credit-card companies are located in Delaware or South
Dakota — two states that have lenient usury laws.
In all fairness, though, when you signed up for your credit card, you
agreed to play by the rules of the issuer — who is, after all, giving you
an unsecured loan. And while those rules may not be in your favor,
they are indeed disclosed.
So do yourself a favor and read the fine print before you sign up for
that Molybdenum UltraCard with the $65,000 credit limit and the 2.9%
introductory APR. You might be surprised by what you find. And before
you do, here's my reader's guide to that fine print — a list of the costly
little devils often hidden among the details by credit-card companies.
1. Looking for Any Excuse
Believe it or not, many credit-card companies will periodically review
your credit report looking for late payments on other cards, according
to findings from the 2004 Credit Card Survey by Consumer Action (a
nonprofit consumer-advocacy group). Why? Because it's an
opportunity to raise the interest rate on their card, perhaps by a
dramatic amount. The idea here is that if you're making late payments
on other debts, you now pose a higher risk regarding all your debts.
So be sure to watch your credit report carefully and make all payments
on time to avoid a domino effect on your other lines of credit.
2. Offering "Fixed" Rates That Aren't Really Fixed
You might think that when someone offers you a fixed-rate card, the
rate is indeed fixed. But you'd be wrong. A fixed-rate card simply
means that the company needs to inform you in writing at least 15
days before changing its rate. So pay attention to the notices that
come with your bill. And if you carry a balance, always be aware of the
interest rate you're paying. If it goes up, it may be time to shop for a
better card.
3. Penalizing Customers Whose Payments Are Five Minutes Late
Have you looked carefully at your credit-card statements lately? These
days, not only are payments due by a certain date — they're often due
by a certain time, like, say, 1:00 p.m.
And a late payment could really cost you. Not only will you be charged
a late fee (which could be as high as $39), but you may also be
charged a penalty APR, which is far more costly. Indeed, you could
see your rate soar to 30%, and that new rate may be permanent,
according to Consumer Action's survey.
4. Encouraging Minuscule Minimum Payments
The key to paying down your credit-card debt is to make payments
early and often. Any extra cash you can squeeze out of your budget
needs to be applied toward this debt. That's the only way to whittle
down your principal.
Unfortunately, the credit-card companies are making it easier than
ever to carry your debt endlessly by reducing the amount they require
as a minimum payment. While it used to be that you had to pay off at
least 5% of your total balance each month that requirement has now
dropped as low as 2% with more than half of the cards surveyed by
Consumer Action. At that rate it could take you decades to pay off
your debt, even if you don't charge anything more to your card.
5. Offering Shorter Grace Periods
The grace period — or window of time before you begin accruing
interest on new purchases — is also shrinking. While it used to be 30
days, it's now shrunk, on average, to less than 21, according to
CardWeb.com. Some cards don't have any grace period at all. Of
course, if you carry a balance, there are no grace periods, so it
doesn't really matter. But if you pay off your bill each month, looking
for a card with a grace period of at least 25 days could save you from
unnecessary interest payments.
6. Whacking You Abroad
Using your credit card in a foreign country used to be the best deal in
town. That's because, while Visa and MasterCard charged a 1% fee, it
was still significantly less than what you'd have to pay if you
exchanged currency at a bank or used travelers checks, and you
usually got a better exchange rate to boot.
These days, using a credit card overseas is still a good deal — but it
isn't quite as sweet. The issuers have tacked on an additional fee —
usually 1% to 3% — in addition to the Visa and MasterCard fee,
according to Consumer Action's survey. So a purchase might be more
expensive than you thought.
7. Baiting and Switching
Just because you're preapproved for a card doesn't necessarily mean
that's the one you're going to get after you apply. Once your credit
history is reviewed, you might be sent a card with less favorable terms.
So be sure to review a new card carefully to make sure it has the
terms you expected. If you decide you aren't happy, you can simply
not activate the card and close the account.
8. Finding a Better Card
So what should you do if you think your current credit card is costing
you too much? Try to negotiate. Grab an offer that you recently
received, and get on the phone with your current credit provider to see
if they will meet or beat that offer, says Rhode. Tell them that if they
don't work with you, you're going to switch cards. Of course, be
prepared to see this threat through. Probably the best way to find a
new card is to collect the offers you receive in the mail for about six
weeks, and then apply for the best one. Alternatively, you can easily
search online at Web sites like Bankrate.com for credit-card deals.
Just keep in mind that if you don't have perfect credit, you probably
won't be eligible for the best offers.
One thing you don't want to do is start cancelling your credit cards! This could damage
your credit even more! We need to evaluate your entire profile before changes are
made.
Call me now and I can arrange a mortgage planning session.
So call me now at (888) 956-7060
Talk to you soon, Paul
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Call to find out,
"HOW YOU CAN FINALLY STOP DEBT FOREVER!"
1 (888) 956-7060 ext. 222
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Got a question? Call me at (888) 956-7060
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The Local Home Loan Specialist
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