ALSO -- Best
Credit Card Rates
A Little Homework
Will Help
Reduce Credit Card Debt
by Robert K. Heady
Make
no bones about it. One of the biggest reasons why Americans are
plunging into debt so rapidly, and why bankruptcies are about
to set an all-time record, is their love affair with credit cards.
It's become too easy
to whip out your plastic and say, "Charge it," on everything
from groceries to the telephone bill. And the rising number of
job layoffs is making matters worse.
Yet, the Average Joe
does little to offset the higher fees, penalties and other charges
that card issuers are clobbering him with, even though he could
cut his card costs if he wanted to.
I'm convinced the problem is twofold:
- Consumers, either because they don't take the time or just don't care, rarely bother to read the fine print on their credit card terms and conditions. Few realize they can be hit with a fee of up to $35 and see their rate rocket to 22.9 percent or higher if they're only one day late with a payment. Or they'll pay $100 more if they transfer their balance from another card account.
- Not enough of them aggressively shop the card market for a better deal that could save them hundreds, if not thousands, of dollars a year. Fact is, card fees are steadily going up as interest rates drop because that's how issuers are protecting their profits. But the rates haven't fallen that far. Cardholders haven't gained the full benefit of the Federal Reserve's 2.5-percentage-point cut since Jan. 3.
The
bucks add up. Depending on which data source you believe, the
Average Joe's household maintains a credit balance of $4,000
or $7,000. So, even using the lower figure, if Joe replaced his
19.8 percent card with one charging 14.5 percent, he'd save $212
a year.
Let's pretend he makes late payments four times a year (at $29
per penalty), uses the card 10 times a year to take $300 cash
advances from ATMs (3 percent fee), transfers a $2,000 balance
one time (also a 3 percent fee), and exceeds his credit limit
three times (at $29 per).
That's another 353
bucks. Also, because of the late payments, Joe's card company
will restore his old, higher interest rate of 19.8 percent. Or
it could jump even higher.
Once upon a time, card
outfits were lenient allowing you 10 to 15 days' grace
if your payment was late. Not any more. Nearly 70 percent of
them now apply a late penalty averaging $26, up from $20.90 two
years ago, according to a survey by Consumer Action, a San Francisco-based
consumer advocacy organization. Balance transfer fees typically
are a minimum of 3 percent of the amount, but Consumer Action's
Linda Sherry says that "Some of the maximums are pretty
steep on the high end we found $50 to $80."
Some tips: Card outfits won't reveal their terms and conditions until the consumer formally applies for a card. Beware, Never apply until you're told ALL the rates, fees and penalties. They may dangle a lowball rate and then, after you apply and they check your credit record, jack up the rate to the heavens. Plus, if you miss a payment during the introductory period (usually six months), they can increase your rate immediately.
If you get a cash advance during the intro period, it may be at a much higher rate than the opening rate. If you apply Online, the rate is liable to be higher. Try to keep your credit limit low so it won't scare off other lenders examining your credit record. Meanwhile, your card company may suddenly hike your rate if they learn that you're behind with other creditors.
Shop the best credit card deals at www.cardtrak.com or www.bankrate.com, and check the great Web site at www.consumer-action.org for lots of into.
That way, you'll pare down your card debt for sure.
Editor's Note: Robert Heady is founding publisher of Bank Rate Monitor and is the co-author of the book, "The Complete Idiot's Guide to Managing Your Money." You can e-mail him at jrnl888@aol.com.
