Money Wise Blog

There are many reasons as to why you shouldn’t get rid of your credit cards. Having a high outstanding balance on credit cards is not a good idea but this does not build a case for getting rid of your charge card accounts altogether once any such balance has been eliminated.

Credit card debt has been a big problem for a great many people in recent years, particularly following the economic disasters of late 2008 and since. Millions have people have gone through the process of running up high balances and debt on credit card accounts which they are suddenly finding themselves unable to service. This has led to very negative press for credit cards and charge card providers in the sense of how easily they are sometimes obtained and the levels of spending limits that are applied.

There are very few circumstances in which it could be desirable to run up a lot of debt on a charge card. Occasionally, where a costly emergency arises this may be necessary but in general terms it is always preferable to pay the bill off in full each month. This is something which those who have experienced problems with credit card debt should realise. Instead of thinking that they should get rid of their charge card accounts altogether, they should understand that it is entirely possible to use a credit card account sensibly and to their advantage.

Using a credit card account sensibly can allow payment on a lot of items to be deferred for free for up to a period of several weeks. If the credit card is used to make a purchase and the money left in such as a savings account until the bill becomes payable, the credit card holder can even earn from this process. Making a lot of purchases in this way each month while leaving a salary payment virtually untouched can add up to a fair amount of interest over a year.

Credit cards are essential items in so many aspects of modern life. When we are making a purchase over the Internet, for example – often at considerable saving – it is usually necessary to pay for same with a credit card. If we are booking a hotel room over the telephone, the hotel will often ask for charge card details in order to hold the room. These are but two everyday instances of when a charge card is necessary to perform a transaction.

There are also certain types of charge card accounts which offer benefits to their users. These are in the form of points awarded for using the credit card accounts and can later be redeemed in the form of cash back to the credit card, air miles, or retail vouchers.

The reasons why you shouldn’t get rid of your charge cards altogether therefore far outweigh the reasons as to why you should and the process of managing charge card accounts effectively is the one which has to be learned.

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Living in a society dependent on credit, there will come a time when you will want to get a credit card account or upgrade from your current one to one that offers a better deal. With so many options available, it may be difficult to choose the right one and making the wrong choice with a credit card can become costly. Before choosing a credit card, there’s a few things you should consider. Here are some tips for finding the best charge card accounts.

Shop around

It’s unlikely that you’re going to buy the first car or house you see, and it’s the same attitude you should have to your credit card. A credit card may seem like a much smaller commitment but if you don’t shop around than you might not get yourself the best charge card. Different banks and charge card account companies have different offers. By shopping around you’re going to have a better chance of finding the best credit card account for you.

Compare annual percentage rates

Not all interest rates are created equal. When considering a credit card, find out what sort of interest the bank or credit company charges and check that it’s not a holiday rate but a permanent. Can the bank change the APR at no notice? Is there a lower annual percentage rate but high annual fees? When comparing the annual percentage rates these are a few things you should consider. Just because something seems good at first, doesn’t mean it will be for the long term.

Compare deals

Once you’ve decided on a few charge cards that sound good, take the time to compare them. Look at things like the APR, interest free period, repayment date, annual and monthly fees, late payment fees and any other conditions the charge card account may have. Not all card are created equal but with a good comparison of a few of them you can get the best chance of finding the best credit card.

Talk to credit card holders

Still not sure after you’ve done all the necessary research? Talk to your family and friends who have charge cards. No need to ask them too personal questions, just stick to the basics if they’re not keen to share the details. Ask them if they are happy about their credit card account. What’s so good about it? What they don’t like? The answers to these questions may help you make a decision about finding the best credit card deal around.

Get a second opinion

Like with most things, a second opinion counts. Getting a charge card account is a financial decision that should be carefully considered. You’ve spoken to the banks, you’ve interviewed your best friend. Now it’s time to get a second opinion from someone you trust. The better prepared and informed you are, the less money your credit card is going to cost you and the happier you’ll be with it.

Getting a credit card should be treated seriously. Sure it might not be a huge sum of money but every dollar really does count. What may seem unimportant at first can prove to be frustrating later on. Do you research, ask the right questions and you’ll have a better chance of finding the best charge card account for yourself.

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Having credit is essential to your spending power, which is important as you grow older and look to make large purchases, such as cars and homes. If you have no credit, and have not ever been in possession of a charge card account, there are some viable options for you to obtain a credit card. Gaining credit is essential, because without credit, you are left in a financial quagmire. In order to get a credit card account, you must look to some simple strategies.

It can be difficult to get a credit card when you have no credit, but there are some ways that you can. Getting your first charge card will help you to begin building your credit rating, and you want to build this up for the future, when you will want to get loans with lower APRs. If you have no credit, you need to get a charge card as soon as possible, so that you can get on the path to financial security. No credit is often considered worse than poor credit. This seems backwards, but it is a reality.

Visit the financial institution that you (or your parents) deal with, and speak to them about your plight. Since they know you and your family, or at least have dealt with you for a long period of time, they may be willing to try you out with a credit card with a very small credit limit, such as $500. As long as this trial works out, meaning that you make a purchase or two and then pay the balance, you will begin to see your credit rating rise. This can be the first step towards gaining more credit.

Another method that you could use in order to build up some credit by obtaining a charge card account is to visit some local retail stores that offer store charge card accounts. These carry with them unusually high annual percentage rates, but as long as you use the card wisely and make your payments, you will not hurt your credit rating, nor will you accrue credit card account debt that needs to be paid off quickly. Store credit card accounts are typically fairly easy to get, especially since they charge such high APRs. With a few charge card accounts now under your belt, you can begin to establish a solid credit history, making it much easier to contact the major charge card account companies and secure for yourself a good, reliable charge card account. While this is an easy way to obtain a credit card account, you must be extremely careful, exercising caution with this type of credit card.

When you are starting out on your journey towards credit history, make sure that you do a lot of research, finding out everything that you need to know, understanding what to look for in a charge card, and finding out just how much a credit card account really costs. Credit cards can lead you down a path of constant debt, which may leave you looking for consolidation assistance, or perhaps bankruptcy.

If you are having a hard time getting any of these credit cards, perhaps you should try the prepaid charge card route. With a prepaid credit card account, you simply put cash onto a card, and each purchase that you make simply deducts from the balance remaining. This works like a debit card, but it seems just like a charge card. This is a good way to start

learning how to budget your cash properly, and will help you to establish a credit history. This can be a great way for you to get a charge card account when you have no credit.

These are just a couple of methods that you can use in order to try and get a charge card even though you currently have no credit. Once you have established some credit with the bank, or stores, the credit bureau will find out that you are a worthy candidate for a charge card account, and they will grant you a major credit card account with a higher available credit limit.

The sooner that you get a credit card account, the better. The credit bureau wants to see that you are worthy of credit before they grant you the freedom to pile up some debt. Learn how to budget your money, and only make credit card purchases when absolutely necessary, and then pay them off in their entirety immediately.

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If you pay off the balance every month, most of the credit card companies don’t even charge you a single cent. So this is one of the best ways to manage your finance. Three can be the following reasons to have charge card account.

Debit cards are the worst way to use for anything. Infect credit cards or cash can help you to save lot of money. Whatever you do involves some risk. If you carry $100 in your pocket there is risk that it might be robbed. And if you give credit card account to waiter, there is a risk that she could steal the number. When you write the check there carries the same risk that someone can have your personal details. When you carry the ATM cart there is the risk that it could get stolen.
 
Don’t matter what you do there is always an element of financial risk. All you want to do is to decrease the chances of your financial exposure. For example your charge card and debit card have been stolen. In either case you’ll re-issue the card again from your respective companies. At the end of the month you noticed from both of your credit and debit card bills that it is misused by someone. Now notice the difference. With the debit card you’ll have to get your money back if your debit card is misused. With credit card, even if there is misuse but it was not your money coming out of your pocket until it is paid. So credit card helps you to decrease you exposure to fraud.
 
There are also some reward points with credit card accounts. You might get back 1% of your purchases through credit card. So you can save cash by using credit card accounts. Also by using charge card account you can keep track of your spend. You can easily compare the difference over months simply by comparing the bills. So charge card account companies even offer the feature to categorize your expenses so that you can effectively monitor your spending levels.
 
Many credit card accounts have other benefits as well. For example Visas have an extra warranty plan. If you buy something with 6 months warranty and it fails after 1 year, the credit card company will repair the asset for you even though you can’t make the warranty claim directly.
 
Some charge cards offer you the service where you keep track of warranties on all appliances. In the same way you can have theft protection if you have an item stolen. Also you can have travel insurance in case you die on the flight paid from the credit card. Some cards offer roadside assistance or international travel emergency assistance.
 
You have the look at the benefits of using charge card accounts. You’ll most probably find many of those features that aren’t useful to your but you might find few that are actually valuable and thus would lead you to save lot of money.

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There are many things to look for when you are shopping around for a credit card. Assuming that you will qualify for a credit card account in the first place, there are several key items to take notice of while you are comparing between your available options. It is important to look for the lowest possible annual percentage rate, any rewards associated with the card, hidden fees, available credit limit, annual fees, security, worldwide acceptance of the card, cash advance options, and payment methods. These are all factors to consider while weighing your choices of credit card accounts.

The interest rate should be of the utmost importance to you. Many charge cards offer tempting low interest rates for a specified length of time, but after that the rates might skyrocket. This is something that you need to keep an active eye on. The interest rate that you get might be lower if you have a good credit rating, but can be rather high if your credit rating needs a quick raise. The annual percentage rate is also charged on the entire amount owing, in case you only made the minimum payment, or a fraction thereof. This is why all charge cards should be paid in full each and every month, or else you will find yourself in charge card account debt and trying to figure out the best way to control your financial situation.

Rewards are nice to have on a credit card account. Some credit card accounts offer you discounts on certain items, and some give you back a percentage of the money you spend to be used towards groceries. If there is some type of reward that you can make good use of on a regular basis, then that card should be one that you consider. It is always nice to feel as though you are getting something back, so this is a bonus feature of some charge card accounts.

When applying for a charge card, you should look for the total available credit limit that you will be given. To start off, you may wish to keep the limit fairly low, or else you might wind up in some monetary hardship. Some people become reckless impulse buyers once they have a credit card in their possession, so you need to become a smart consumer prior to getting your credit card account. It is important to note that your credit rating score is calculated in part based on the utilization ratio which is determined by dividing your total debt by the total available credit on your card. In this instance, maybe it would behoove you to have a higher ceiling limit, so that you are not using too much of the ratio.

Another thing to look for in a charge card account is the hidden fees. Many charge card accounts have fine print in the terms and conditions that allow for them to bump your rates if you miss a payment, so you need to be vigilant when looking for a charge card. Hidden fees can lead you into financial trouble, increasing your debt and stress level as your credit score plummets. A no annual fee credit card account is the best bet, as this will save you some cash along the way. Most credit card accounts offer this option.

Credit cards are accepted in lots of places, but some are better than others. Mastercard and Visa are accepted in umpteen locales around the world, making them the leaders in the industry. You want to find out exactly where you can and cannot use your charge card, especially if you travel frequently.

Some charge card accounts offer cash advance options, which might be something that is useful for you. This is worthwhile in many ways, but it can also be rather detrimental to your balance if you are someone that does not spend money wisely.

Online payment options are something to look for in a charge card. If you can pay your charge card bill through electronic bill payments, this will allow you the opportunity to set up your payments when you get the bill in the mail, so that you have less of a chance of missing a payment, or being late. Late payments affect your credit score, so it is wise to pay your balance owing in full, and on time.

Security should be an issue when you are looking for a charge card account. Find out what the security is with the charge card you are interested in, both in terms of charge card account fraud, and every day usage. The charge cards with chips have heightened security around them, and the online payments options are typically much more secure with these credit cards.

All of these options should be investigated when you are looking for a charge card. You should be completely satisfied with everything you need to know about charge cards before you agree to a contract. You want the charge card account to grant you some form of peace of mind in case you wind up in an emergency situation. A credit card account should be used sparingly, and with a great deal of understanding prior to signing your money away.

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The Federal Reserve has come up with some new rules to protect consumers from a list of abusive lending practices.  The changes aren’t in effect yet, and may not actually go into effect.  It’s worth looking at the proposals, though, to understand what’s been going on just lately.  If you haven’t been paying attention, you probably have no idea what the credit card account companies can legally do to you.
The things that would be prohibited would be:

Increasing the rate on a pre-existing balance

At the moment, there are pretty much no rules about this.  Your charge card account agreement most likely says how they calculate the rate–but it also says that they can change the agreement at any time, including the part on how to calculate the rate.  Many card agreements also provide for you to “decline” to accept changes–but if you use the card after they send out the notice of changes, that’s the same as accepting the new agreement.  And some cards don’t even offer that protection–they can raise the rate for any reason, or for no reason at all, and there’s nothing you can do about it except pay the new rate until you manage to get the debt paid off.

Applying payments to maximize the interest charges

Your credit card agreement says how they’ll apply any payment that you send in.  It matters, because parts of your balance are at different rates.  If you read the details, things are often set up to pay off low-rate parts of the debt first, leaving you paying on high rate debt for as long as possible.  Under the new rules:

Banks would be required to give consumers the full benefit of discounted promotional rates on charge card accounts by applying payments in excess of the minimum to any higher-rate balances first, and by providing a grace period for purchases where the consumer is otherwise eligible.

Imposing interest charges using the “two-cycle” method

The “two-cycle” method is a set of rules for calculating the interest owed in such a way that you don’t get any “grace period” if you don’t pay your card off in full every month.  If you carry a balance all the time, it doesn’t matter.  But if you usually pay your card off, but occasionally take an extra month to get back to zero, the two-cycle method can very nearly double the interest you pay.

The rules would also require that banks give card holders a “reasonable” amount of time to make payments.  It used to be that card holders got almost 30 days–basically, you had until the day they printed out your next bill.  Credit card companies, though, have been shortening the grace period, especially for their riskier customers.  For some cards, it’s gotten to the point where you really have to stay on top of your bills every day, in order not to be constantly late on your payment.

Of course, the only sensible thing to do with charge cards is to pay them off every month.  Charge cards are a great payment mechanism, but a terrible way to borrow cash.  Everybody knows that.  And these new rules wouldn’t really offer much to the people who do use their credit card accounts to borrow money.  

What these new rules would do is protect consumers who fail to run an error-free bill-paying and agreement-reading system.  As things stand right now, someone who pays every bill in-full, but who is only 99% successful at paying on-time, could easily end up owing hundreds of dollars in fees, penalties, and interest.  These rules would ease up some of the worst of the “gotcha” effect.  (And it certainly seems that some banks have been changing their rules specifically to set their customers up to make occasional small errors–and turn those errors into big fees for the bank.)

The rules are open for public comment.  No doubt the big banks will be commenting.  They’ll have statistics that show that customers who make a late payment are much more likely to default than customers who are never late.  Maybe a few consumers will comment about the basic unfairness of agreements that the charge card account companies can change at any time.

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Eliminating Debt Painlessly. Rarely do you see these words fit together in a neat little sentence. The very act of putting your hard earned money towards the stack of debts you’ve accrued is painful. The good news is you can snowball your progress against mounting debts if you do it the right way.

Let’s say you are juggling a number of debts, from student loans to charge card accounts to that loan your parents don’t expect to ever see repaid but won’t let you forget about either.

1. First things first: Write down each debt vehicle you have, the amount of the debt, and the rate of interest being charged. Department store cards are inevitably the worst culprits, charging annual percentage rates that border on criminal. Next in line are usually the charge card accounts, student loans, then lines of credit, and your parents (unfortunately) usually come last.

EXAMPLE:

Balance Owing Interest

Sears $500 28%

Visa $2,000 18%

MC $1,000 16%

Student Loan $6,000 10%

Line of Credit $5,000 8%

Mom & Dad $1,500 0%

2. Next: Determine how much money you have available each month to put towards all your debts. If you’re like most people on a tight budget you most likely haphazardly throw the minimum payment plus a bit at each debt every month, hoping that eventually it will all magically disappear. Unfortunately, making minimum payments on most charge card accounts is a sentence to upwards of 15 years of paying off that debt, and paying at least double the original balance in interest only.

EXAMPLE:

Balance Owing Interest Min Pymt

Sears $500 28% $16

Visa $2,000 18% $66

MC $1,000 16% $25

Student Loan $6,000 10% $150

Line of Credit $5,000 8% $90

Mum & Dad $1,500 0% $0

TOTAL: $16,000 $347

Total amount you can put towards your debt each month: $450

3. Choose the highest interest debt on your list. (I don’t care if it’s the highest or lowest balance, just look at the annual percentage rate). With the money you have designated towards all your debts, make ONLY minimum payments on all your debts, except your chosen highest interest debt, to which you put all the rest of your monthly allocation. Hopefully this is fair bit more than the minimum payment.

EXAMPLE:

Pay your extra $103/month to your Sears card in addition to the minimum payment, totalling $119/month.

4. Continue until your first debt is paid off. Now, you have one less debt to juggle each month. Yay! It may have taken a while to get here, but now you can cut up one card. No really. Cut it up. (Especially if it’s a department store card. They’re pure evil). The reason you got in this place to begin with is that you had too many cards, so let’s reduce the number you have.

EXAMPLE:

Sears is paid off in 5 months. Card is destroyed.

5. Choose the next highest interest debt on your list. Repeat the same process as in steps three and four. You’ll notice now, though, that you have more cash to contribute towards your next debt of choice, since you now have one less debt payment nagging at your pocketbook.

EXAMPLE:

Visa is next. Now have an extra $119/month since the Sears card is paid off, in addition to the minimum Visa payment. Your total Visa payments are now $185.

6. And so on. Each time you systematically pay off one of your debts, you’ll have more and more cash to pay off the next debt on your list, effectively snowballing the process of paying off your debts. It picks up momentum quickly, and by the end you’re blasting through your debts and even your parents get paid.

EXAMPLE:

After the Visa is paid off, you have $210/month for your Mastercard.

After the Mastercard is paid off, you have $360 for your Student Loan.

After the Student Loan is paid off, you have the full $450 for your Line of Credit.

After that, pay off your parents! It will only take you three months, and will get you in their good books for sure.

The total amount of time required to pay off this laundry list of debts: Under 5 years.

This is a long time, but think of it this way: Now you’re Debt Free! You didn’t have to toil every month over how much extra cash you can throw at the never-ending debt load, and you minimized every single dollar of interest you possibly could.

The trick is, you need to continue to allocate the same amount of money (or more) towards your overall debt every month until all your debts are paid off. If after tackling one or two cards you decide you can decrease your monthly allocation towards your debts, you’ll only prolong the process and end up paying a ton of interest. A little bit of short term pain makes for lots of long term gain. You deserve it!

CAVEAT: There are other debt elimination plans that would have you pay off the lowest balance first, instead of the highest interest debt. The reason for this is the feeling of satisfaction you get from knocking off a debt from the pile, even though you may be doling out more interest dollars on a higher balance elsewhere.

The wrong person without enough dedication to the plan outlined in this article might give up if the first few debts were slow to be paid off (for example, if your Sears card had the $6,000 balance, it would take you over 3 years just to pay off your first debt. That’s a long time to wait for tangible progress, even if it is the most efficient).

So take a look at your debts and ask yourself if you have the discipline to stick to the high interest plan. If not, try paying off a few smaller debts to get your legs under you and then re-evaluate. It’s a personal choice – not all cash matters are pure dollars and cents (I mean – sense).

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Debt is the hottest topic on personal finance blogs around the world. Why? I would venture to guess it is because so many consumers are drowning in it. The unfortunate truth is that few consumers care to read about debt until it has already had a negative affect on their financial situation. This can make the final solution to their debt problems even more difficult to hear about.

I’m no stranger to debt. I had been managing school loans, vehicle loans, and a few small credit card payments since I was 19, and I was successful in keeping a clean credit record. Then a few poor life choices left me responsible for over $30,000 in credit card account debt at age 24. With nothing tangible or memorable to show for my efforts, I could have become bitter. Maybe I could have filed for bankruptcy (this was before the laws changed considerably.) Ultimately, however, I chose to consolidate, reduce the rate, and pay those debts off early.

Why am I telling you all of this? Two reasons: (1) It lends credibility to my view on debt and repayment. (2) To keep you from throwing things at me when you read the next paragraphs:

The number one question I hear from people in debt is NOT: “What’s the best way to pay this off?”

It is usually: “How do I get out of this debt?”

Note that in their wording, they are usually implying that they are wanting to get out of their obligation of the debt, though not necessarily through repayment. Google searches for popular debt-related terms bring up scads of results for help in “Getting out of debt” — all of which seem to give a quick and easy way out. A few clicks and some reading will tell you, however, that the scheme is all the same, and repayment is almost always involved.

So to answer the question of “What is the Best Way to Get out of Debt?” — my answer is simple: Whatever way is quickest, easiest, and costs you the least amount of money, while at the same being perfectly legal and moral. Ditching your financial obligations by having a cousin co-sign while you walk away is NOT the best way. Making a conscious decision to default when you could be paying something (anything) is NOT the best way. Looking for answers from the sky for a way for you to not have to repay a debt (when you could if you wanted to) is NOT the best way.

I am saying this with the full understanding that someone reading this will have a unique situation that warrants blowing off a loan. I will guarantee that a handful of others will insist that they had no choice. I am, therefore, not talking to you, specifically. The $30,000 in debt that I repaid gave me zero benefit. It was the product of putting my name on a few accounts that were taken advantage of in the most grievous of ways. It would have been easy to say, “It wasn’t my debt,” default and start over 7 years later, instead of taking almost 6 to pay it all back. For this reason, I am speaking to the majority of those suffering from excessive debt who may not feel the benefit of their spending, realized they spent more than they could truly afford, or who simply got the short end of the debt stick. A loan is a loan, which is almost always best to pay back. Period.

I realize that if everyone paid back their loans, small claims courts would shut down, and debt collectors would lose jobs. Search Engine Optimization would change dramatically, and books on finance would lose their place among the Best Seller’s List. Thankfully, there will always be those who won’t pay up. But for the rest of us, there is still one answer to the debt problem: Make payments – no matter how small. As painful as it feels right now, no amount of cash can buy the integrity and honor of making good on a loan.

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The average American has around 8 charge cards and is carrying roughly $9000 in charge card account debt. If that’s not bad enough, the charge card companies are involved in what can only be described as a conspiracy to keep Americans in debt, permanently.

I watched an incredible PBS documentary online last night called “Secret History Of Credit Cards”. You can watch the 5-part eye-opener here at your leisure. But if you don’t have an hour to spare, here are some of the biggest dirty secrets for you. You may want to sit down for these.

Dirty Secret 1 – Minimum Payments = 35+ years of repayments.
The minimum monthly payment used to be 5%. That caused a problem for the charge card account issuers. Folks were being forced to pay off their balance too quickly, PLUS the cost of that 5% minimum made people wary of running up high bills. The solution was genius. Institute a 2% minimum payment. Not only will people splurge more because they have to pay less back each month, but it adds thousands of dollars in interest and increases the repayment time by DECADES. Sneaky doesn’t even cover it.

Dirty Secret 2 – A late payment to ANY creditor can skyrocket your interest rate.
I’m not talking here about just your credit card payment being late. If you miss a car payment, mortgage payment, cell phone bill, in fact any payment, your interest rate can automatically increase to the massive default interest rate, which is usually 25-35%. Even if you’re ON TIME with your credit card payments, a late payment anywhere else can instigate this penalty. It’s known as the “Universal Default Clause.” Supposedly, it protects the credit card account issuers from folks who are credit risks. Like these multi-billion dollar companies need protection from the little people.

Dirty Secret 3 – There is NO LIMIT put on late payment charges.
This is something no other industry could get away with. You’d think there would be some kind of law preventing the banks from charging loan shark penalties, but there isn’t. Be just one hour late for a payment and instead of a $5 or $10 fee (which, prior to the 1996 Smiley vs. Citibank case, was the limit), you’re looking at least $30. Mine charges $36. Many financial analysts believe that with no cap on these fees, they will easily rise to $50-$60 in the next year. And remember, when you’re late they’re also killing you with a huge interest rate. Double whammy.

Dirty Secret 4 – There is also no federal limit on annual percentage rates.
Don’t you find it odd that in a time of very low interest on anything from car loans to mortgages, credit card account companies can hand out interest rates that embarrass loan sharks. Well, it’s not unusual to see 34.99% annual percentage rates, especially as a default rate, and the reason is simple. Most credit card account companies reside in states like South Dakota or Delaware. States that have very weak or even no “usury laws”. So, there’s no cap on interest. By law, there’s nothing to stop them charging whatever interest they want. Here’s a map that links to the locations of top 10 credit card account issuers.

Dirty Secret 5 – You can often pay interest TWICE in one month.
This one’s called “two-cycle billing” and it’s also a completely legal loop-hole. Let’s say you pay off the balance of your card in full at the end of one month, say April. But in May, you don’t pay off your complete balance. Boom, some charge card issuers will charge you for two months’ worth of interest. Aren’t they lovely?

Dirty Secret 6 – Grace periods are getting shorter…or being eliminated.
Remember the good old days, when you had 25 days to pay off your balance without incurring charges? Well, those could soon be a distant memory. Some banks have already shortened the grace period to 20 days. (Do you know what yours is? It may have changed.) And other banks are doing away with grace periods completely. That means you’re paying interest on anything you buy, the second you buy it, even if you pay off your balance each month. The clock is running folks.

Dirty Secret 7 – Cash advances hit you twice in the wallet.
First, as I’m sure you know, you’ll get a different, higher interest rate applied to your cash advances. But you also get hit with a transaction charge, around 2.5%. Even credit cards that confidently announce “no finance charges” can still bill you for transaction charges.

Dirty Secret 8 – The fine print is a web of deceit.
Let’s be honest, these days you need 2 hours and a law degree from Harvard to understand the mumbo-jumbo in the fine print. But try and read it if you can. Because this is where the credit card issuer can hide a whole bunch of nasty surprises. The biggest is scarier than Godzilla on crack. Basically, the credit card issuer can change your APR at ANY time, as long as they give you 15 days notice. No reason required. Imagine if any other industry worked that way, like your mortgage? While you’re reading the fine print, also check for things like purchase protection, lifetime warranty coverage and travel discounts. These may end when your introductory rate ends. And speaking of that, what does your introductory rate become after the teaser period? It could be more than you bargained for, especially if it’s a variable APR.

Dirty Secret 9 – Good payers are called deadbeats!
Deadbeat – it’s what charge card account companies call those folks who are responsible and pay off the balance each month. They don’t like those consumers, not one bit. That’s because they make little to no cash off of them. No, charge card companies like you to carry a nice hefty balance and pay only the minimum each month. If you’re one of those consumers, known as ‘revolvers’, you’re part of the crowd that contributes roughly 90% of the charge card account company’s income. What a crazy upside-down world credit is.

Dirty Secret 10 – You can demand, and get, a better deal.
annual percentage rate too high? Hate the annual fee? Want a longer grace period? It turns out your charge card company may just have to do your bidding. See, the fees they charge are not considered a necessary cost of doing business, so you can request, firmly, that they be reduced or eliminated. Now, imagine what would happen if we all did that? No wonder they want that one kept secret. And remember, if all else fails, find a lower cost interest rate card and transfer your balance. You have at least that going for you.

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Annual fees, grace periods, balance transfer options…it’s a wonderful world of charge card account jargon out there, and depending on your needs and planned uses for charge cards, it pays to look at your options.

Following are the various ways in which charge card companies can get some money out of you:

Interest Rates

All credit cards levy an interest rate, the main difference being the percentage charged. Obviously you want to choose the card with the lowest rate. If you already have a card with a higher annual percentage rate but that you like for other reasons, then try calling and asking for an annual percentage rate reduction. According to a 2002 Public Interest Research Group study, 56% of people who called their credit card account issuer and asked for a reduction were successful.

Early Interest Posting Dates

If you are in the market for a new card, find out if interest is charged from the date the charge is posted, or the date of purchase. Most will now charge from the date of purchase (which is usually a few days earlier than the posting date), but if you can find one of the other kind, it may be worthwhile.
This is only really an issue if you plan to carry a balance on your charge card at any time, which if it can be avoided, would be preferable.

How Interest is Calculated

Some cards will charge interest on the balance owing at the month or billing cycle’s end. Makes sense, right?

Well, there is a growing trend now to charge interest instead on the average daily balance. So if you charge $1,500 in September, and pay $1,000 of it off on the due date, the following month you will actually be charged interest on the $1,500 average daily balance instead of the actual $500 left owing.

Grace Periods – or Lack Thereof

Usually, a grace period will allow for a responsible credit card user to pay off all their purchases within 24-30 days without paying any interest.

But as some readers pointed out in the comments on another article, even those dutiful charge card users who pay off their balance in full each month can sometimes get duped by circumstance (like the bank processing a transfer late) and miss the payment due date by a sliver.

For those consumers above and for those who regularly carry balances, even grace periods won’t save you: if you have an outstanding balance, you are charged interest on new charges from the date of purchase. (All the more reason not to carry a balance)!

Nuisance Fees

In a world of increasing fees for every little thing from booking airline tickets to doing your banking, credit card accounts are no exception to this bandwagon. The latest in nuisance fees can include:

Late payment fees (as high as $40)
Over-the-limit fees (as high as $25)
Inactive account fees
Not carrying a balance fees (or carrying a balance under a certain amount)
Monthly fees that are a percentage of your credit limit
Annual flat fees
Balance transfer fees
Credit limit increase fees
Set-up fees
Return item fees
Fees for paying by telephone

…and on it goes.

Cash Advance Interest Charges

Many cards charge higher annual percentage rates on cash advances in addition to transaction fees.

What They Have to Tell You About

When you are searching for a new charge card, the following items are required by law to be disclosed:

Annual Interest Rate (also called annual percentage rate or annual percentage rate)
The teaser or introductory rate, along with the details of when and how the regular rate kicks in
How the variable rate is determined (if applicable)
Penalties for late payments
Annual, periodic, or membership fees
How the balance is computed for interest purposes (ie: average daily balance or balance owing methods)
Minimum charge
Grace period (the period of time you have to pay off the balance without incurring interest)

My Card Sucks! I Want To Cancel

If after reading this you think you have one of those cards with too many fees, you can cancel it. However, there is a chance that it may reduce your credit score. Check out FICO to find out what FICO scores consider, as well as how best to understand your credit score.

To that end, you should be aware of soft and hard closes, and how they affect you.

Soft Closes

With a soft close, the charge card account company will acknowledge that you want to close out the card, but they will automatically reactivate it if charges go through. Their rationale is that they are saving you embarrassment of the card being rejected if you happen to be out shopping and inadvertently whip their card out!

Hence, a soft close will also often affect your credit score and ability to qualify for large loans later on if the lender does a credit check and sees that you have all sorts of credit available to you, but doesn’t see that the credit is soft closed.

It also makes you vulnerable to fraud, since if a professional steals your identity, they can order another card from a soft-closed account and start charging.

Hard Closes

Ensuring your account is hard closed entails a little more follow-up work, but can pay off in the end. You must first request a hard close when you are cancelling the card, and follow up with a confirming letter. In your letter, tell the credit company to report “closed by consumer” to the credit bureaus as well, and keep copies of everything.

Some issuers will refuse to do this: their policy might instead be to process a soft close first and a prescribed time period, at which point it reverts to a hard close. Find out how long that period of time is, and ensure that the account is hard closed with a letter at the end of that time.

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