Believe it or not, some credit-card companies are closing accounts of consumers who pay in full.
Others are canceling cards without warning when their cardholders open accounts with their competitors.
That’s not all. Companies have also boosted interest rates and added fees on cardholders who use their cards too much or too little, who exceed their credit limit or who pay their bill late.
Despite these costly “gotchas,” consumers continue to say “Charge it” in record numbers. Here are some steps to help you rein in rising credit-card costs:
– Tally your total debt. Add up all your credit-card balances, not just minimum monthly payments. Creditors know your total–so should you.
If you can’t make the monthly payment, “call your creditors before you default, to avoid negative marks on your credit report,” advises financial attorney Robin Leonard. “If the first person you speak to won’t work out a better payment schedule, ask for her supervisor or try to meet in person if it’s a local bank.”
Ask the issuer to confirm the new terms in writing. If you are refused, send a letter confirming your conversation.
– Check for ticking time bombs. Did you sign up for a credit-card offer that sounded good but will soon explode in costly finance charges? Here are two of many such offers:
1. Deferred billing plans, which lure you with promises of no finance charges for three, six or 12 months. Pay off balances before the offers expire, or you’ll be hit with retroactive interest from the date of purchase.
2. “Teaser” interest rates–the low interest rate expires after six months. If you have one of these deals, shop for another low-cost card or negotiate an extension of favorable terms with your current issuer.
– Watch for changes. By law, all credit-card terms may be changed with only 15 days’ notice.
Read the fine print in the credit-card inserts immediately, and if the terms suddenly change, complain. Call the retention department and say you’re not going to pay new penalty fees or jacked-up interest rates.
Many issuers will comply to keep your business. Have them confirm your agreement in writing.
If they refuse to improve the terms, be prepared to cancel the card–but not until you have another credit card in hand, with better terms–and transfer your balance to the new card.
– Beware of penalties. Penalties include bumped-up interest rates and fees of as much as $30 for paying less than the minimum or for being as little as one day late.
“Even if you signed up for a `fixed-rate’ card, your interest rate could be bumped up as a penalty for paying late,” warns Gerri Detweiler, author of “The Ultimate Credit Handbook.”
Make more than the minimum monthly payment when you can, and always pay off the highest-interest-rate cards first. If you’re carrying a balance, make your payment earlier in the month. It lowers your “average daily balance,” cutting finance charges and paying down your outstanding balance more quickly.
– Read rebate rules. Consumers who were counting on big rebates, such as cash-back merchandise or frequent-flier miles, based on card use got a reality check last summer when issuers began curtailing the size of rebates and how long consumers could bank rebates before cashing them in.
Why the change? Some consumers were playing the system by putting huge charges on their rebate cards but either paying balances off each month or transferring them to a lower-interest-rate credit card, so issuers got less interest income than expected.
– Make companies pursue you. The market is saturated, so card issuers will often cut deals to keep business. Here’s how you can benefit:
Call your credit-card issuer and ask for better terms. Stress your loyalty, longevity or prompt payment history.
Shop for a credit card and bank package together.
The more business you offer, the more bargaining power you’ll have; banks love direct deposit of payroll checks. Review bank statements for the past six months to see what services you use–ATM, checking account, overdraft, etc.
Contact three local banks or credit unions, and ask for their best terms on the services you use, then go back to your current credit-card issuer and ask them to beat the competition.
– Avoid overpriced extras. These features are not worth the additional expense:
Credit-card life insurance, which pays off your outstanding balance if you die. Buy a term life-insurance policy instead; it costs less.
Credit-card “job loss” protection and/or disability coverage. If you lose your job or become disabled, these two extras don’t pay off your balance; they make only minimum monthly payments. And each carries many restrictions before you can collect. Get disability insurance through your employer or an insurance agent.
Credit-card registries, which notify all card issuers if your cards are lost or stolen. Keep all card and phone numbers in a safe place and report a loss yourself.
Gold credit cards, which give you frills such as rebates on purchases. Ask your bank for a free gold-card upgrade.
BE ON GUARD
What they give in the bold print, many credit-card offers take away in the fine print. Here are terms to be wary of:
– Annual percentage rate–Red flag: More than 14 percent for purchases and/or cash advances. Avoid cards that charge higher interest on cash advances.
– Annual fees–Red flag: Any fee. If you ask, many card issuers will waive annual fees.
– Grace period–Red flag: Less than 25 days to pay for new purchases. With a shortened grace period–the time between the billing date and when finance charges start–you’ll likely pay finance charges even if you pay your bills in full each month.
– Method of computing the balance–Red flag: “Two-cycle billing” or “including new purchases.” If you carry a balance, two-cycle billing lets issuers charge retroactive interest so it’s impossible to compare cards. You’ll pay less with a card that computes balances “excluding new purchases.”
– Transaction fees on cash advances–Red flag: 2 percent or more of cash advance, but not less than $10. Along with transaction fees, most cards charge a higher interest rate on cash advances than on purchases, and they needn’t show rates in print. Look for a card that caps the fee under $10.
