I’m corrupt, but only by association. I have a wonderful job working in an evil industry. I work for a credit card company. My time in this industry has taught me a few things about how to handle credit cards and debt in general.
According to the Motley Fool Credit Center America now owes over $60 Billion to credit card companies. 1.3 Million of us filed bankruptcy last year. Money is the cause of most divorces in this country. Money is no longer the root of all evil, credit is.
However, the time that I’ve spent learning, bargaining, wheeling and dealing has taught me a few tricks of the trade.
- Don’t Charge More Than You Have
The most common mistake that I see is someone who has decided that they needed to eat at Red Lobster, or buy the Gucci Dress on the card, even though it cost more than they make in a month. Although you can get by with only paying the minimum, the average interest rate is around 18.9% annually (American Consumer Credit Counseling). That means that a $1,000 would take you over 2 years to pay it off!
With this being the case you can see why so many americans are up to their necks in debt. If people would learn to differentiate between their needs and their wants, they probably wouldn’t have this problem.
- Pay Your Bills
It sounds like common sense. If you owe someone, pay them. If you were going on vacation and your utility bill was due while you were going to be away you would probably make arrangements so that it could be paid on time. For some reason we do not treat credit cards with the same sense of urgency.
This is an extremely costly mistake. Anytime a payment is missed it not only causes a late fee, but it can cause your apr to go up to as high 29.99% if not higher, depending on the company. This happening on more than one account can be enough to force some people into bankruptcy.
If you are one of the people who travel a lot, or just tend to forget about your bills, ask your credit card company about setting up automatic payments. Most companies will at least allow you to set up automatic drafts from your checking account so that you can at least cover the minimum payment automatically each month. If your credit card company doesn’t offer it, check with your bank.
- Read Your Cardmember Agreement
Believe it or not, a credit card is a loan. There is a contract associated with it. As any good lawyer would tell you, you should always read your contracts. All of your terms and conditions are listed. This is the only place where things like the maximum or “default” apr, what can cause them to change your account, the dollar amount for any fees that might be associated with an account, and what they are willing to do to help you with the account if you need it.
- Keep Track of Your Spending
The easiest way I’ve seen for a once good-standing account to spiral out of control, is to allow it to go over the credit limit. This tends to cause and extremely inflated minimum payment, that most people can’t make. this, in turn raises the interest rate and causes more late fees. After that, the minimum payment is raised even higher due to the extra interest, late, and overlimit fees. The most dangerous thing for anyone who is already in trouble is to end up over your limit. Remember, finance charges can put you over your limit too.
- You Don’t Need Cash
Cash Advances will cost you in a lot more ways than one. They will charge an initial transaction fee, usually between 2 and 5%. It will also accrue interest immediately, normally at a much higher interest rates than regular purchases. Also there is almost no protection when it comes to disputing the charges. So, if the ATM messes up and doesn’t give you the money, you’re probably still going to be stuck paying for it.
- “Quasi Cash”
If you do actually read your cardmember agreement you will probably see mention of some mystical object known as “quasi cash.” This term refers to anything that is equivalent to cash, but not actually cash. This could be anything from gambling “credits” to Western Union charges. These charges will almost accrue the same charges, if not higher, that a cash advance does.
- Promotional Rates
0% until March of 2010, 4.99% until eternity. Whatever they’re offering, there’s probably a reason why it sounds so good. You see, credit card companies are charged a little below prime to borrow the money that they lend out. They then offer it to us at less than half of what they are charged. That seems like bad business, until you realize that they have a double whammy for those of us who opt to use these promotional rates.
First, if you already have a balance on the account that balance will be the last thing to be paid off. That means that if you have a balance at 14.24% and a promotional rate of 0% you can pay as much as you want, but it will go to the 0% first, so they will still bleed you on interest.
Secondly, if you don’t have an outstanding balance, you should know that any instance of a late payment, even by a few hours, can make your promotion null and void. So if something happens to your check after you mail it, you could end up paying 29% on a balance that was without interest. On top of the late fees, that is.
- Your Terms Can Change for Absolutely no Reason
It’s been all over the news lately that some credit cards will “punish” you for something found on your credit report, which is a bad enough reason to change the terms of someone’s account. You probably don’t know that your terms can change even if you have perfect credit, and have beeen a perfect customer, your credit card company can still raise your rates. Why would they do this? “To cover other expenses.”
- Pay in Full Whenever Possible
If you only pay the minimum payment, you will pay more than if you pay it off in full each month. Normally, if you pay off the entire balance of a credit card you will not accrue any interest. The problem is, that is not feasible for most consumers. When you use your credit card to make ends meet, you probably won’t be able to pay for all of the expenses a month later.
In my line of work I have seen many people who are smart enough to play the game well come out ahead. These people never pay interest or fees and hardly ever have complaints about their credit card companies. On the other hand, I have seen people be chewed up, and spit out by the industry. My hopes are that these tips will help you be a little closer to the first group.