Thursday, November 23, 2006
Recently, I blogged about "Credit Card Gotchas" after being inspired by a e-mail I received from the Consumers Union.
I got another one that makes a lot of sense, which is to think carefully before spending money you don't have this weekend. Since tomorrow is "Black Friday," the biggest shopping day of the year, the timing is appropriate.
In their own words (or maybe I should say the words of the consumer):
Just as the holiday season gets ready to kick into high gear, Consumers Union is warning shoppers about the increasing number of credit card traps that can trip up consumers and lead to spiraling debt. To help get out the message and mobilize support for reform, the group is releasing "It's Always Christmas Time (For Visa)," an animated satire that takes aim at abusive credit card fees and practices.
"You can find yourself buried in debt if you aren't careful to avoid the credit card gotchas," said Michelle Jun, Staff Attorney for Consumers Union. "Too many credit cards are designed to get you in debt and keep you there."
“It’s Always Christmas Time (For VISA)” is a lighthearted take on the unexpected fees, interest rate hikes, and misleading contracts that are contributing to high credit card debt in the U.S.
After viewing the animation, viewers can send an email to Congress asking lawmakers to support credit card reforms. To view the animation, click on www.CreditCardReform.org.
Consumers enjoy few protections when it comes to credit cards and there are an increasing number of ways they can be penalized with fees or get stuck with higher interest rates:
Universal default: Your interest rate can skyrocket if your credit score declines because of your behavior with other creditors even if you always pay your credit card on time and never miss a payment. Some card issuers will raise your rate if you inquire about a car loan or open a new credit card.
Change of terms: Credit card terms keep changing. Read the fine print and chances are you’ll find this disclosure: “We reserve the right to change the terms (including the APRs) at any time for any reason.” A fixed rate is fixed until the bank gives you at least 15 days notice that it isn’t. If you want to keep your account open, you’ll pay the higher new rate on your existing balance.
Teaser rates: That low rate you signed up for expires suddenly and you end up paying more. A temptingly low introductory rate can climb to 30 percent or more. - more -Minimim payment: If you pay the minimum payment every month, you’ll end up paying a lot more than what you charged and you could be on the hook for a very long time.
On time payment: Card issuers are systematically mailing statements closer to the due date, giving customers less turnaround time. You can be hit with a late fee even if the payment is mailed on time. The average fee for a late payment has more than doubled in the past decade.
Double cycle billing: Finance charges are usually calculated using the average daily balance. If you alternate between paying off and carrying a balance, you’ll end up paying more interest.
Cash advance/convenience checks: The interest rates on these are higher than your credit card.
Penalty interest and fees: Late payments can raise your interest from 7% to 27%! Rather than rejecting charges that exceed your credit card limit, issuers today often let them go through but then charge a hefty fee -- as high as $39.
Fees, fees, and more fees: As if the penalties weren’t enough, you pay more fees for paying by phone or charging abroad. You may have to pay a fee to receive what used to be free year-end summary statements.
Balance transfer switcheroo: Transferring a balance from an account with a high APR to another one with a lower interest rate could come at a high cost. Any payments you make are typically applied first to the lowest rate balance. So while the credit card company uses your payment to quickly pay off that 0 percent transfer balance, you are piling up interest on purchases, at say, 18 percent. Multiple balance transfers will hurt your credit score.
Full article from Consumers Union, here.
I write about fraud from a victim's perspective, and I've often lamented on why it seems insane to keep writing-off not only monetary losses (passed on to everyone), but "seemingly," the millions of victims created by the not very secure handling of people's personal information.
People need to learn to be responsible when using credit - but that's hard to do - when credit card companies issue (too) large lines of credit to new customers and even send pre-approved offers to family pets (this actually happened at my house). My daughter had been using the dog's name when registering on certain websites.
It's not hard to see why so many are up to their necks in debt before they realize what happened, or why there is so much credit-card fraud. It all boils down to too much bad debt that eventually has to be compensated for.
I recently blogged about how sending mass-mailings of pre-approved credit card offers is dangerous to the recipient's financial health. There seems to be a trend of making it too easy to get credit and not paying enough attention to the consequences of doing so.
Perhaps, what is needed is a new era of responsibility? Bad debt is an expense on any financial statement and the quest to keep expanding customer bases has led to an environment of "robbing Peter to pay Paul." Since the issuers would go out of business if they weren't profitable, revenue streams are added to cover it, and "more."
And guess who ends up paying for it?
In my opinion - should we fail to address the problem soon - the bottom is likely to "fall out" sometime in the future and that isn't going to be a "good thing" for the credit-card- issuers, or their customers.