Know the Signs of Credit Card AbusesCredit card debt is a huge problem in this country. The latest figures released (in 2012) show that Americans owe a whopping $852 billion in credit card debt. While new financial rules have been established which make credit card pricing clearer, consumers should still be cautious when using existing credit cards or applying for new credit.
Questionable credit card practices produce huge earnings for the banks and credit unions which issue them. But it comes at considerable expense to the millions of people who regularly use credit cards for purchases. Be alert to the following credit card abuses and avoid them if possible:
- Notating important changes in "fine print". Credit card companies are notorious for alerting customers to changes in the terms and conditions of their legal agreements in small print, especially increases in the interest rate. You should review and understand the terms and conditions of your credit card agreement and also carefully examine your billing statement each month.
- Charging excessive fees. Fees=profits. That's all you need to understand. Be vigilant and avoid being charged for these fees. Most credit card companies are now charging customers cash advance and balance transfer fees as well as statement fees, foreign currency fees, inactivity fees and just about any other fee that is legally allowed.
- Including a "mandatory arbitration" clause in the contract. This is usually stated in the "fine print". It means that even if you have a valid complaint with your credit card issuer, you are not allowed to take legal action in a court of law. You are required to settle your complaints through an arbitrator which is a process which generally favors the credit card company.
Tips for Credit Card Users
Even with new reforms in place which eliminate many of the unfair fees and practices from before, consumers should still be aware of the hidden dangers of using credit cards.
- Don't use cards which have penalty rates. More than 90% of the credit cards in use do have penalty rate clauses in their contracts but some do exist. Investigate your options.
- Always pay more than the monthly required minimum. Credit card companies want you to pay the minimum amount because it will keep you in debt forever and they will collect interest fees for about the same amount time (remember, fees=profits). Even paying a small amount more each month can save you hundreds of dollars or more in interest while you are paying off your outstanding balance.
- Carefully read credit card offers, especially the fine print. Don't be taken in by teaser interest rates (which don't last for long) or other introductory rates which can quickly increase. Always thoroughly review your credit card agreement before accepting new credit.
- Know what triggers a penalty rate increase. Many times even one late payment can cause a hike in your annual percentage rate. Be sure to check your APR every month on your billing statement. Always make timely payments to avoid interest rate increases and to protect your credit rating.
Be a responsible borrower. Know the facts about credit cards and how to use them in a way that benefits, not damages, your financial situation.