Jeanette A. Tucker | 4/29/2005 9:23:08 PM
With credit cards so easy to obtain and use, it’s easy to fall into debt. "If you have over-extended your credit cards, you need to take control of your finances," says LSU AgCenter family economics professor Dr. Jeanette Tucker.
The family economist recommends following 10 suggestions from Bankrate.com to better manage your credit costs.
• Read the fine print on your statement. Bill stuffers included in your credit card statement are used to notify cardholders of changes in your account. Typical changes may be an increase in interest rate or change in payment date. Read them to prevent being blindsided by a change. Also, if you are applying for a new card, be extra careful to read and understand all the rules and regulations before you use it the first time.
• Verify all charges. Are all of the charges really yours and are they correct? Save your credit card receipts, then match the receipts to the statement when it comes in. Check for two things: did you make the purchase and is the amount correct? This is also a good time to review your spending habits and see if any changes need to be made.
•Ask questions. If there is anything on your bill that you don’t understand, be it a new fee, a charge you don’t remember making or unusual finances charges, call the company and ask them to explain it.
• Know your limits. Credit card companies used to decline your card if you were over the limit. Now many companies will accept the charge and tack on a monthly fee for being above the limit.
Over-the-limit fees can run as high as $35. It is an unnecessary expense. Tucker says to avoid it by finding out in advance what your credit limits are and say well under them.
On the other end of the credit spectrum, Tucker says if your credit is good, and you normally carry a balance, your credit card company might increase your limit to encourage you to carry a higher balance.
• Don’t be late. Paying late is one of the most costly things you can do. Late fees can reach up to $35, and the penalty rate, which card companies can invoke after just one late check, ranges from 12.95 percent to 26.49 percent.
How is "late" determined? Credit companies generally want to process your payment by the date it is due. Some companies will even mark a payment late if it is processed after a specific hour on the day that it is due. Think ahead. Normally mailing a bill 10 days ahead of the due date is ample time, but allow two weeks during peak mail seasons.
To avoid the pressure of playing "beat the clock," Tucker says many consumers have turned to electronic or online bill paying.
"Play it safe by keeping your Internet security current," the family economist advises, adding, "Also ensure that your electronic bill paying service is really instantaneous. Some sites delay the actual transfer of funds."
Tucker suggests that if a bill is late, and you are hit with a fee or a rate hike, you may have some recourse. If you realize a payment is going to be late, call the company. If you are pleasant and not habitually tardy, they may agree to forgive the penalty. Be persistent; you may have to speak to several persons before finding someone who is agreeable to overlooking one late payment.
• Avoid cash advances. Cash advances often carry a higher interest rate than the rest of your balance in addition to special one-time cash advance fees. And paying the money back can be tricky. If you are not careful and deliberate, your payment may not go toward repaying your cash advance. Instead, the cash advance will continue accumulating interest at higher rates.
To pay back a cash advance, Tucker says to write two separate checks. The first check is your regular credit card payment. The second should be for the full amount of the cash advance. Put a notation on the check’s memo column specifying that the money is for your cash advance. Then staple a note to the check reminding the processor to read the memo. Since this process is normally automated, the note forces someone to look at it. Two weeks later, call the company, make sure it has applied your payment correctly and ask them to note your cash advance as paid in full. Don’t forget to double-check your next statement to ensure the advance has been paid.
Considering the fees, finance charges, higher interest rates and difficulty making sure the money is repaid, Tucker says consumers are better off charging rather than taking a cash advance.
• Be smart with balance transfers. Don’t switch your balance to a card with a lower rate without asking a lot of questions. While the idea is technically sound, you must be well informed to make certain you are not doing more harm than good.
Is the low rate permanent or temporary? If you have to switch cards every three to six months, the damage you are doing to your credit may be far more expensive than the few dollars you may save.
Will the card accept the balance amount you’ll be transferring? Some cards frown on balance transfers higher than $4,000.
Will the transfer be treated as a normal balance or a cash advance? Often, the "checks" that credit card companies send to facilitate balance transfers are instead treated as cash advances, complete with extra fees and higher APRs. Additionally, many card companies charge a balance transfer fee of 3 percent to 5 percent of the balance, though some will cap it at a set amount.
Tucker advises always to call the company and go over the transfer procedure step by step. Get their transfer policies and procedures in writing. Find out if you get a lower rate by using one method of transfer over another and what fees, if any, will apply. If the transfer is treated as a cash advance, stay away.
• Pay more than the minimum. If you carry a $3,000 balance on a card with an 18 percent interest rate and make a minimum payment of 2 percent, it will take you more than 29 years to pay off the card. In addition, you will have paid over $10,000 in interest.
"Think about that the next time you pay your monthly credit card bill," Tucker says, advising, "Strive to pay at least two or three times the minimum payment."
• Plan around your credit-use patterns. If you carry a balance, trading an annual fee for a lower rate might actually save you some money. But if you pay your bill off every month, the interest rate won’t matter quite as much. Get a card that best fits your financial lifestyle.
• Shop around. Is one card raising your rate, hitting you with too many fees or changing the rules on you? Get all the information you need to move your business to another card, then call your current credit card company and ask for a better deal.
"Just remember – the real secret of shopping around is to be ready to walk!" Tucker says.
For information on related family and consumer topics, visit the FCS Web site at www.lsuagcenter.com/
Inst/Extension/Departments/fcs/. For local information and educational programs, contact an extension agent in your parish LSU AgCenter office.