Inviting disaster


POSTED: Monday, December 14, 2009

One by one, the invitations come in the mail, making you feel like the most coveted and courted customer ever.

Here's one from Visa Black Card saying you have been pre-selected for this exclusive credit card, which is limited to only 1 percent of U.S. residents. Here's another invitation from a bank, offering you MasterCard rewards for holiday purchases—accept the card and get a $50 gift card.

Here's the deal: The reality is that credit card companies are not your friends at all. They do business with you, as in lend you credit that they expect you to pay back by a certain time in full, or over time, with interest.

But fail to pay on time, and the credit card companies will penalize you and send you spiraling into a black hole of debt. That piece of plastic can throw you into a hole that can keep getting bigger and bigger until it's hard to climb back out.





        Where to get help (and download budget sheets):

Consumer Credit Counseling Service of Hawaii


The new CARD Act (from FDIC)


Compare credit cards (from Bankrate.com)




Come Feb. 22, some additional changes will be put in place due to the Credit Card Accountability Responsibility and Disclosure (CARD) Act.

Under the CARD Act, the due date will need to be the same day every month, and the credit card company will need to give you at least 21 calendar days to pay a monthly bill. Also, you must be given 45 days' advance notice of new or increased fees.

In a sort of dance and game, the credit card companies are raising annual percentage rates (APRs) as well as late fees—and some are slapping on annual fees or lowering credit limits for no apparent reason—before this deadline.

Word of caution, especially during this holiday season: Use your credit cards wisely.

Without putting a “;Bah! Humbug”; into your holidays, Wendy Burkholder, executive director of the Consumer Credit Counseling Service of Hawaii, recommends keeping it simple this year when using credit.

“;This is a very good year to keep it simple,”; she said. “;The troubles are widespread, and we don't know where this ends and when recovery begins. Nobody is immune.”;

Here are tips from both the Better Business Bureau and CCCS of Hawaii on using credit cards wisely:

» Pay in full and pay on time. This is the best use of a credit card—to pay in full and pay on time. Any time you don't pay a bill in full, you lose, because paying the minimum means interest owed in addition to the principal. If you are not paying in full, Burkholder recommends setting up a household budget to guide your spending patterns, as well as to evaluate where you can cut expenses.

» Read the fine print. This might be tedious but it's important. You could, for instance, be lured into opening an account that will offer airline mileage or bonus points, but it might also come with a higher interest rate. Is there an introductory rate—when does it expire? If you miss a payment, will your interest rate go up? Know all the terms before signing on.

» Check for hidden fees. Is your credit card company charging you a credit insurance premium that you don't recall signing up for? Always check your statements line by line. Unless you spend huge amounts of money, you likely don't need this insurance—and even if you're being charged small amounts every month, these add up to hundreds of dollars over several years.

» Don't be in denial. Are you in denial about being in debt? Hiding the unpaid bills somewhere at the bottom of a drawer? Burkholder says it's best to let your lender know what's going on and see whether you can work out a payment plan.

» Negotiate. If you have been a good customer, you can call your credit card company to request a lower interest rate, as well as dismissal of a late fee. It doesn't hurt to ask, and sometimes companies will do what they can to keep a good customer.

» Check for inactivity fees. Will your credit card company be charging you an inactivity fee? Many times, consumers are invited to open a credit card at a retailer to save 10 percent, but seldom use it again. Saving 10 percent might not be worth it if you end up paying an inactivity fee and other fees later on.

» Opt out. The consequences of closing a credit card, unfortunately, can be a lower credit score. But if you are digging yourself deeper into debt, or if rate hikes are unreasonable, the wisest choice could be to close it. As a consumer, you can choose between credit card companies, opting for the ones with better terms and no annual fees. Shop for the best deal.

”;Here's the Deal”; helps consumers stretch dollars in these tough economic times. It runs every other Monday. Contact Nina Wu at .(JavaScript must be enabled to view this email address).