How can your interest rate go up after you have a signed agreement with the credit card company? How come interest rates can vary so much?

UNIVERSAL DEFAULT -
Did you know the credit card company can raise your interest rate if you are late on ANY payment. I don’t mean late just to the credit card but to ANYBODY! Be late on your phone bill, car, house… ANYTHING. Or if in the eyes of a creditor you simply have to much outstanding credit, all bets are off regardless of whatever interest rate you signed up for. The logic is simple. The industry believes it is within its rights(FACT2004) to protect its interest in a more risky unsecured loan venture. Therefore it is not unreasonable to raise rates if it has reason to think risk of being repaid has changed. And as a lender, the creditor has every right to view your credit file any time it wants… all of your file and not just its own payment history.

MINIMUM NOTICE CHANGES
If the above is not bad enough, consider the consumer with on time payments every month on everything. No problem, right?………..WRONG! Buried within the contract (that contract law attorneys admit they have great difficulty interpreting), is a clause that allows the company to change your interest rate “at any time, for any reason, as long as the holder is given 15 days’ notice. That’s right. They change their mind AFTER you make a purchase at 6.5% for example, and former agreements are null and void. How can a purchase be changed after the sale? No other industry can do this, but the credit card company can.

USURY OR NOT
According to Frontline, “There is no federal limit on the interest rate a credit card company can charge.” In fact a defaulted interest rate of 35% is not unheard of. This is because in the 1980s South Dakota and Delaware eliminated the cap on usury laws which is what constitutes the maximum allowable interest to be charged. Have you ever noticed the return address on your credit card statement? Chances are it is Delaware or South Dakota. Gee, I wonder why?

DEADBEATS and REVOLVERS
Deadbeat use to mean someone not taking responsible action. This is not true in the credit industry. In credit card bill jargon, “Deadbeats” pay their balances off in full every month. They are deadbeats because the industry receives very little profit off of these responsible consumers. On the other hand, “Revolvers” roll credit card balances over month to month and never pay in full. This is the ideal customer because of the profit generated. Then there are “Rate Surfers” or ”Gamers” who shift usage between credit cards based upon interest rates.

FEES
Again quoting Frontline, “In 1996, the U.S. Supreme Court lifted the existing restrictions on late penalty fees. This means simply, there is no limit on the amount a credit card company can
charge a cardholder for being even an hour late with a payment.” But this has opened a Pandora’s box for not only late fees, but over the limit fees and bad check fees as well.  A lawyer, I spoke to,  worked on a case says he believes penalty fees which use to be $5 or $10 could rise to $50 and average around $35 in another year. Now the consumer not only must contend with a higher rate, but late fees as well. Additionally what if these fees put them over the limit creating still another fee? It is a never ending spiral towards bankruptcy?

MINIMUM PAYMENT
Consumers use to be required to pay 5% of the outstanding balance. But slick credit card marketers suggested implementing a 2% required minimum payment. This was advertised as consumer friendly with “easy low payments.” The truth is, the tactic allowed consumers to increase their debt because of the lower payment which in turn created more profit through higher debt over a longer time period.

BALANCE TRANSFERS
A different card does not mean it is not without a price tag. Transferring credit balances to the wrong lower interest loan is tantamount to accepting a life preserver from a shark. Similarly, choosing the wrong consolidation loan savagely threatens the point of consolidating at all. So, how do you know when balance transfers and consolidation loans are right for you? Far too long, site after site including my own have innocently ignored consolidation; or perhaps it’s just that no one ever put together a common sense approach before. Not any more! As stated in the introduction of “Slash Your Debt” by Geri Detweiler, done right, debt consolidation can save you a fortune, but done wrong, like using Consumer Credit Consulting companies will dig you deeper into debt.” The message throughout is the fact that you must look beyond the interest rate and any other variables except total cost. Senator Dodd and other consumer credit advocates have tried fruitlessly to pass legislation to overcome some of these deficiencies. Unfortunately even banning college campus credit solicitation and simple disclosure on billing statements go down in defeat because of a very powerful credit lobby groups. Let your congress person know how you feel about the simple statement beneath the amount of minimum payment stating something like, “With a minimum payment, your current debt will take xxx years to pay off and the cost to you in interest will be $xxx.” Bet that makes you feel great, doesn’t it?…………………..Now What?……

DON’T PAY YOUR MINIMUM PAYMENT
Most Americans, have debt. If you’re like many Americans, you try not to think about just how much debt you have and what it’s really costing you. If you did think about it, you might not sleep well. But ignorance never was bliss, and in order to get out from under the burden of debt, you need to face the uncomfortable (and perhaps downright ugly) truth: it may take you 30 years to pay off that credit card balance. How can this be, you ask? You may have balances totaling less than $5000. Surely this will be paid off in no more than a couple of years. The credit card company wouldn’t let you take so long to repay them, would it? The answer is yes, it would. In fact, if you took 30 years to pay off your balance, you would be the ideal customer. It’s important to understand that the credit card companies don’t allow you to pay back your debt in small amounts out of the kindness of their hearts. This is how they make their money. Paying the minimum payment (usually around 2% of your balance) each month, guarantees that you will be filling the credit card company’s cash coffers with your hard-earned money for many years to come. You should be absolutely unwilling to pay only the minimum balance on your credit cards each month. If you can’t afford to pay more than the minimum balance, you can’t afford whatever it was you charged to the card in the first place. Your payments include both interest and principal (the amount you borrowed). When you pay only the minimum payment, most of it goes towards interest, which is why it takes so long to pay off the original debt. You wouldn’t pay $7,000 for an item that is clearly marked with a $2,000 price tag, would you? Yet that is exactly what you’re doing when you buy it using a credit card with an 18% interest rate and then only pay the minimum balance each month. No wonder you feel like you just can’t get ahead! Especially of you used your credit cards to make mortgage payments and now the house is worth less and less and the interest on the cards goes up and up. If you need to buy on credit, at least do it with your eyes wide open.

If you’re already in debt, use these tips to get out and get ahead:

1. Come up with a written plan for reducing your debt systematically. Add up all the money you spend each month on credit card payments, and think about what you could do with this money if you weren’t paying it to the credit card company. One of the best methods of systematically paying off your debts is what I refer to as the Credit Crunch. List your debts, including the balance and the interest rate for each one

2. Don’t get any deeper into debt. Save the credit card with the most favorable terms pay off the others and put them away. However, you want to use them to help maximize you credit score Example: make a very small purchase on the cards then pay them off right a way this will keep the cards active and help increase your credit score. Put the ones that you are not using in a safe place (not in your wallet) and use it only for emergencies ONLY (not to include a big sale at the local mall!)

3. Pay more than the minimum balance. Much more. Use your savings to pay down debt. It makes no sense to earn 1 to 3% interest on your savings account while paying 12 or 15 or 18% interest on credit cards. Each month, pay the minimum balance on all credit cards except the one with the highest interest rate. Pay as much as you possibly can on this card each month until it is paid off. Then start paying as much as you possibly can on the card with the next highest rate, while continuing to pay the minimum balance on the others. Keep doing this until they’re all paid off. This is the only time you should ever pay the minimum balance on any card.

4. Shop around for cards with low interest rates, but beware of come-ons that offer a low introductory rate and then take a big jump. The Internet makes choosing a credit card easy, but be sure to read ALL the fine print.

5. Move balances on cards with high interest rates to cards with lower interest rates.

YOUR FINANCIAL EDUCATION
Changing lives since 1999, providing consumers a lifetime of empowerment through financial guidance, education and resources essential to maximizing quality of life delivered with a sense of warmth, enthusiasm, pride and company spirit. If you are interested in joining up with an an organization committed to changing people’s lives, then this is where you want to be.

Similar Posts:

Share