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Credit Card CostsCredit Card Blues - What Does it Cost Me to Have a Credit Card?
 Most people don't give a thought to carrying a balance on their credit cards and store charge cards. If you carry a balance from $500 to $1,500 each month and diligently pay the minimum payment, it will take you years to pay it all off. Even if you don't add anything to your balance in additional charges. Paying just the minimum on your credit cards is a very poor strategy for you but not the bank! Each month you have that $500 to $1,500 balance you'll be paying $7 to $20 per month in interest charges (based on an interest rate of 15.9% APR). Doesn't sound like much, does it? But remember - it all adds up! You'll be paying $80 to $240 per year in interest. But that is on a small balance; let's take a look at the average American family. The typical American household carries a non-mortgage personal debt of $8,570 Let's say this family pays the minimum amount on this debt each month ($215) and they do not incur any other debt during the period that they are paying the debt off. How long will it take them to complete payment? How much will they be paying in interest on this loan? For simplicity's sake, let's assume that all of this debt is in credit card charges and at a 15.9% annual interest rate. This family will be incurring $1,269.89 in interest alone in the first year. After 58 months (total payoff period) they will have shouldered a total of $3,698.23 worth of interest payments. That means that they end up paying a grand total of $12,268. (Ouch!) If that family's average income is $40,000 per year they will have spent one month's worth of their paycheck during the 58-month pay process just to payoff the interest charges. If they were a little bit more aggressive with their payments they could cut considerable interest and time off this debt. By simply upping their payment from $215 to $300 (just another $85 per month or about $20 a week) they would save $1,427.80 in interest and 21 months off their debt. In the end they would pay $2,270.43 in interest over 37 months. What if they doubled their minimum payment? This would save them a whopping $1,447.29 in interest charges and they would have paid off the debt in just 24 months! This is well worth the effort. Another $215 a month may not be that easy, but if this family gave up take out food and name brand cereal for that 24-month period, $215 a month may in fact be simple to come up with. High credit card balances can be a major burden for a family struggling to make ends meet. Credit cards can get out of control quickly when you have 5 VISA/ MasterCard‘s and 10 store charge cards. If you own at least 15 cards and carry a measly $100 on each you are juggling a $1,500 total annual debt! It really adds up. Credit cards have eliminated America's need to save up for the things we want. We now can have instant gratification instead of years of denying ourselves something until we can actually afford it. It's taking all of the thrill out of knowing you truly earned a new widget or 'what's it'. This predicament has landed many Americans in the ranks of the bankrupt. With careful and realistic spending we can avoid this predicament and enjoy a life of common sense indebtedness. We all need to be careful with credit cards and be aware that it all adds up. We can then get back to pay for life's essential needs, not paying to make profit for a bank and its stockholders. Some More Credit Card Advice If you carry a balance on your credit card put a plan together for how you are going to pay it off. Any extra money that you have each month or money you unexpectedly earn like bonuses or commissions put towards your credit balance. Consolidate your cards onto the one with the lowest interest rate. Even better consolidate to a home equity loan so that the interest can be tax deductible (caution: the interest is only tax deductible if the loan is less than $100,000). When you use your card keep track of your purchases and set up a monthly limit. This can be as easy as collecting your receipts on a magnet on your fridge with a balance sheet attached. Every time you add a receipt to your magnet write it on your balance sheet. When you know you've come to your limit take the card out of service for the rest of the month. My credit card debt is consuming my life. How can I cut credit card costs? If you have more than one card, pay down the balances with the highest interest rates and then use (or obtain) a card with a low rate. Because there is great competition among credit card issuers, you might get a rate reduction simply by calling your current bank and asking. I can't afford the minimum payment required on my statement. Can I pay less? Most card companies insist that you make the monthly minimum payment, which is usually 2%-2.5% of the outstanding balance. If you can convince the card issuer that your financial situation is desperate, the issuer may cut your payments in half. In some cases, the issuer may waive payments altogether for a few months. This courtesy is usually extended only to people who have never been late with payments. Bear in mind that paying nothing or very little on your credit card should be a temporary solution only. The longer you pay only a small amount, the quicker your balance will increase due to interest charges. My checking account and credit card are from the same bank; can the bank take money out of my checking account to cover my missed credit card payments? No. A bank that takes money out of a deposit account to cover a missed credit card payment violates the federal Truth in Lending Act. You can sue for damages--the amount taken out of your account and any other damages you suffer, such as lost interest or bounced check fees. I plan to cancel all my credit cards but one. Any advice on which one to keep? If you don't carry a monthly balance, keep the card with no annual fee, but make sure it has a grace period. If you carry a balance each month, get rid of the cards that come with the worst of the following features: • High interest rates. • Unfair interest calculations. Avoid cards that charge interest on the average daily balance, not the balance due. Here's why. Let's say you pay $1,200 of your $1,500 balance in January. A bank using the average daily balance will charge you in February interest on the $1,500 average daily balance from January, not on the $300 you still owe. • No grace periods. This means you pay interest from the time of purchase until the time of payment even if you pay your balance in full. • Nuisance fees. Get rid of cards with late payment fees, over-the-limit fees, inactivity fees, fees for not carrying a balance or for carrying a balance under a certain amount, or a flat monthly fee that's a percentage of your credit limit. • My wallet was stolen. Will I have to pay the charges the thief made using my credit cards? No. Federal law limits your liability for unauthorized charges made on your credit or charge card after it has been lost or stolen. If you notify the card issuer within a reasonable time--usually 30 days--after you discover the loss or theft, you're not responsible for any charges made after the notification, and are liable only for the first $50 for charges made before you notified the card issuer. Rarely will a card issuer even charge you the $50. I purchased an item using my credit card and it fell apart. Can I refuse to pay? Maybe. Under federal law, you must first attempt in good faith to resolve the dispute with the merchant. If that fails, you can withhold payment only if the purchase was for more than $50 and was made within the state you live in or within 100 miles of your home. (This limitation applies only if you used a card not issued by the seller, such as a MasterCard. There is no $50, 100-mile or in-state limitation if you use the seller's card, such as your Sears card.) The 100-mile limitation is easy to calculate when purchases are made in person. But if you order through the mail or over the telephone, the law is unclear as to where the purchase took place. You can claim that the purchase was made in the state in which you live (even if the catalogue company is on the other side of the country) because you placed the order. You have to hope the seller doesn't fight you. My credit card billing statement has an error. What should I do? Immediately write a letter to the customer service department of the card issuer. Give your name, account number, an explanation of the error and the amount involved. Enclose copies of supporting documents, such as receipts showing the correct amount of the charge. You must act quickly--the issuer must receive your letter within 60 days after it mailed the bill to you. Under the federal Fair Credit Billing Act, the issuer must acknowledge receipt of your letter within 30 days, unless it corrects the bill within that time. Furthermore, the issuer must, within two billing cycles (but in no event more than 90 days), correct the error or explain why it believes the amount to be correct. If the issuer does not comply with these time limits, you don't have to pay $50 of the disputed balance. During the two-billing-cycle/90-day period, the issuer cannot report the amount to credit bureaus or other creditors as delinquent. The issuer can charge you interest on the amount you dispute during this period, but if it later agrees that you were correct, it must drop the interest accrued. Must I give my phone number when I use a credit card? Several states, including California, Delaware, Georgia, Kansas, Massachusetts, Minnesota, Nevada, New Jersey, New York, Oregon, Pennsylvania, Rhode Island and Wisconsin, bar merchants from recording personal information when you use a credit card. Furthermore, merchant‘s agreements with Visa and MasterCard prohibit them from requiring a customer to furnish a phone number when paying with Visa or MasterCard. Nevertheless, many still ask. So next time you get one of those credit card applications in the mail, give it a second look. Remember that all credit cards are not the same. Some have annual fees, some have a low introductory rate and then go way up and some will raise your interest rate even higher if you are late with a payment. Be wary!
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