5 credit card company tricks — and how to thwart them

True or False? Credit card companies lure you in with big promises, but bury the nasty stuff in fine print.

It would be hard to find many people that disagree. Unfortunately, when the consensus is that card companies are out to get you, you might be tempted to throw up your hands and give in, saying “What can I do?” If that’s your attitude, you can be sure they’ll take full advantage.

Because you read Get Rich Slowly, though, I’m guessing you’re a little more savvy, a little more proactive about your finances, a little more likely to look before you leap. So, let me give you five specific things to watch out for, both when getting a credit card and when using the card you have, and how to avoid each trap.

Promise #1: “As Low as 9.99% APR!”

The Trap: Your interest rate could be as low as 9.99%… but it could also be as high as 20.99%, or whatever the card company has put in the fine print.

Your Plan: Read the “Schumer box” (where the interest rate is shown in larger type, usually on the reverse side of an application) to see if the card company has allowed themselves the luxury of giving you any interest rate they please. If yes, either consider your credit history and go in with your eyes wide open to the possibility of a higher rate, or choose a credit card that offers a single take-it-or-leave-it rate. In that way, you’re either approved or rejected, but you don’t come away feeling fleeced.

Promise #2: “Up to 5% Cash Back!”

The Trap: Several. The card may offer you much less than the 5% rebate until you spend a certain amount per year. On the flip side, it may give you a 5% rebate for the first $300 in purchases each month, then drop the rebate down to 1% or less.

Your Plan: Stay away from cards that market a rebate “up to” a certain percentage, and go for those that promise a “full” percentage. And check the fine print for caps on monthly or yearly rebates.

Promise #3: “0% APR on Balance Transfers for 12 Months!”

The Trap: Two-fold. First off, it’s almost impossible these days to transfer a credit card balance without paying 3% of the balance upfront. Transfer $5000 and you’ll pay $150 before we even start talking about paying down the balance.

Second, almost all card companies take your payments and apply them first to balances with the lowest interest rate. Say you transfer $1000 to a card at 0%. The card’s interest rate on new purchases is 13.99%. This month you buy $500 worth of stuff with the card, then pay $500 when the bill comes. Do you still have a $1000 balance at 0%? No, you have a $500 balance at 0% and a $500 balance at $13.99%! Why? Because your $500 payment went toward the balance sitting at 0%, not toward the balance sitting at the 13.99%.

Your Plan: A couple of options. The easy thing to do would be to swear off credit for a bit — transfer the balance then don’t use the card until it is paid off. (You’d stilll get hit with the 3% fee, but it might be worth it if you had a high interest rate on your old card.)

If you have decent credit and a little more self control, you could get a new credit card that offers a 0% rate on purchases for 12 months, then use it while you pay off your old card’s balance. By doing so, you focus on paying off your high-interest debt while floating new purchases at 0%. If you follow my logic, this is very similar to transferring your balance at 0% but without the fee. Either way, recognize that the 0% rate doesn’t last forever and the bill eventually comes due.

Promise #4: Your Card Has a Credit Limit of $3000.

The Trap: While logic would tell you that your card company won’t approve purchases beyond the limit, the reality is that they will let you charge beyond your limit, then slap you with a $39 fee to penalize you.

Your Plan: Don’t think of your card company as a caring parent who cuts you off when you overspend. It’s up to you to keep track of when you get close to your limit. (By the way, you really should not be getting that close to your card’s limit. It’s hell on your credit score.)

Promise #5: “Any Time for Any Reason”

The Trap: Unlike the other promises, this one’s too nasty for the issuers to put a positive spin on, so it stays tucked away. In short, in almost every card agreement, the card issuers give themselves the right to change your interest rate at any time for any reason, even if you’ve done nothing wrong. And they only have to give you 15 days notice, so you could find yourself scrambling if it happens to you.

Your Plan: Have a second credit card before this happens instead of waiting until you’re in trouble. You don’t ever have to use the second card, but the last thing you want is to have your interest rate jacked up to 25% with no recourse if your credit card issuer decides to play hardball.

Credit cards ain’t for fools. If you’re going to carry one, then take responsibility for understanding what you’re getting into, and fight fire with fire when your card company decides to play rough.

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There are 56 comments to "5 credit card company tricks — and how to thwart them".

  1. Beth - Smart Family Tips says 26 January 2009 at 05:19

    What a great post. I checked out the Index Credit Cards site from J.D.’s link — there’s a wealth of information there. On this post, I really liked the suggestion in Promise #5 to have a back-up card. I plan to work on that this week, since we have one card that we use exclusively.

  2. Trevor - 14 Year Old Money Blogger says 26 January 2009 at 05:35

    Nice credit card tips, although I don’t have one yet, I can show this article to people that do.

  3. Jason says 26 January 2009 at 05:38

    There is of course another way to avoid all these traps …. don’t have credit cards.

    I have one and only one credit card, which is used for business travel. It’s paid off as soon as the expense report is paid.

  4. Danny says 26 January 2009 at 05:44

    Definitely agree that it’s important to read the fine print. Still, as Jason mentions above, credit cards are pretty convenient if you use them responsibly and pay them off.

    Going back to the theme of many pf blogs, it’s really personal behavior that’ll get us into trouble (e.g. spending money we don’t have changes those 18% interest rate agreements from a number on paper into a hefty monthly payment)

  5. Frugal Dad says 26 January 2009 at 06:01

    The “APR as low as” has always chapped me as well. In the interest of full disclosure they ought to follow that line with “for applicants with a 750 credit score or higher.”

  6. Miranda says 26 January 2009 at 06:16

    These traps kill me. But they are clearly successful. The one that irks me the most is when the companies allow you to charge more than your limit and then hit you with a fee. We just try to pay off the balance each month so we’re not getting deeper in.

  7. Dawn says 26 January 2009 at 06:23

    Like the men’s clothing store ad says, “An informed consumer is our best customer.” too bad the credit card industry didn’t operate according to that model.

  8. Starving Artist says 26 January 2009 at 06:45

    You have to beware, but if you’re trying to get out of debt, you should also accept some risk and transfer debt to 0% if you can. That’s how I got out of debt–I was careful, and I stopped paying interest over a year ago. Trishia over at Blogging Away Debt (bloggingawaydebt.com) finally transfered from high interest rates to lower interest rates–it’s been killing me to watch her pay interest for soooo long!

  9. Adam Jusko says 26 January 2009 at 06:46

    J.D., Thanks for allowing my post on your valuable real estate here on GRS.

    I wanted to follow up on this post by mentioning that Federal regulators just passed some new rules at the end of 2008 to rein in some of these card practices. Specific to what I mentioned in this post, card issuers will not be allowed to raise interest rates on existing balances but only on future purchases, they will have to give 45 days notice before a rate hike takes effect, and they will no longer be allowed to apply payments to lower interest balances first.

    Sounds good, right? Unfortunately, these regulations don’t actually take effect until July 1, 2010, so everything in this post is still valid for the next 1.5 years — and you can expect the card issuers will find new ways to hit you with fees before they have to meet the new standards.

  10. Ross says 26 January 2009 at 06:46

    My personal favorite – interest started accumulating from the date of purchase, not from the bill date. By the time I received my first statement, I had already had interest charged to me. I had this credit card for exactly 6 weeks. Shame on me for not reading the really fine print.

  11. Colin says 26 January 2009 at 06:48

    Re: #3 credit limit.

    Due to a “misunderstanding” with a local hospital they accidentally charged my card for a $6500 CT scan when we arranged to pay something like $350/month and that’s all we authorized them to charge over the phone. Despite having a $5k limit on this card Chase willingly placed the charge on my account and issued the finance charge despite the charge itself being my entire “credit limit” plus 25%.

    Strangely enough I found out when buying a bag of chips at a grocery store. This, however, didn’t stop Chase from permitting the same hospital from charging $350 before the $6500 credit went through. Double overlimit fee now.

    I wrote them a letter contesting the billing charge but contrary to the fine print they charged me finance charges for not paying the balance.

    In short: “credit limit” means jack. If you permit a business to charge your card then you pray to God that they don’t screw up because you are stuck with the fallout. The situation was ultimately resolved and my insurance paid for the scan and all fees wiped. I’m waiting a bit to hit my credit report to ensure Chase lived up to their word on this.

    I would add two more to the list that are more advice than traps:

    6) If you dispute the billing then DO NOT CALL THEM. Invoke the Fair Credit Billing Act (read it on Wikipedia) and write them a letter and mail it. You lose rights given by the FCBA if you do anything but write them.

    7) Credit card companies exist to make money and will do anything and everything to do so: see #1-6.

    My use of credit cards has drastically reduced because of this.

  12. The Personal Finance Playbook says 26 January 2009 at 06:52

    Nice post. Credit Cards are a game in which the deck is stacked against the consumer. Credit card bloggers help people go in with their eyes open.

  13. Denise Baer says 26 January 2009 at 06:59

    Yet, there is one more to be aware of… no interest for 6 months promoted by a Menards, on their big card. Read the fine print. The statement read $23 min. payment, pay 730.23 by the 10th to avoid $89 deferred charges. I pushed my budget to pay the 730.23, only to get the next statement with $101 deferred charges added. The fine print, I had to pay the 23 + 730.23. I was told that the 730.23 was applied to my account to cover the min payment first, leaving me short to cover the 730.23. I cancelled the card at that time. Won’t even shop at the store, just out of principle.

  14. jtimberman says 26 January 2009 at 06:59

    I avoid all these traps by having paid off all my credit cards several years ago and never using them again.

    Don’t play games with snakes, you will get bitten. Who do you think is winning these little games, you and your “plan” to surf balances, get cash back points and 0% APR? Or a multibillion dollar industry with more money invested in these tactics *per year* than you’ll ever see in your life if you keep playing their games?

    Wake up people. Part of the problem with the economy in this country is people trying to beat these systems.

  15. Bill in NC says 26 January 2009 at 07:01

    If you have a good credit score a personal (unsecured) line of credit is much cheaper than borrowing via credit card.

    The interest rate on my personal line of credit down at the local bank has varied from 7% to 11% over the last few years (probably under 7% now)

    No credit card is that cheap!

    And if I want cash I don’t get hit with any transaction-based fees on advances from my personal line.

  16. Sandy E. says 26 January 2009 at 07:13

    @ 15 — I have a USAA (rewards) master card w/an annual rate of 4% I received a letter last month saying they were increasing it to 6% in Feb. Since I haven’t done anything wrong, never carry a balance, I was annoyed and called them, and their response was that they needed to do it for business, so across the board. It really doesn’t matter to me since I pay off immediately whatever I charge because I know I can’t borrow my way to prosperity with a credit card anyway.

  17. Cindy says 26 January 2009 at 07:33

    Sign of our economy…I’m working on paying our credit card off. The balance is about $10,000.00, with a credit limit of $21,000.00 and the interest rate was 3.99%. After making a payment last week I check my account online and found a surprise. The interest rate had been increased to 14.99%! Now I’ve had this card for about twelve years, never been late or went over the credit limit and have been adding $50 to the payment for the past year. (more when able) Of course I picked up the phone. I was informed that Citicard is raising the interest rate on all their cards. I have 2 choices, 1-they will return the interest rate to the 3.99%, refund the current interest accrued at the 14.99% and close the card in August 2009, when the card expires and I can then apply for a new card with a lower rate. I can continue to use this card for purchases until August also. or 2- continue to use the card at the 14.99% interest rate and the card will remain open. Because I had called they wanted me to make a decision right then, I explained that I needed time to think through my options when I was in a better mind frame and calmed down a bit. They agreed to give me a ten day time extension. Of course I want to leave Citicard and go with Chase, Capitol One or anyone else. We do have a Discover card that we use strictly for my son’s college expenses. The credit limit is low and the interest rate 23.99%. I only applied for the card because we wanted to set our son up with something of his own to use but which I still had control over. When the card is used (rarely) the balance is paid off immediately. So transferring to that card is not an option for me. I suppose I will opt for the first option they are offering and look for a “back up card” with another crediter.

  18. JimW says 26 January 2009 at 08:40

    I have a simple way to not get hosed by the fine print, and/or circumstances. Just don’t use a credit card. It’s so simple, and fits most of the GRS philosophy.

  19. the weakonomist says 26 January 2009 at 08:44

    I always stay away from any offers that use terms like “as much as” or “as low as”.

    @bill in NC – My fiance’s credit card with a big4 bank is currently at 6.99% Don’t ask me how. I was just as shocked as anyone here would be. This is not a teaser rate of any kind, it’s been like this for 7 years.

    I use Chase freedom for the cash back (no gimmicks) and the rate is currently 10.99%, though I pay interest.

  20. the weakonomist says 26 January 2009 at 08:47

    @jtimberman the people that carry balances and let themselves get hit with fees are the people that pay for our cash back offers and for those that do 0% balance transfers.

    We will all happily turn in our credit cards as soon as they stop offering the rewards. Everyone here plays their cards (pun intended) right.

  21. John Clark says 26 January 2009 at 08:49

    I signed up for a deal with Chase for 2.99% interest and charged the new windows for my house… I have not charged anything since.. Low and behold after one year I get a letter informing me of the new $10 a month fee being added to me account do to my inactivity.. They made sure to say this is a new FEE not interest so that “technically” I was still paying 2.99%. That fee bumped the remaining balance to over 5% and it gets higher the more I pay off… So, DON’T PLAN ON THAT LOW RATE LASTING FOREVER..


  22. J.D. says 26 January 2009 at 08:59

    All of the “don’t use a credit card” folks have a point! My sympathies still fall heavily in that camp. At the same time, however, I see that for nearly two years now I’ve been able to use a credit card with no problems. I’m not using it to spend more. I’m not carrying a balance. And I’m not doing anything stupid with it. So, I do believe it’s possible to get rich slowly — both with and without credit card use. The key in both cases is to make smart choices with money.

  23. Michele says 26 January 2009 at 09:01

    We requested a higher limit on one of our cards, and we use that one for cashback on big items. We’ve used it to buy a furniture suite and a car (with the cash ready and waiting in the bank, of course).

  24. Maggi says 26 January 2009 at 09:19

    I’ve found it possible to have one credit card for regular monthly purchases, which I pay the full balance off, and others which I use occasionally for larger purchases, which I’ve been able to use at 0% or very low interest. I try to pay a reasonable amount off this balance each month so I can reduce it as much as possible within the interest free period.

    Usually I can get at least a year of free credit each time, which balances out the transfer fee (if there is one involved). And when I’m coming to the end of my interest free period, a phone call to the provider, or one of my other cards, can result in a further interest free period.

    It can take a bit of juggling, but it can be worth it.

  25. Funny about Money says 26 January 2009 at 09:33

    Interesting — no, eye-opening! — post. Thanks for explaining these unnerving fine points.

    I continue to use my two credit cards (AMEX because of the decent kickback and Visa because a few places won’t take AMEX) and pay off the balance each month. Because I never run a tab on either card, the interest rate is irrelevant. But if either of them pulled a stunt like adding an annual fee or capriciously charging $6500 when $350/month payments were arranged (!), I would cancel it so-o-o-o fast! I’m not above going back to cash and checks, and will do so the minute card issuers start charging me personally (as opposed to the merchants who agree to accept their cards).

    The truth is, though, that we all pay more for goods and services because of the costs imposed on merchants by credit-card issuers. They get you coming and they get you going.

  26. kelle says 26 January 2009 at 09:40

    Is it just me or do you think these companys will try to take advantage of anyone with any amount charged on their card that isn’t payed off monthly because they believe the card holder doesn’t know what their doing(with their finances)in the first place and can be duped or taken advantage of? I’m not trying to insult anyone. I’m just making the point that we probably shouldn’t use a credit card if we can’t pay the whole amount every month.
    I’m here to learn…
    Tell me if I’m wrong.

  27. Adam Jusko says 26 January 2009 at 10:06

    Funny About Money,

    I tend to disagree with the idea that we pay more because credit card companies charge merchants fees for taking credit cards, although many merchants would like you to believe this is the case.

    First off, there is data that supports the fact that consumers spend more with credit cards than they would with cash, so retailers are more likely to sell more goods to credit card users than they would otherwise. (Maybe you buy more with a credit card than you would if you were using cash?) Plus, cards make it easier for consumers to make larger purchases — most of us don’t walk around with $1,000 in our pockets in case we want to buy a computer or big-screen TV. So, in the end, while merchants pay the credit card issuers for accepting the cards, they tend to make more money overall than they would otherwise.

    Second, in the past, many businesses took checks and then slowly started refusing them in favor of cash or cards. Why? Because checks presented their own profit problem — when they bounced, the merchant got nothing, and maybe even got charged a fee from their own bank for depositing a bad check. Credit cards guarantee payment to the merchant, and leave it up to the card issuer to do the money collecting.

    Not saying credit cards are a perfect solution for merchants, but I do believe some of the complaining the merchants do about the fees is unfounded if you look at the bigger picture.

    This is of course a bit off-topic as pertains to my post above.

  28. Tyler Karaszewski says 26 January 2009 at 10:33

    I fall into the “don’t use credit cards” camp that J.D. mentions. Partly it’s just because I failed so spectacularly last time I had several credit cards and I’m wary of getting anywhere close to that again, so I don’t even want to give myself the opportunity.

    But there’s one other big advantage I find with not having credit cards – simplicity. I try and minimize the number of things that require my attention every month. The fewer accounts I have open, and the fewer bills I have to pay, the less likely that something can fall through the cracks, and the less stress I feel day to day worrying about finances.

    Even when used responsibly, I think credit cards would add stress to my life my life simply by forcing me to think about whether the bill has been paid already or if that was actually last month.

    I don’t mind adding complexity into my life, but on my own terms, and almost never in a case where I can’t just stop and say, “this is too much work, I’m going back to how it was before.”

  29. NatalieMac says 26 January 2009 at 10:50

    You could avoid using credit cards altogether, but it is nice to have one or two revolving credit accounts in good standing on your credit report.

    You can avoid nearly all of these traps by watching your credit card spending and paying off the card in full each month. That’s what I’ve been doing for the past year, and my credit score is up 50 points. One of my cards has a ridiculously high interest rate – over 20% – but I don’t care as I never intend to pay it.

  30. Mister E says 26 January 2009 at 11:44

    My credit card company must be like a caring parent.

    My credit card carries a zero balance these days but a lifetime ago I lived at the limit and was declined purchases more than once that would have put me over.

    Once I tried to charge $21 at Home Depot which was declined and when I checked my balance later that day I had a little under $20 of room. I was declined for under $2 and was SO mad at the time.

  31. Travis @ CMM says 26 January 2009 at 12:56

    I’ve never had a credit card nor plan on having one and this article is exactly the reason why. Managing my money is hard enough to deal with. I don’t need anyone (aka credit card companies) trying to trick me into spending more of it. This is why I recommend never having one.

  32. Troy says 26 January 2009 at 13:12

    JD: site rocks

    I am in the “don’t use CC” camp as well, but for different reasons.

    I realized early on they were silly little traps used to benefit the issuer, not the user.

    There are lots of opinions regarding CC’s and the debate is heating up because these little plastic wonders are starting to bite back. It will get worse.

    78% of househols have a CC. 58% (a MAJORITY)of those households carry a balance, and therefore pay interest/fee charges.

    The rate of household CC ownership is decreasing, the rate of households carrying a balance is increasing at 2% annually.

    This means things are getting worse for most CC users. The percentage of those carrying a balance is increasing. I wonder how many of those users who carray a balance started out thinking they were going to game the system and they would never carry a balance?

    Since nearly 60% of users pay interest, it is safe to conclude that a majority of users are “losing” at the CC game. This is not by accident. This is how the game is set up.

    The only “real” benefit of using a Credit Card is for credit…or simple rewards. The security is identical to debit cards, the size, convienence, fraud protection are identical.

    But CC’s carry risk. Lots of it. Risk that you must follow all the terms and conditions of the agreement, which is pages long filled with dozens of rules and stipulations that you must follow, but that can be changed at any time by the other party, the one that is in business to take money from you.

    Who here actually thinks it is wise to enter into a legally binding financial contract with another party where the other party change the rules, tems and conditions they set at any time for any reason without your consent, but you can’t alter anything other than your usage. Raise your hand. Everyone that uses a CC has entered into this “sweetheart” contract.

    Risks associated with payment amount, payment date, late fees, balance transfers, application of payments, reward points, cash back limits, black out dates, grace periods, universal default, etc.

    So from an individual standpoint, some of you benefit, most of you don’t. If you view “not paying interest” a benefit…great. Debit card or cash users don’t pay interest either, so we all win.

    From a collective standpoint however, CC’s cost more than they earn. They take more than they give. Most of their users have no benefits other than a debt and a monthly bill.

    Yes, a few people “never pay interest” and “get cash back or some other reward.” Somehow I have a feeling we are at the beginning stages of that changing as well.

  33. Elizabeth W. says 26 January 2009 at 14:55

    I’m in the “CCs are okay” camp. I got my first CC when I was 16 and from day one always paid it off in full each month to avoid interest charges. I find CCs to be very convenient- I don’t have to carry a lot of cash with me and it’s handy when traveling, particularly in some foreign countries. I also like knowing if for some reason I lose the card, I won’t be responsible for any fraudulent charges that show up. That won’t happen if I lose my cash- if that’s stolen, it’s gone.

    Plus, the company is paying me to use their card by giving me cash back. I certainly understand the concerns of the no-CC camp, and would only recommend that people with a firm control over their finances use them. But if you do have that control, then there is a lot of benefits and rewards to be gained by using one wisely.

  34. Sarah says 26 January 2009 at 16:49

    I think you have to recognize that as bad as it can be if a company mischarges your credit card, it can actually be far worse if it mischarges your debit card. Imagine if the person with the CT scan issue above had had their checking account hit for that amount. They would be out that money until however long it took to resolve the situation–and most people would have a hard time managing short-term with $6500 suddenly yanked from their account. A similar situation with actual fraud. Neither of these situations is any fun whether you used a debit or a credit card, but I know which one is worse (especially since the bank where you keep your checking account will also hit you with overlimit fees and the like).

    To me, that is one compelling reason to use credit cards, especially for larger purchases. The credit card company at least stands between my day-to-day cash and every stupid or thieving merchant out there.

  35. S says 26 January 2009 at 17:48

    ITA, #34 Sarah – try renting a car or booking a hotel room with a debit card — our CC are part of emergency/evacuation kit. A hotel/car rental hold on a debit can be as much as $500 a day.

    On each monthly statement is the activity, due date, pymt amount, the balance and the interest rate. Just yesterday, we called and had the interest rate on a card cut almost in half (18.99 to 9.84%).

  36. Vic says 26 January 2009 at 18:55

    An additional note on the “any time for any reason”: keep an eye on your due date. I’ve had two different cards silently move my due date up by three days after a balance transfer.

  37. thomas says 26 January 2009 at 20:59

    I love my credit card, but I’m also smarter than the average customer. I think we need the human equivalent of cattle prods (Tazer?) and be able to use them in a reasonable matter on those who fall under the spells listed above.

  38. Jason from MoneyTheory says 26 January 2009 at 21:50

    It is amazing how the credit card companies give you a credit card limit, but approve purchases beyond that! Seems like they do it just to make the over limit fees!

  39. Avistew says 26 January 2009 at 21:55

    Nice post. Reading and understanding what the fine print really means is always useful.
    I’ve never really understood credit cards to begin with. We don’t have them here in France (only debit card, including debit Visa and Mastercard that work on the Internet and abroad).
    It seems to me, credit cards are pretty much a way to make sure that if you can’t afford something, you have to pay MORE for it. It sounds crazy. It’s like a tax on the poor or something.

    I realise they can have advantages in some cases, but I’m glad that I have never needed to have one, and have learned to live without.

  40. Vims says 26 January 2009 at 23:47

    They are wonderful tools and most of the article is about being aware of the interest charges. My stratergy is to use the interest free period and clear the balance EVERY month. ie. Never pay any interest, ever. That way it does not matter if they want to charge me 50% interest. They’ll never get a cent because I diligently avoid the interest.

  41. Gail says 27 January 2009 at 05:26

    I have two Citicards, one at 16.99 APR and the other at 6.24 APR. I asked if they could lower the 16.99 and no, not like that. I could request a lower rate, and when your card expires, cancel your card. That’s in your fine print also. Told them I will discontinue the 16.99 and use the other one. I will just store the unused card and file it away to keep up the credit history.

  42. Vanessa says 27 January 2009 at 06:11

    “Since nearly 60% of users pay interest, it is safe to conclude that a majority of users are “losing” at the CC game.”

    I’ve paid credit card interest but I certainly don’t consider myself having “lost” for doing so. When I think about my credit card debt and what it’s allowed me to achieve in life, I feel like I’ve won actually. I received my first credit card when I was very young, but I still recognized that anything charged on a it was a LOAN which had to be repaid by a certain date and I would pay extra as a penalty (interest) if I didn’t. Coming from a poor family, I also knew there would be no support for me if I dug a debt hole too deep to get out of. So I kept the balances low and always paid in full. It was only when I was faced with expenses that threatened my health and quality of life that I took on debt. At its highest my debt was around $10K, which is quite a mountain to overcome when you’re making $8/hour. I took advantage of balance transfers and kept new charges to a minimum. Any extra money went straight to the cards. I learned to closely watch due dates, minimum payments, and fluctuating interest rates, all of which would change at the whim of the credit card company. So the credit card companies made money off me, so what? My debt had a purpose and I’m better off for it. That’s really all I care about.

  43. Ken at Social Fix says 27 January 2009 at 06:29

    There is too much competition in marketing credit and it has become too vicious. The credit rates charged are excessively high when investment interest returns are historically low. There could be the argument that their costs are too high but that’s because they market them too heavily causing too many defaults.

    Consumers need fairness and basic government protection in all their business transactions but this seems to be lacking more with each passing year.

  44. bigpimpin says 27 January 2009 at 07:19

    Amen, jtimbermann!
    Everyone repeat after me:
    “We will not use credit cards. EVER.
    We will instead save our money.
    The millionaire CEOs of CC companies don’t NEED the interest we pay, they want it. They have been fleecing me to get it.
    No more.”
    Repeat as necessary until a mind/behavior change has occurred.

  45. Matt Keegan says 27 January 2009 at 11:21

    Very good tips, indeed! I still use credit cards but am careful to pay them off monthly. In a few cases, I pay them off over time (business) but I make sure that I have the lowest rate possible and other decent terms.

  46. Al Pennyworth says 27 January 2009 at 11:24

    To make the statement “We will not use credit cards. EVER.” is impossible.

    An example: on a recent trip, I attended a conference with a co-worker who never uses credit cards. Much to his surprise, the hotel charged his debit card over $2000 for the pre-approval fee. For anyone thinking this is a rarity, think again, it has happened more than once.

    An example where a credit card can be of a benefit: I have friends that have a Visa Disney rewards card. Every month, they pay all of their bills (mortgage, electricity, gas, water, cable, etc) with this credit card. After the payments are made, they pay the charges off of the credit card using their debit card. Sound strange? Each month, they are earning rewards and each year, they make a trip to Disney world.

    Every credit card holder has signed a contract, included in the contract with fine print, that he/she accepts the conditions of having the credit card. If someone doesn’t read or doesn’t understand the conditions, he or she should not use the card. With the wealth of information on the internet, we should all be well-informed consumers.

  47. emanon says 27 January 2009 at 11:51

    I agree if you’re irresponsible or reckless, then don’t use credit cards.

    However, credit cards can actually make you money if you use them properly. This year I made about $1500. The year before it was over $2000.

    I have never paid a penny in interest ever, in using credit cards for over 20 years. I have also never paid any fees.

    I get 5% cash back on gas purchases. No tiers, no limits, no games. It’s auto-credited to my account every month. I also get 2% back on groceries the same way.

    I get 1 – 1.5% back on everything else. Cash money. I’ve also get a free hotel night or two every year.

    2-3 years ago you could get a 0% balance transfer to checking, no fee, and put it in a 5% money market or CD and make free cash from arbitraging the rates. I made several thousand this way. That deal has dried up but it was nice while it lasted.

    People would serve themselves better to blame their poor management rather than the credit cards for any problems they’ve had. I’ve used credit cards for 20 years without even one problem and never paying banks even 1 penny to use them.

  48. Frank says 27 January 2009 at 12:01

    I can’t get enough of the people who like to chant “I never use a credit card, ever. You must be stupid to use one and pay the interest.”

    Thank you so much for your advice. How does this apply to the debt I already have? Your air of superiority does not seem to have reduced my interest rates or my balances. Please, tell me more about how your ego affects my credit score.

  49. Steven says 27 January 2009 at 12:22

    I’m very good about finances. Don’t carry a balance on any of my 3 cards, except one 0% that I used to get married last year (and have plenty of money to pay it off before I have to on 4/30). I make use of no payments – no interest deals even when I have the money, because I get lots of interest on savings. I get lots of cashback on my Discover card.

    I say that to preface this- I screwed up with Discover and scheduled a payment out of checking instead of savings. Discover is usually pretty good about sending notifications about things, but in this case, not only did they NOT tell me that my payment bounced (most of our money is in savings), they didn’t try again until 6 days later – after the payment due date.

    Hit me with $35 check bounce, $39 late fee, and enough finance charges to bring the total to $190.

    The most I could get out of them was that they won’t charge interest this month like they normally would. No amount of arguing would get them to do anything…”sorry, we don’t have to notify you, it’s not in your contract.”

    I seriously considered dropping the card to try to get them to drop the fees, but in the end…they’re still the most reasonable credit card company that I’ve dealt with, and I get way more than $189 every year in cashback bonuses. So I chalked it up to an expensive lesson to always pay out of savings.

  50. Don says 27 January 2009 at 13:26

    I see some upstream talk about the difficulty of getting rental cars and/or traveling with debit cards. The reality is that both rental car companies and credit card companies do their level best to talk up the hassles but they’re really not that bad.

    Do they encumber a few hundred bucks? Sure, but one of the nice things about deciding to only pay $1 for $1 items (as opposed to the $1.10+ that financing them costs) is that it’s way easier to have some extra money in your account.

    Rental car companies know the same thing that credit card companies do: people paying for things on credit are much easier to convince to upgrade to the more expensive options, so encouraging you to spend money you don’t have is in their interest.

  51. Sarah says 27 January 2009 at 14:38

    “A few hundred bucks” may be a lot of money for some people. In fact, it would be inconvenient for me even though I have a good bit more than that in cash, because I don’t keep a significant amount of money in my checking from day to day, due to auto-deductions and transfers. I don’t want to have to crack open my emergency fund because I need to spend money that I have in checking but is on hold–or, worse, have a prescheduled payment declined even though I have sufficient cash in my account to cover it, because of the hold. (The amount held is totally unpredictable, too.)

  52. Tim says 27 January 2009 at 15:04

    I use credit cards as just a buffer between my purchases and my checking account. I like to keep as much as possible in my savings accounts, so having that buffer means I don’t have to worry about micromanaging the balance of my checking account whenever I make purchases. Plus, I can take advantage of rewards like cash back.

    Just got a $185 credit from cash back on my AmEx card. Not a bad deal in exchange for making purchases simpler. Of course, it helps that I pay off the balance in full every month.

  53. Ike says 28 January 2009 at 07:10

    It says “(By the way you really should not be getting that close to your card’s limit. It’s hell on your credit score.)”

    Is this true even if you pay off the balance in full every month? I got my first credit card about a year ago so I have a fairly low limit and it’s not uncommon for me to come near the limit. I always pay off the card in full each month though. Is this hurting me??

  54. Ray says 28 January 2009 at 08:43

    The Credit Card companies are very wise but the credit card reform is on it’s way: http://www.reuters.com/article/governmentFilingsNews/idUKN1554296620090115

    I have numerous credit cards and I for the past 3 years I have utilized 0% offers for purchases and balance transfers. I have paid a 3% fee in only rare occasions and even then it was a $75 max.

    The bottom line is sure these companies are here to take money, charge late fees and interest on your charges. You can have 1 credit card or 20. I’d say for the avg person 3 or 4 is a good number. The reason is 2 of those cards should be used for normal daily purchases. I’m sure one card has better benefits/rewards than the other and so you should use them in such a way to gain maximum rewards. The other 2 cards would be backup/emergency cards and also could be rotated for rewards.

    What many individuals forget is you make money when you use a credit card as opposed to cash/check. 1-3% of a purchase in rewards really does add up over time. Sure you ‘might’ spend more money with a credit card, but that’s where discipline comes in. You also have other benefits that you may not be aware of. Some cards double the warranty of purchases past the time of the manufacturer’s warranty while others give you insurance. This is on top of the ability to dispute a charge with a merchant for whatever the reason may be. You are not able to due this with cash/check.

    For anyone saying you can survive without a credit card…well I’m sure this can be done. I can also get by without a car, hot water or any number of things I call essential. If there is one thing I use almost as much as my car or hot water it would be my credit card. Not only that but my credit history and scores increase because of my ability to pain on time and my high available credit.

    So just as anything in life you must do your research, read the fine print and if you have issues call the company and find out more. I’ve called numerous times and asked to have late charge removed because of a payment I forgot or missed. Sometimes you can do this online through some companies.

    This is to Ike above. Ike the only what that hurts you is if you have 1 credit card with say a $2,000 limit and you max it out to say $1800 each month and then that’s posted to your credit report. This means you are utilizing 90% of your available credit which is bad, but only if you are looking to get a loan. As long as you pay it off you are fine. Now if you are looking for a loan simply pay down your balance to under 20% before this information is posted to your credit report and you are fine. This is where additional credit cards with available credit would help or simply a higher credit line. $1800 on $10,000 is 18% of available credit where $1800 on $2000 is 90%. It’s all relative but if you are not looking for a loan, don’t worry about it too much. It has a very small impact on you but you should see if the credit card company can do a soft inquiry and ask for a credit line increase.

    Good Luck all…and remember it’s your money.

  55. Suzanne says 30 January 2009 at 14:30

    It says “(By the way you really should not be getting that close to your card’s limit. It’s hell on your credit score.)”

    Is this true even if you pay off the balance in full every month? I got my first credit card about a year ago so I have a fairly low limit and it’s not uncommon for me to come near the limit. I always pay off the card in full each month though. Is this hurting me??

    Ike: If you are comfortable handling your credit card correctly, you could ask for your limit to be increased. This would lower your ratio of credit utilization and help your score.

  56. Pam says 03 February 2009 at 09:06

    This site has great information. I learnt the hard way and do follow your tips. I had a card with no balance on it so I did 2 balance transfers at 2 differnt times. One was for 3.99% and second was 4.99% with chase/pb.

    On my last statement I see a $10.00 service charge that will be charged monthly. Plus my 2% payment of the loan amount is now 5% making my payment more than double. I always paid the payment plus the finance charge so I don’t accumulate anymore money on top of what I owe. The rep said that this was being done to everyone who has a 5.99% or less. I was told I could opt out of the promo rate and elimiate the $10.00 monthly charge by accepting a 7.99%. I didn’t do it as of yet.

    I have a 3.99% offer from Discover however after doing a research online about them I see they are credit card not to be trusted.

    I did some figuring and if I figured right 7.99% for about $7,688.00 would cost me over $600.00 a year in finance charges if I changed it.

    If I keep what I have, I will be paying $120.00 a year plus the higher payment of the 5% which will make me pay if off sooner.

    I want to look for offers for low apr for life of the loan. However with the economy the way it is I am afraid to trust any credit card company. I don’t understand why they are doing this especially if the received bail out money.

    I can see raising the apr as they always do that but they should honor their promo agreements and not make changes.

    What do you think or suggest I do?

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