More than eight billion credit card offers are mailed to consumers each year. Most of us get several offers for new credit cards every week. In addition, credit cards are advertised everywhere. We see advertisements on television, the Internet, at sporting events, in restaurants, and increasingly on college campuses and even in high schools. In the past, you rarely got new credit card offers if you had credit problems.
Lenders reviewed credit reports and chose not to offer credit to consumers they considered bad risks. More recently, lenders buy huge mailing lists and offer credit to everyone on the list without an individual evaluation of their credit history.
They offer credit cards to anyone with an adequate credit score, whether or not you can afford the credit or are already over-extended. Credit card offers can be very enticing. Nearly every offer promises some special benefit with a new card. In some cases, the offer is for a low rate. In others, no annual fee is promised. Still others advertise free goods or services, low minimum payments, frequent flyer miles, cash back, special member privileges, and contributions to schools or favorite charities.
The Downside to Taking On Too Much Credit
- Avoid accepting too many offers. There is rarely a good reason to carry more than one or two cards. You should be very selective about choosing cards that are best for you. Having too much credit can lead to bad decisions and unmanageable debts. Opening too many new credit card accounts can also lower your credit score.
- Look carefully at the interest rate. You should always know the interest rate on your cards and should try to keep the rate as low as possible. It is often hard to do this, because the terms are so confusing and sometimes misleading. Credit card lenders usually have several interest rates for a credit card. They also constantly change their rates.
- Beware of subprime credit cards. Instead of turning you down because of bad credit, some lenders will offer you subprime credit cards. These cards generally come with very high interest rates, other expensive fees, and low credit limits
- Fees, fees, fees. Other terms of credit may be just as important as interest rates. Credit card companies now impose a number of different fees—late payment fees, fees for exceeding a credit limit, annual fees, membership fees, cash advance fees, balance transfer fees, even fees for buying lottery tickets with a card—and keep raising these fees every year. These fees significantly increase the cost of a credit card, so that a card that appears cheaper with a low APR could end up being much more expensive.
- Look for the grace period. Most credit cards offer a “grace period” or “free ride period,” the amount of time in which you can pay off purchases without incurring finance charges (cash advances usually do not have a grace period). Without a grace period, finance charges begin accruing immediately, and a low rate may actually be higher than it looks.
Avoiding Credit Card Problems
Do not use credit cards to finance an un-affordable lifestyle. If you are constantly using your card without the ability to pay the resulting bill in full each month, consider whether you are using your cards to make an unreasonable budget plan work. No one can live forever by borrowing without a plan to pay off the resulting debts. If you get into financial trouble, do not make it worse by using credit cards to make ends meet.
Finance charges and other fees will add to your debt burden. However, using a credit card in a period of financial difficulty is preferable to taking out a home equity loan and putting your home on the line.
Do not get hooked on minimum payments. If you pay only the minimum, chances are that you will not be paying down your debt, or that you will be paying it off very slowly. For example, a $1,000 balance with an 18% annual percentage rate will take nearly 20 years to pay off if you make a minimum payment of 2% of the monthly balance. Also, lenders reserve the right to increase the minimum payment at their option. This means that you can budget for a $50 minimum payment only to find out that the new minimum payment of $100 applies.
Do not run up the balance in reliance on a temporary “teaser” interest rate. Money borrowed during a temporary rate period of 6% is likely to be paid back at a much higher permanent rate of 15% or more. If you can afford to do so consistently with your budget plan, make your credit card payments on time. Avoid late payment charges and penalty rates if you can do so without endangering your ability to keep up with higher priority debts.
Many lenders will waive a late payment charge or default rates of interest one time only. It is worth calling to ask for a waiver if you make a late payment accidentally or with a good excuse. Avoid the special services, programs, and goods which credit card lenders offer to bill to their cards.
Most of the special services such as credit card fraud protection plans, credit record protection, travel clubs, life insurance, and other similar offers are a bad deal or are overpriced. Beware of unsolicited increases by a credit card lender to your credit card limit. Some lenders increase your credit limit even when you have not asked for more credit. Do not assume that this means that the lender thinks you can afford more credit. Lenders generally increase the limit for consumers that they think will carry a bigger balance and pay more interest.
Avoid cashed check loans. Another credit offer to avoid takes the form of a check mailed to your home, usually by your credit card lender. When you cash the check, you not only accept high interest rate credit, but also get stuck with a big balance on a new account right from the start.
Bankruptcy can pave the way for a more secure retirement for debt-ridden older adults. It is natural to have many questions about the decision to file, especially when it involves factors like your social security income and retirement accounts. Call the Harris Law office today at 775-786-7600 for a free consultation, also visit our new Facebook Page for more information.